**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION        Washington, D.C. 20549**

**Form 10-Q**

[ X ] QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

OR

[__] 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**.

(Exact name of registrant as specified in its charter)

| **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)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                       Yes [ X ] No [__]         Indicate by checkmark whether the registrant isalarge accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

Large accelerated filer [_]  Accelerated filer [X]   Non-accelerated filer [_]   Smaller Reporting Company  [X]

                                                                          (Do not check if a        smaller

                                                                                        reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [__] No [ X ]

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicabledate:3,059,801shares of the Corporation’s Common Stock (no par value) were outstanding as ofJuly31, 2008.

 

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**TABLE OF CONTENTS**

|                                                                                                | Page   |
|-----------------------------------------------------------------------------------------------------|--------|
|                                                                                                | Number |
| **Part I. Financial Information (unaudited)**                                                       |   |
| Item 1. Financial Statements:                                                                       |   |
| Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007                               | 1      |
| Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007         | 2      |
| Consolidated Statements of Stockholders’ Equity and Comprehensive Income                      |   |
| for the three months ended June 30, 2008 and 2007                                                   | 3      |
| Consolidated Statements of Stockholders’ Equity and Comprehensive Income                      |   |
| for the six months ended June 30, 2008 and 2007                                                     | 4      |
| Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007               | 5      |
| Notes to Consolidated Financial Statements                                                          | 6      |
|                                                                                                |   |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10     |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk                                  | 23     |
| Item 4. Controls and Procedures                                                                     | 23     |
|                                                                                                |   |
| **Part II. Other Information**                                                                      |   |
| Item 1A. Risk Factors                                                                               | 23     |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                 | 23     |
| Item 4. Submission of Matters to a Vote of Security Holders                                         | 23     |
| Item 6. Exhibits                                                                                    | 24     |
|                                                                                                |   |
| Signatures                                                                                          | 25     |
|                                                                                                |   |

     

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**PART I - FINANCIAL INFORMATION**

**Item 1. Financial Statements**

| **FNBH BANCORP, INC. AND SUBSIDIARIES**                                              |
|--------------------------------------------------------------------------------------|
| **Consolidated Balance Sheets (Unaudited)**                                          |
|                                                                                 |   |   |   |   |   |
|                                                                                 | **June 30,** |   | **December 31,** |
| **Assets**                                                                           | **2008** |   | **2007** |
| Cash and due from banks                                                              | $ | 9,592,219 |   | $ | 13,400,674 |
| Short term investments                                                               |   | 30,362,880 |   |   | 16,509,953 |
| Total cash and cash equivalents                                                      |   | 39,955,099 |   |   | 29,910,627 |
| Certificates of deposit                                                              |   | 4,613,000 |   |   | 4,025,000 |
| Investment securities:                                                               |   |   |   |   |   |
| Investment securities held to maturity, net (fair value of                           |   |   |   |   |   |
| $15,568,938 at June 30, 2008 and $15,600,812 at

December 31, 2007)                  |   | 15,557,020 |   |   | 15,394,165 |
| Investment securities available for sale, at fair value                              |   | 9,600,696 |   |   | 14,005,338 |
| Mortgage-backed/CMO securities available for sale,

    at fair value |   | 8,674,336 |   |   | 8,237,772 |
| Preferred stock available for sale, at fair value                                    |   | 1,930,305 |   |   | - |
| FHLBI and FRB stock, at cost                                                         |   | 994,950 |   |   | 994,950 |
| Total investment securities                                                          |   | 36,757,307 |   |   | 38,632,225 |
| Loans held for investment:                                                           |   |   |   |   |   |
| Commercial                                                                           |   | 294,367,742 |   |   | 301,027,391 |
| Consumer                                                                             |   | 21,570,178 |   |   | 21,887,904 |
| Real estate mortgage                                                                 |   | 22,915,300 |   |   | 24,960,574 |
| Total loans held for investment                                                      |   | 338,853,220 |   |   | 347,875,869 |
| Less allowance for loan losses                                                       |   | (15,623,076) |   |   | (10,314,161) |
| Net loans held for investment                                                        |   | 323,230,144 |   |   | 337,561,708 |
| Premises and equipment, net                                                          |   | 8,872,575 |   |   | 9,138,784 |
| Other real estate owned, held for sale                                               |   | 1,973,743 |   |   | 1,523,079 |
| Accrued interest and other assets                                                    |   | 9,511,574 |   |   | 12,103,045 |
| Total assets                                                                         | $ | 424,913,442 |   | $ | 432,894,468 |
|                                                                                 |   |   |   |   |   |
| **Liabilities and Stockholders' Equity**                                             |   |   |   |   |   |
| **Liabilities**                                                                      |   |   |   |   |   |
| Deposits:                                                                            |   |   |   |   |   |
| Demand (non-interest bearing)                                                        | $ | 59,700,087 |   | $ | 56,505,803 |
| NOW                                                                                  |   | 32,424,058 |   |   | 35,027,009 |
| Savings and money market                                                             |   | 111,456,968 |   |   | 121,641,368 |
| Time deposits                                                                        |   | 158,811,964 |   |   | 159,357,927 |
| Brokered certificates of deposit                                                     |   | 13,942,494 |   |   | 7,046,389 |
| Total deposits                                                                       |   | 376,335,571 |   |   | 379,578,496 |
| Other borrowings                                                                     |   | 9,242,277 |   |   | 9,152,190 |
| Accrued interest, taxes, and other liabilities                                       |   | 3,357,738 |   |   | 3,536,600 |
| Total liabilities                                                                    |   | 388,935,586 |   |   | 392,267,286 |
| **Stockholders' Equity**                                                             |   |   |   |   |   |
| Common stock, no par value. Authorized 4,200,000 shares;                             |   |   |   |   |   |
| 3,059,801 shares issued and outstanding at June 30, 2008                             |   |   |   |   |   |
| and 3,045,153 shares issued and outstanding at

December 31, 2007                    |   | 6,284,950 |   |   | 6,141,835 |
| Retained earnings                                                                    |   | 29,013,613 |   |   | 33,545,396 |
| Deferred directors' compensation                                                     |   | 878,933 |   |   | 859,609 |
| Accumulated other comprehensive income (loss), net                                   |   | (199,640) |   |   | 80,342 |
| Total stockholders' equity                                                           |   | 35,977,856 |   |   | 40,627,182 |
| Total liabilities and stockholders' equity                                           | $ | 424,913,442 |   | $ | 432,894,468 |
|                                                                                 |   |   |   |   |   |
| See notes to consolidated financial statements.                                      |   |   |   |   |   |

1

----

 

| **FNBH BANCORP, INC. AND SUBSIDIARIES**                     |
|-------------------------------------------------------------|
| **Consolidated Statements of Income**(Unaudited)            |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |
|                                                        | **Three months ended June 30** |   | **Six months ended June 30** |
|                                                        | **2008** |   | **2007** |   | **2008** |   | **2007** |
| Interest and dividend income:                               |   |   |   |   |   |   |   |   |   |   |   |
| Interest and fees on loans                                  | $ | 5,628,088 |   | $ | 7,312,636 |   | $ | 11,647,272 |   | $ | 14,561,641 |
| Interest and dividends on investment

securities:           |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury, agency securities, and CMOs                  |   | 268,465 |   |   | 312,876 |   |   | 550,203 |   |   | 659,055 |
| Obligations of states and political

subdivisions           |   | 165,649 |   |   | 171,329 |   |   | 331,056 |   |   | 349,606 |
| Preferred stock                                             |   | 42,023 |   |   | - |   |   | 58,877 |   |   | - |
| Other securities                                            |   | 13,738 |   |   | 11,877 |   |   | 25,120 |   |   | 24,293 |
| Interest on certificates of deposit                         |   | 55,433 |   |   | 45,195 |   |   | 110,031 |   |   | 93,369 |
| Interest on short term investments                          |   | 71,169 |   |   | 8,262 |   |   | 217,753 |   |   | 51,710 |
| Total interest and dividend income                          |   | 6,244,565 |   |   | 7,862,175 |   |   | 12,940,312 |   |   | 15,739,674 |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense:                                           |   |   |   |   |   |   |   |   |   |   |   |
| Interest on deposits                                        |   | 1,904,954 |   |   | 2,952,852 |   |   | 4,408,829 |   |   | 5,882,333 |
| Interest on other borrowings                                |   | 109,436 |   |   | 141,084 |   |   | 217,297 |   |   | 260,707 |
| Total interest expense                                      |   | 2,014,390 |   |   | 3,093,936 |   |   | 4,626,126 |   |   | 6,143,040 |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                                         |   | 4,230,175 |   |   | 4,768,239 |   |   | 8,314,186 |   |   | 9,596,634 |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Provision for loan losses                                   |   | 8,211,000 |   |   | 6,534,666 |   |   | 8,899,900 |   |   | 7,473,666 |
| Net interest income (loss) after provision

for loan losses |   | (3,980,825) |   |   | (1,766,427) |   |   | (585,714) |   |   | 2,122,968 |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest income:                                         |   |   |   |   |   |   |   |   |   |   |   |
| Service charges and other fee income                        |   | 721,613 |   |   | 816,295 |   |   | 1,447,672 |   |   | 1,640,672 |
| Trust income                                                |   | 95,850 |   |   | 100,780 |   |   | 196,197 |   |   | 194,249 |
| Gain on sale of mortgage loans                              |   | - |   |   | 4,587 |   |   | - |   |   | 23,793 |
| Loss on available for sale securities                       |   | - |   |   | (553,407) |   |   | - |   |   | (553,407) |
| Other                                                       |   | 3,225 |   |   | 774 |   |   | 30,737 |   |   | 2,058 |
| Total noninterest income                                    |   | 820,688 |   |   | 369,029 |   |   | 1,674,606 |   |   | 1,307,365 |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Noninterest expense:                                        |   |   |   |   |   |   |   |   |   |   |   |
| Salaries and employee benefits                              |   | 1,899,627 |   |   | 1,649,548 |   |   | 3,620,753 |   |   | 3,528,109 |
| Net occupancy expense                                       |   | 265,628 |   |   | 280,372 |   |   | 622,178 |   |   | 583,724 |
| Equipment expense                                           |   | 138,129 |   |   | 133,453 |   |   | 255,388 |   |   | 241,333 |
| Professional and service fees                               |   | 631,271 |   |   | 553,160 |   |   | 1,138,550 |   |   | 1,063,749 |
| Loan collection and foreclosed property

expenses           |   | 225,883 |   |   | 21,491 |   |   | 325,075 |   |   | 70,861 |
| Computer service fees                                       |   | 129,569 |   |   | 162,977 |   |   | 259,106 |   |   | 288,285 |
| Printing and supplies                                       |   | 53,457 |   |   | 131,045 |   |   | 159,425 |   |   | 183,216 |
| Director fees                                               |   | 68,389 |   |   | 80,597 |   |   | 126,672 |   |   | 180,111 |
| Advertising                                                 |   | 58,259 |   |   | 73,693 |   |   | 114,261 |   |   | 145,621 |
| Other                                                       |   | 486,275 |   |   | 483,516 |   |   | 810,615 |   |   | 743,761 |
| Total noninterest expense                                   |   | 3,956,487 |   |   | 3,569,852 |   |   | 7,432,023 |   |   | 7,028,770 |
| Loss before federal income tax credit                       |   | (7,116,624) |   |   | (4,967,250) |   |   | (6,343,131) |   |   | (3,598,437) |
| Federal income tax credit                                   |   | (2,493,150) |   |   | (1,754,376) |   |   | (2,299,528) |   |   | (1,364,687) |
| Net loss                                                    | $ | (4,623,474) |   | $ | (3,212,874) |   | $ | (4,043,603) |   | $ | (2,233,750) |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |
| Per share statistics:                                       |   |   |   |   |   |   |   |   |   |   |   |
| Basic EPS                                                   | $ | (1.50) |   | $ | (1.05) |   |   | (1.31) |   |   | (0.73) |
| Diluted EPS                                                 | $ | (1.50) |   | $ | (1.05) |   |   | (1.31) |   |   | (0.73) |
| Dividends                                                   | $ | 0.08 |   | $ | 0.21 |   |   | 0.16 |   |   | 0.42 |
| Basic average shares outstanding                            |   | 3,080,377 |   |   | 3,068,991 |   |   | 3,078,217 |   |   | 3,076,862 |
| Diluted average shares outstanding                          |   | 3,080,377 |   |   | 3,068,991 |   |   | 3,078,217 |   |   | 3,076,862 |
|                                                        |   |   |   |   |   |   |   |   |   |   |   |
| See notes to consolidated financial statements.             |   |   |   |   |   |   |   |   |   |   |   |

2

----

 

| **FNBH BANCORP, INC. AND SUBSIDIARIES                    Consolidated Statements of Stockholders' Equity and Comprehensive Income                    For the Three Months Ended June 30, 2008 and 2007**(Unaudited) |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                |   | Common                    Stock |   |   | Retained                    Earnings |   |   | Deferred                    Directors'                    Compensation |   |   | Accumulated                    Other                    Comprehensive                    Income(Loss) |   |   | Total |
| Balances at March 31, 2007                                                                                                                                                                                          | $ | 6,050,161 |   | $ | 42,998,385 |   | $ | 742,744 |   | $ | (291,794) |   | $ | 49,499,496 |
| Earned portion of long term

    incentive plan                                                                                                                                                      |   | 8,442 |   |   |   |   |   |   |   |   |   |   |   | 8,442 |
| Issued 286 shares for employee

    stock purchase plan                                                                                                                                              |   | 6,595 |   |   |   |   |   |   |   |   |   |   |   | 6,595 |
| Issued 124 shares for current

    directors' fees                                                                                                                                                   |   | 3,009 |   |   |   |   |   |   |   |   |   |   |   | 3,009 |
| Issued 1,141 shares for variable

    directors' fees                                                                                                                                                |   | 30,020 |   |   |   |   |   |   |   |   |   |   |   | 30,020 |
| Directors' deferred compensation

    (2,768 stock units)                                                                                                                                            |   |   |   |   |   |   |   | 70,216 |   |   |   |   |   | 70,216 |
| Comprehensive income (loss):                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                                                            |   |   |   |   | (3,212,874) |   |   |   |   |   |   |   |   | (3,212,874) |
| Change in unrealized loss on                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| investment securities available

for sale, net of tax effect                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   | (135,865) |   |   | (135,865) |
| Less reclassification adjustment                                                                                                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| for realized securities

net losses included in net loss,

net of tax effect                                                                                                                                        |   |   |   |   |   |   |   |   |   |   | 365,249 |   |   | 365,249 |
| Total comprehensive loss                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   | (2,983,490) |
| Cash dividends ($.21 per share)                                                                                                                                                                                     |   |   |   |   | (638,553) |   |   |   |   |   |   |   |   | (638,553) |
| Balances at June 30, 2007                                                                                                                                                                                           | $ | 6,098,227 |   | $ | 39,146,958 |   | $ | 812,960 |   | $ | (62,410) |   | $ | 45,995,735 |
|                                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances at March 31, 2008                                                                                                                                                                                          | $ | 6,178,317 |   | $ | 33,881,598 |   | $ | 859,795 |   | $ | 213,425 |   | $ | 41,133,135 |
| Earned portion of long term

incentive plan                                                                                                                                                                         |   | 98,727 |   |   |   |   |   |   |   |   |   |   |   | 98,727 |
| Issued 278 shares for employee

stock purchase plan                                                                                                                                                                 |   | 2,908 |   |   |   |   |   |   |   |   |   |   |   | 2,908 |
| Issued 454 shares for current

directors' fees                                                                                                                                                                      |   | 4,998 |   |   |   |   |   |   |   |   |   |   |   | 4,998 |
| Directors' deferred compensation (1,738 stock units)                                                                                                                                                                |   |   |   |   |   |   |   | 19,138 |   |   |   |   |   | 19,138 |
| Comprehensive income (loss):                                                                                                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                                                                                                                                            |   |   |   |   | (4,623,474) |   |   |   |   |   |   |   |   | (4,623,474) |
| Change in unrealized gain (loss)

on investment securities available

for sale, net of tax effect                                                                                                                   |   |   |   |   |   |   |   |   |   |   |                      
(413,065) |   |   |                      
(413,065) |
| Total comprehensive loss                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   | (5,036,539) |
| Cash dividends ($.08 per share)                                                                                                                                                                                     |   |   |   |   | (244,511) |   |   |   |   |   |   |   |   | (244,511) |
| Balances at June 30, 2008                                                                                                                                                                                           | $ | 6,284,950 |   | $ | 29,013,613 |   | $ | 878,933 |   | $ | (199,640) |   | $ | 35,977,856 |

See notes to consolidated financial statements.

3

 

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| **FNBH BANCORP, INC. AND SUBSIDIARIES**                                      |
|------------------------------------------------------------------------------|
| **Consolidated Statements of Stockholders' Equity and Comprehensive Income** |
| **For the Six Months Ended June 30, 2008 and 2007**(Unaudited)               |
|                                                                         |   |   |   |   |   |
|                                                                         | Common                    Stock | Retained                    Earnings | Deferred                    Directors'                    Compensation | Accumulated                    Other                    Comprehensive                    Income (Loss) | Total |
| Balances at December 31, 2006                                                | $     6,005,835 | $  43,625,997 | $       725,186 | $        (364,544) | $    49,992,474 |
| Earned portion of long term incentive plan                                   | 103,476 |   |   |   | 103,476 |
| Issued 699 shares for employee stock purchase plan                           | 16,966 |   |   |   | 16,966 |
| Issued 199 shares for current directors' fees                                | 4,991 |   |   |   | 4,991 |
| Issued 1,141 shares for variable directors fees                              | 30,020 |   |   |   | 30,020 |
| Issued 685 shares for deferred directors' fees                               | 14,549 |   | (14,549) |   | - |
| Directors' deferred compensation (3,298 stock units)                         |   |   | 102,323 |   | 102,323 |
| Comprehensive income (loss):                                                 |   |   |   |   |   |
| Net loss                                                                     |   | (2,233,750) |   |   | (2,233,750) |
| Change in unrealized loss on investment                                      |   |   |   |   |   |
| securities available for sale, net of

tax effect                            |   |   |   | (63,115) | (63,115) |
| Less reclassification adjustment for                                         |   |   |   |   |   |
| realized securities net losses included in

net loss, netof tax effect       |   |   |   | 365,249 | 365,249 |
| Total comprehensive loss                                                     |   |   |   |   | (1,931,616) |
| Repurchase of common stock (39,000 shares)                                   | (77,610) | (960,995) |   |   | (1,038,605) |
| Cash dividends ($.42 per share)                                              |   | (1,284,294) |   |   | (1,284,294) |
| Balances at June 30, 2007                                                    | $     6,098,227 | $  39,146,958 | $       812,960 | $           (62,410) | $    45,995,735 |
|                                                                         |   |   |   |   |   |
| Balances at December 31, 2007                                                | $     6,141,835 | $  33,545,396 | $       859,609 | $              80,342 | $    40,627,182 |
| Earned portion of long term incentive plan                                   | 112,405 |   |   |   | 112,405 |
| Issued 536 shares for employee stock purchase plan                           | 6,105 |   |   |   | 6,105 |
| Issued 799 shares for current directors' fees                                | 9,497 |   |   |   | 9,497 |
| Issued 712 shares for deferred directors' fees                               | 15,108 |   | (15,108) |   | - |
| Directors' deferred compensation (2,911 stock units)                         |   |   | 34,432 |   | 34,432 |
| Comprehensive income (loss):                                                 |   |   |   |   |   |
| Net loss                                                                     |   | (4,043,603) |   |   | (4,043,603) |
| Change in unrealized gain (loss) on                                          |   |   |   |   |   |
| investment securities available for sale,

net of tax effect                 |   |   |   | (279,982) | (279,982) |
| Total comprehensive loss                                                     |   |   |   |   | (4,323,585) |
| Cash dividends ($.16 per share)                                              |   | (488,180) |   |   | (488,180) |
| Balances at June 30, 2008                                                    | $     6,284,950 | $  29,013,613 | $        878,933 | $          (199,640) | $    35,977,856 |
|                                                                         |   |   |   |   |   |
| See notes to consolidated financial statements.                              |   |   |

4

----

 

| **FNBH BANCORP, INC. AND SUBSIDIARIES                    Consolidated Statements of Cash Flows**(Unaudited) |
|-------------------------------------------------------------------------------------------------------------|
|                                                                                                        | **Six months ended June 30** |
|                                                                                                        | **2008** |   | **2007** |
| Cash flows from operating activities:                                                                       |   |   |   |   |   |
| Net loss                                                                                                    | $ | (4,043,603) |   | $ | (2,233,750) |
| Adjustments to reconcile net loss to net cash provided by                                                   |   |   |   |   |   |
| operating activities:                                                                                       |   |   |   |   |   |
| Provision for loan losses                                                                                   |   | 8,899,900 |   |   | 7,473,666 |
| Depreciation and amortization                                                                               |   | 469,455 |   |   | 448,971 |
| Deferred income tax expense (benefit)                                                                       |   | 18,620 |   |   | (1,383,254) |
| Net amortization on investment securities                                                                   |   | 10,439 |   |   | 4,889 |
| Earned portion of long term incentive plan                                                                  |   | 112,405 |   |   | 103,476 |
| Shares issued for current and variable directors' compensation                                              |   | 9,497 |   |   | 35,011 |
| Shares earned for deferred directors' compensation                                                          |   | 34,432 |   |   | 102,323 |
| (Gain) loss on disposal of equipment                                                                        |   | (4,686) |   |   | 18,596 |
| Loss on available for sale securites                                                                        |   | - |   |   | 553,407 |
| Gain on sale of loans originated for sale                                                                   |   | - |   |   | (23,793) |
| Proceeds from sale of loans originated for sale                                                             |   | - |   |   | 1,762,773 |
| Origination of loans held for sale                                                                          |   | - |   |   | (1,741,880) |
| Loss on the sale of other real estate owned, held for sale                                                  |   | 82,491 |   |   | 80,498 |
| Decrease (increase) in accrued interest income and other assets                                             |   | 2,595,946 |   |   | (740,785) |
| Decrease in accrued interest, taxes, and other liabilities                                                  |   | (249,862) |   |   | (1,413,331) |
| Net cash provided by operating activities                                                                   |   | 7,935,034 |   |   | 3,046,817 |
| Cash flows from investing activities:                                                                       |   |   |   |   |   |
| Purchases of available for sale securities                                                                  |   | (4,603,359) |   |   | - |
| Purchases of held to maturity securities                                                                    |   | (1,574,840) |   |   | (351,428) |
| Proceeds from maturities and calls of available for sale securities                                         |   | 5,890,000 |   |   | 7,532,844 |
| Proceeds from mortgage-backed securities paydowns-available

   for sale                          |   | 328,463 |   |   | 825,626 |
| Proceeds from maturities and calls of held to maturity securities                                           |   | 1,400,000 |   |   | 1,345,000 |
| Purchases of certificates of deposit                                                                        |   | (1,373,000) |   |   | (983,000) |
| Maturity of certificates of deposit                                                                         |   | 785,000 |   |   | 1,963,000 |
| Net decrease (increase) in loans                                                                            |   | 4,451,191 |   |   | (452,497) |
| Proceeds from sale of other real estate owned, held for sale                                                |   | 518,318 |   |   | 1,583,752 |
| Capital expenditures                                                                                        |   | (92,422) |   |   | (894,682) |
| Proceeds from the sale of equipment                                                                         |   | 15,000 |   |   | - |
| Net cash provided by investing activities                                                                   |   | 5,744,351 |   |   | 10,568,615 |
| Cash flows from financing activities:                                                                       |   |   |   |   |   |
| Net decrease in deposits                                                                                    |   | (3,242,925) |   |   | (13,294,882) |
| Payments on FHLBI note                                                                                      |   | (354,913) |   |   | (328,623) |
| Proceeds from issuance of short term debt                                                                   |   | 445,000 |   |   | 29,654,028 |
| Repayment of short term debt                                                                                |   | - |   |   | (35,500,000) |
| Repurchase of common stock                                                                                  |   | - |   |   | (1,038,605) |
| Dividends paid                                                                                              |   | (488,180) |   |   | (1,284,294) |
| Shares issued for employee stock purchase plan                                                              |   | 6,105 |   |   | 16,966 |
| Net cash used in financing activities                                                                       |   | (3,634,913) |   |   | (21,775,410) |
| Net increase (decrease) in cash and cash equivalents                                                        |   | 10,044,472 |   |   | (8,159,978) |
| Cash and cash equivalents at beginning of year                                                              |   | 29,910,627 |   |   | 19,121,487 |
| Cash and cash equivalents at end of period                                                                  |   | $39,955,099 |   |   | $10,961,509 |
| Supplemental disclosures:                                                                                   |   |   |   |   |   |
| Interest paid                                                                                               |   | $5,137,140 |   |   | $5,972,077 |
| Net federal income taxes (refunded) paid                                                                    |   | (559,000) |   |   | 1,672,230 |
| Loans, net of reserves, transferred to held for sale                                                        |   | - |   |   | 16,642,067 |
| Loans transferred to other real estate                                                                      |   | 1,051,473 |   |   | 868,008 |
| Loans charged off                                                                                           |   | 3,742,819 |   |   | 7,482,973 |
|                                                                                                        |   |   |   |   |   |
| See notes to consolidated financial statements.                                                             |   |   |   |   |   |

5

----

 

**Notes to Consolidated Financial Statements**(unaudited)

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes        required by GAAP for complete financial statements.         

1. In the opinion of management ofFNBH Bancorp, Inc. (theCorporation), the unaudited consolidated financial statements filed with this Form 10-Q contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position of        theCorporationas ofJune 30, 2008and consolidated results of operationsand cash flowsfor thesixmonthsendedJune        30, 2008and 2007.

2. The results of operations forthesixmonthsendedJune 30, 2008are not necessarily indicative of the results to be expected for the        full year.

3. The accompanying unaudited consolidated financial statements should be read in conjunction with the Consolidated Financial Statements in the2007Annual Report contained in theCorporation’s report on Form 10-K filing.                 4.The provision for income taxes represents federal income tax expensecalculated usingestimatedannualizedrates on taxable incomeor lossgenerated during the respective periods.

 

5. Investment and Mortgage-Backed/CMO Securities. A summary of the amortized cost and approximate fair value of investment and mortgage-backed/CMOsecurities atJune 30, 2008and December 31, 2007follows:

|                                                                                     | **June 30, 2008**                     |       | **December 31, 2007**                                            |
|------------------------------------------------------------------------------------------|---------------------------------------|------------|------------------------------------------------------------------|
|                                                                                     | **Amortized                    cost** |       | **Unrealized                    gross                    gains** |   | **Unrealized                    gross                    losses** |   | **Fair                    Value** |   | **Amortized                    cost** |   | **Unrealized                    gross                    gains** |   | **Unrealized                    gross                    losses** |   | **Fair                    Value** |
| Held to maturity:                                                                        |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Obligations of state and                                                                 |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| political subdivisions                                                                   | $                                     | 15,557,020 |                                                             | $ | 161,996 |   | $ | (150,078) |   | $ | 15,568,938 |   | $ | 15,394,165 |   | $ | 238,510 |   | $ | (31,863) |   | $ | 15,600,812 |
|     Total held to

    maturity                            |                                  | 15,557,020 |                                                             |   | 161,996 |   |   | (150,078) |   |   | 15,568,938 |   |   | 15,394,165 |   |   | 238,510 |   |   | (31,863) |   |   | 15,600,812 |
|                                                                                     |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale:                                                                      |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S Treasury and agency                                                                  |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| securities                                                                               |                                  | 9,498,750  |                                                             |   | 142,501 |   |   | (40,555) |   |   | 9,600,696 |   |   | 13,889,560 |   |   | 134,767 |   |   | (18,989) |   |   | 14,005,338 |
| Mortgage-backed/CMO                                                                      |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| securities                                                                               |                                  | 9,062,574  |                                                             |   | 57,813 |   |   | (446,051) |   |   | 8,674,336 |   |   | 8,231,820 |   |   | 35,748 |   |   | (29,796) |   |   | 8,237,772 |
| Preferred stock securities(1)                                                            |                                  | 1,946,497  |                                                             |   | 1,503 |   |   | (17,695) |   |   | 1,930,305 |   |   | - |   |   | - |   |   | - |   |   | - |
|     Total

    available

    for sale |                                  | 20,507,821 |                                                             |   | 201,817 |   |   | (504,301) |   |   | 20,205,337 |   |   | 22,121,380 |   |   | 170,515 |   |   | (48,785) |   |   | 22,243,110 |
|                                                                                     |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total securities                                                                         | $                                     | 36,064,841 |                                                             | $ | 363,813 |   | $ | (654,379) |   | $ | 35,774,275 |   | $ | 37,515,545 |   | $ | 409,025 |   | $ | (80,648) |   | $ | 37,843,922 |
|                                                                                     |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                     |                                  |       |                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

(1)Represents preferred stock issued by Freddie Mac and Fannie Mae.

There were no securities in a continuous loss position for 12 months or more atJune 30, 2008.As of December 31, 2007, there werethree agency securities and seven municipal securities in a continuous loss position for 12 months or more and no        other-than-temporary impairment was recorded.In June 2007 the Corporation did record an impairment allowance on available for sale securities with a maturity date later than June 30, 2008 due to a change in management’s intent to hold these securities until maturity. An impairment charge of $181,160 was recorded on six agency securities and an impairment charge of $372,246 was recorded on 24 mortgage-backed securities for a total impairment        charge of $553,407, which is reflected as “Loss on available for sale securities” in the accompanying consolidated statements of income for the three and six months ended June 30, 2007. These securities were all sold in the third quarter of 2007 and reinvested in higher yielding securities ofasimilar nature.

 

6

 

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The following is a summary of the unrealized losses and fair value ofthesecuritiesavailable for sale portfolioatJune 30, 2008by length        of time that individual securities in each category have been in a continuous loss position:

 

|                                | **Less than 12 months**                                       |      | **12 months or more**         |   | **Total**                                                     |
|-------------------------------------|---------------------------------------------------------------|-----------|-------------------------------|--------|---------------------------------------------------------------|
|                                | Unrealized                    gross                    losses |      | Fair                    value |   | Unrealized                    gross                    losses |   | Fair                    value |   | Unrealized                    gross                    losses |   | Fair                    value |
| Held to maturity:                   |                                                          |      |                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Obligations of state and            |                                                          |      |                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| political subdivisions              | $                                                             | (150,078) |                          | $      | 5,732,618                                                     |   | $ | - |   | $ | - |   | $ | (150,078) |   | $ | 5,732,618 |
|                                |                                                          |      |                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Available for sale:                 |                                                          |      |                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. Treasury and agency securities | $                                                             | (40,555)  |                          | $      | 1,458,195                                                     |   | $ | - |   | $ | - |   | $ | (40,555) |   | $ | 1,458,195 |
| Mortgage-backed/CMO                 |                                                          |      |                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| securities                          |                                                          | (446,051) |                          |   | 4,941,168                                                     |   |   | - |   |   | - |   |   | (446,051) |   |   | 4,941,168 |
| Preferred stock securities          |                                                          | (17,695)  |                          |   | 1,196,701                                                     |   |   | - |   |   | - |   |   | (17,695) |   |   | 1,196,701 |
|                                |                                                          |      |                          |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Total available for sale            | $                                                             | (504,301) |                          | $      | 7,596,064                                                     |   | $ | - |   | $ | - |   | $ | (504,301) |   | $ | 7,596,064 |
|                                     |                                                               |           |                               |        |                                                               |  |  |  |  |  |  |  |  |  |  |  |  |

Subsequent to June 30, 2008, the market value of the Corporation’s preferred stock securities declined resulting in an unrealized loss of approximately $500,000 as of July 31, 2008.During the third quarter, management will determine whether this represents an other than temporary impairment.

6. Management’s assessment of the allowance for loan losses is based on an evaluation of the loan portfolio, recent loss experience, current economic conditions, and other pertinent factors. Loans on non-accrual status and those past due more than 90 days amounted to$28,138,000atJune 30,2008,$14,573,000 atDecember31, 2007,and$16,605,000atJune 30, 2007. (See Management’s Discussion and        Analysis of FinancialCondition andResults of Operations).

7. Effective January 1, 2008, the Corporationimplemented Statement of Financial Accounting Standards No. 157,*Fair Value Measurements**,*relating to its financial assets and liabilities.StatementNo. 157 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:         

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.                 Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means.                 Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. 

 

7

----

 

The following is a description of the Corporation’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:

 

*Securities available for sale*. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models. Level 1 securities includeU.S.government and agency securities andother U.S. government and agency mortgage-backed securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include private collateralized mortgage obligations, municipal bonds andpreferred stocksecurities. The Corporation        has no Level 3 securities.

*Securities held to maturity*. Securities held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. The fair value of held to maturity securities, as disclosed in the accompanying consolidated financial statements, is based on quoted prices, if        available. If quoted prices are not available, fair values are measured using independent pricing models.

*Loans*. The Corporation does not record loans at fair value on a recurring basis. However, from time to time, the Corporation records nonrecurring fair value adjustments to collateral dependent loans to reflect partial write-downs that are based on the observable market price or current appraised value of the        collateral. These loans are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery or charge-off.When the fair value of the collateral is based on an observable market price or a current appraised value, the Corporation records the impaired loanas nonrecurring Level 2. Whenacurrentappraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Corporation records the impaired loan as nonrecurring Level 3.At time of foreclosure, foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed        assets, establishing a new cost basis. At that time, they are reported in the Corporation’s fair value disclosures related to nonfinancial assets.

*Mortgage servicing rights (MSRs)*.MSRs are carried at the lower of cost or fair value, and therefore can be subject to the fair value measurements on a nonrecurring basis. MSRs do not trade in an active marketwith readily observable prices.        Accordingly, the Corporation determines the fair values of MSRs using a valuation model that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, cost to service, escrow account earnings, contractual servicing fee income, ancillary income and late fees. Fair value measurements of the Corporation’s MSRs        use significant unobservable inputs and, accordingly, are classified as Level 3. MSRs are reported in the nonrecurring table below at initial recognition of impairment and on an ongoing basis until recovery.

*Assets and Liabilities Measured at Fair Value on a Recurring Basis*

The balances of assets and liabilities measured at fair value on a recurring basis as ofJune 30, 2008are asfollows:

 

|                          | Total       |   | Quoted Prices in Active Markets for Identical Assets

(Level 1) |   | Significant Other Observable Inputs

(Level 2) |   | Significant Unobservable Inputs                    (Level 3) |
|-------------------------------|-------------|--------|-----------------------------------------------------------------|--------|------------------------------------------------|--------|--------------------------------------------------------------|
| Securities available for sale | $20,205,337 |   | $ 14,434,308                                                    |   | $5,771,029                                     |   | $      -                            |

 

8

----

 

*Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis*

The balances of assets and liabilities measured at fair value on a nonrecurring basis as ofJune 30, 2008are as follows:

 

|              | Total       | Quoted Prices in                    Active                    Markets for                    Identical                    Assets                    (Level 1) | Significant                    Other                    Observable                    Inputs                    (Level 2) | Significant Unobservable

Inputs                    (Level 3) | Total Gains (Losses) Three Months Ended                    June 30, 2008 | Total Gains (Losses) Six Months Ended                    June 30, 2008 |
|-------------------|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------|--------------------------------------------------------------------------|------------------------------------------------------------------------|
| Impaired loans(1) | $23,716,000 | $     -                                                                                                                                   | $10,283,000                                                                                                               | $13,433,000                                                   | $(6,869,000)(2)                                                          | $(6,697,000)(2)                                                        |

 

|  | (1)      | Represents carrying value and related write-downspertaining to collateral dependent loansfor which adjustments are based on the appraised value of the collateralor by other unobservable inputs. |
|--|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2)      | Represents changes in specific reserves on impaired loans net of chargeoffswhichimpacts the allowance for loan losses. |
|--|-----------------------------------|------------------------------------------------------------------------------------------------------------------------|

*Nonfinancial Assets and Liabilities Subject to FSP FAS 157-b Deferral Provisions*

The Corporation will apply the fair value measurement and disclosure provisions of SFAS No. 157 effectiveJanuary 1, 2009 to nonfinancial assets and liabilities measured on a nonrecurring basis. The Corporation measures the fair value of the following on a nonrecurring basis: (1) long-lived        assetsand(2) foreclosed assets.

8.Basicearningsper shareiscomputed by dividing net income by the weighted average number of shares of common stock and deferred director fee stock units outstanding during        the period, exclusive of unvested restricted shares.Dilutedearningsper share is computed by dividing net income by the weighted average number ofcommonshares and deferred director fee stock units outstandingand potential common stock outstandingduring the period, plus the effect of common stock equivalents (e.g.,unvested restricted shares) that are dilutive,calculated under the treasury stock method.

The following tablepresents basic and diluted earningsper share:

 

|                                                        | **Second Quarter**                                            |        | **Year-to-Date**                                              |
|--------------------------------------------------------|---------------------------------------------------------------|--------|---------------------------------------------------------------|
|                                                   | **2008**                                                      |   | **2007**                                                      |   | **2008** |   | **2007** |
| Weighted average basic shares outstanding              | 3,080,377                                                     |   | 3,068,991                                                     |   | 3,078,217 |   | 3,076,862 |
| Effect of dilutive restricted stock                    | -                                                             |   | -                                                             |   | - |   | - |
| Weighted average diluted shares outstanding            | 3,080,377                                                     |   | 3,068,991                                                     |   | 3,078,217 |   | 3,076,862 |
|                                                   |                                                          |   |                                                          |   |   |   |   |
| Net loss                                               | $(4,623,474)                                                  |   | $(3,212,874)                                                  |   | $(4,043,603) |   | $(2,233,750) |
| Basic net loss per share                               | $         (1.50) |   | $         (1.05) |   | $         (1.31) |   | $         (0.73) |
| Diluted net loss per share                             | $         (1.50) |   | $         (1.05) |   | $         (1.31) |   | $         (0.73) |
|                                                   |                                                          |   |                                                          |   |   |   |   |
| Anti-dilutive shares excluded from diluted calculation | 9,711                                                         |   | 7,278                                                         |   | 9,711 |   | 7,278 |

9

----

 

 

9.Under the Long-Term Incentive Plan (the “Plan”), the Corporation grants stock options and restricted stock as compensation to key employees. The Corporation has not awarded any stock options under thePlan to date. The restricted stock awardsgenerallyhave a five-year vesting period. The awards are recorded at fair market value onthegrant date and are amortized into salary expense over the vesting period. The number of shares available for issuance under the Plan cannot exceed 200,000.

A summary of the activity under the Plan for thesixmonths endedJune 30, 2008and 2007is presented below:

 

|                        | **2008**   |   | **2007**                                   |
|-----------------------------|------------|--------|--------------------------------------------|
| **Restricted Stock Awards** | **Shares** |   | **Weighted-Average Grant Date Fair Value** |   | **Shares** |   | **Weighted-Average Grant Date Fair Value** |
| Outstanding at January 1,   | 5,107      |   | $ 26.32                                    |   | 4,100 |   | $ 26.93 |
| Granted                     | 14,026     |   | 12.64                                      |   | 7,353 |   | 25.95 |
| Vested                      | (7,997)    |   | 13.89                                      |   | (3,916) |   | 26.43 |
| Forfeited                   | (1,425)    |   | 16.09                                      |   | (259) |   | 26.84 |
| Outstanding at June 30,     | 9,711      |   | $ 18.29                                    |   | 7,278 |   | $ 26.21 |

The total fair value of awards granted during the three months endedJune 30, 2008and 2007 was $43,697and $107,531respectively.The total fair value of awards granted during        the six months ended June 30, 2008 and 2007 was $177,233 and $83,243, respectively.The total fair value of the awards vested during the three months endedJune 30, 2008and 2007 was $97,394and $8,442, respectively.The total fair value of the awards vested during the six months ended June 30, 2008 and        2007 was $111,109 and $95,031, respectively.As ofJune 30, 2008,there was$177,623of total unrecognized compensation cost related to nonvested stock awards under the Plan. That cost is expected to be recognized over a weighted-average period of3.9years.

**I****tem 2.****Management’s Discussion and Analysis****of Financial Condition and Results of Operations**

This report includes certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include the economic environment,        competition, products and pricing in business areas in whichthe Corporationoperates, prevailing interest rates, changes in government regulations and policies affecting financial service companies, credit quality and credit risk management, acquisitions and integration of acquired businesses.                 TheCorporation, a Michigan business corporation, is a one bank holding companywhich owns all of the outstanding capital stock of First National Bank in Howell (the Bank)and all of the outstanding stock of HB Realty Co., a subsidiary.The following is a discussion of theCorporation’s results of        operations for thethreeand sixmonthsendedJune 30, 2008and 2007, and also provides information relating to theCorporation’s financial condition, focusing on its liquidity and capital resources.

 

| **Earnings**                         | **Second Quarter**   |   | **Year-to-Date**     |
|--------------------------------------|----------------------|--------|----------------------|
| (in thousands except per share data) | **2008**             |   | **2007**             |   | **2008** |   | **2007** |
| Net loss                             | $ (4,623)            |   | $ (3,213)            |   | $ (4,044) |   | $ (2,234) |
| Basic and diluted net loss per share | $   (1.50) |   | $   (1.05) |   | $   (1.31) |   | $   (0.73) |

Netlossfor the three months endedJune 30, 2008as compared to the same period last year,wasnegativelyaffectedbylower interest incomeon loans due to lower average balances and lower yields, higher loan loss provisionand higher noninterest expense.These unfavorable variances were partially offset by lower interest expense due to lower average balances and lower        rates.

10

----

 

Netlossfor the three months endedJune 30, 2008increased$1,410,000 (43.9%) compared to the same period last year. In thesecondquarter of 2008, net interest income decreased $538,000 (11.3%),provision for loan losses increased $1,676,000 (25.7%),andnoninterest expense increased $387,000 (10.8%). Partially offsetting these unfavorable variances was an increase in noninterest income of $452,000 (122.5%) and an increase in the federal income tax creditof$739,000 (42.1%).

Net loss for the six months ended June 30, 2008increased $1,810,000(81.0%) compared to the same period last year. Net interest income decreased $1,282,000 (13.4%), the provision for loan losses increased $1,426,000 (19.1%) andnoninterest        expensesincreased$403,000 (5.7%).Offsetting these unfavorable occurrences was an increase in noninterest income of $367,000 (28.1%)and an increase in federal income taxcreditof $935,000 (68.5%).

 

| **Net Interest Income**      | **Second Quarter** |   | **Year-to-Date** |
|------------------------------|--------------------|--------|------------------|
| (in thousands)               | **2008**           |   | **2007**         |   | **2008** |   | **2007** |
| Interest and dividend income | $  6,244      |   | $  7,862    |   | $12,940 |   | $15,740 |
| Interest expense             | 2,014              |   | 3,094            |   | 4,626 |   | 6,143 |
| Net interest income          | $  4,230      |   | $  4,768    |   | $  8,314 |   | $  9,597 |

11

----

 

The following tablesillustratesome of the significant factors contributing to thechangesin net interest income(fully tax equivalent basis)for thethreeand sixmonths endedJune 30:

| **INTEREST YIELDS AND COSTS (in thousands)**          |
|-------------------------------------------------------|
| **June 30, 2008 and 2007**                            |
|                                                  | **----------Second Quarter ----------** |
|                                                  | **2008** |   | **2007** |
|                                                  | **Average                    Balance** |   | **Interest** |   | **Rate** |   | **Average                    Balance** |   | **Interest** |   | **Rate** |
| **Assets:**                                           |   |   |   |   |   |   |   |   |   |   |   |
| *Interest earning assets:*                            |   |   |   |   |   |   |   |   |   |   |   |
| Short term investments                                | $    14,194 |   | $       70.9 |   | 1.98% |   | $          575 |   | $         7.6 |   | 5.21% |
| Certificates of deposit                               | 4,602 |   | 55.4 |   | 4.83% |   | 3,896 |   | 45.2 |   | 4.65% |
| Securities: Taxable                                   | 21,380 |   | 324.2 |   | 6.07% |   | 32,147 |   | 324.8 |   | 4.04% |
| Tax-exempt(1)                                         | 15,830 |   | 234.7 |   | 5.93% |   | 16,142 |   | 236.6 |   | 5.86% |
| Commercial loans(2)(3)                                | 299,288 |   | 4,875.1 |   | 6.44% |   | 334,184 |   | 6,337.6 |   | 7.50% |
| Consumer loans(2)(3)                                  | 21,181 |   | 395.3 |   | 7.51% |   | 25,279 |   | 559.1 |   | 8.87% |
| Mortgage loans(2)(3)                                  | 23,598 |   | 379.1 |   | 6.43% |   | 26,915 |   | 440.8 |   | 6.55% |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total earning assets and total interest income        | 400,073 |   | 6,334.7 |   | 6.28% |   | 439,138 |   | 7,951.7 |   | 7.18% |
| Cash and due from banks                               | 7,759 |   |   |   |   |   | 8,246 |   |   |   |   |
| All other assets                                      | 19,186 |   |   |   |   |   | 18,217 |   |   |   |   |
| Allowance for loan losses                             | (10,428) |   |   |   |   |   | (8,297) |   |   |   |   |
| Total Assets                                          | $  416,590 |   |   |   |   |   | $  457,304 |   |   |   |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities and Stockholders' Equity:**             |   |   |   |   |   |   |   |   |   |   |   |
| *Interest bearing liabilities:*                       |   |   |   |   |   |   |   |   |   |   |   |
| NOW, savings & MMDA                               | $  144,056 |   | 405.2 |   | 1.13% |   | $  139,762 |   | 602.9 |   | 1.73% |
| Time                                                  | 162,906 |   | 1,499.8 |   | 3.70% |   | 193,595 |   | 2,350.0 |   | 4.87% |
| Short term borrowings                                 | 332 |   | 4.1 |   | 4.94% |   | 8,708 |   | 119.6 |   | 5.43% |
| FHLBI advances                                        | 8,797 |   | 105.3 |   | 4.73% |   | 1,152 |   | 21.5 |   | 7.37% |
| Total interest bearing

liabilities and               |   |   |   |   |   |   |   |   |   |   |   |
|       Total interest expense | 316,091 |   | 2,014.4 |   | 2.56% |   | 343,217 |   | 3,094.0 |   | 3.61% |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing deposits                         | 56,282 |   |   |   |   |   | 60,816 |   |   |   |   |
| All other liabilities                                 | 2,875 |   |   |   |   |   | 3,521 |   |   |   |   |
| Stockholders' Equity                                  | 41,342 |   |   |   |   |   | 49,750 |   |   |   |   |
| Total Liabilities and

Shareholders' Equity           | $  416,590 |   |   |   |   |   | $  457,304 |   |   |   |   |
| Interest spread                                       |   |   |   |   | 3.72% |   |   |   |   |   | 3.57% |
| Net interest income-FTE                               |   |   | $  4,320.3 |   |   |   |   |   | $   4,857.7 |   |   |
| Net interest margin                                   |   |   |   |   | 4.26% |   |   |   |   |   | 4.36% |

|  | (1)      | Average yieldsin 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 feestotaling $61,000in 2008and $109,000in 2007. |
|--|-----------------------------------|----------------------------------------------------------------------------------------|

12

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| **INTEREST YIELDS AND COSTS (in thousands)**          |
|-------------------------------------------------------|
| **June 30, 2008 and 2007**                            |
|                                                  | **----------Year-to-Date----------** |
|                                                  | **2008** |   | **2007** |
|                                                  | **Average                    Balance** |   | **Interest** |   | **Rate** |   | **Average                    Balance** |   | **Interest** |   | **Rate** |
| **Assets:**                                           |   |   |   |   |   |   |   |   |   |   |   |
| *Interest earning assets:*                            |   |   |   |   |   |   |   |   |   |   |   |
| Short term investments                                | $    16,081 |   | $     216.9 |   | 2.67% |   | $       1,647 |   | $       45.0 |   | 5.43% |
| Certificates of deposit                               | 4,518 |   | 110.0 |   | 4.88% |   | 4,086 |   | 93.4 |   | 4.61% |
| Securities: Taxable                                   | 21,514 |   | 634.2 |   | 5.90% |   | 34,407 |   | 683.3 |   | 3.97% |
| Tax-exempt(1)                                         | 15,762 |   | 464.9 |   | 5.90% |   | 16,412 |   | 483.8 |   | 5.90% |
| Commercial loans(2)(3)                                | 299,993 |   | 10,038.6 |   | 6.62% |   | 333,435 |   | 12,609.1 |   | 7.52% |
| Consumer loans(2)(3)                                  | 21,238 |   | 844.6 |   | 8.00% |   | 25,933 |   | 1,130.0 |   | 8.79% |
| Mortgage loans(2)(3)                                  | 24,055 |   | 807.9 |   | 6.72% |   | 27,413 |   | 879.0 |   | 6.41% |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total earning assets and total interest income        | 403,161 |   | 13,117.1 |  | 6.45% |  | 443,333 |  | 15,923.6 |   | 7.16% |
| Cash and due from banks                               | 7,927 |   |   |   |   |   | 8,969 |   |   |   |   |
| All other assets                                      | 21,011 |   |   |   |   |   | 18,397 |   |   |   |   |
| Allowance for loan losses                             | (10,446) |   |   |   |   |   | (8,055) |   |   |   |   |
| Total Assets                                          | $  421,653 |   |   |   |   |   | $  462,644 |   |   |   |   |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities and Stockholders' Equity:**             |   |   |   |   |   |   |   |   |   |   |   |
| *Interest bearing liabilities:*                       |   |   |   |   |   |   |   |   |   |   |   |
| NOW, savings & MMDA                               | $  148,725 |   | 1,042.7 |   | 1.41% |   | $   143,208 |   | 1,169.3 |   | 1.65% |
| Time                                                  | 164,615 |   | 3,366.1 |   | 4.11% |   | 196,166 |   | 4,713.0 |   | 4.84% |
| Short term borrowings                                 | 218 |   | 5.7 |   | 5.20% |   | 7,978 |   | 217.5 |   | 5.42% |
| FHLBI advances                                        | 8,826 |   | 211.6 |   | 4.74% |   | 1,181 |   | 43.2 |   | 7.28% |
| Total interest bearing

liabilities and               |   |   |   |   |   |   |   |   |   |   |   |
|       Total interest expense | 322,384 |   | 4,626.1 |   | 2.88% |   | 348,533 |   | 6,143.0 |   | 3.55% |
|                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing deposits                         | 54,923 |   |   |   |   |   | 60,320 |   |   |   |   |
| All other liabilities                                 | 3,094 |   |   |   |   |   | 4,026 |   |   |   |   |
| Stockholders' Equity                                  | 41,252 |   |   |   |   |   | 49,765 |   |   |   |   |
| Total Liabilities and

Shareholders' Equity           | $  421,653 |   |   |   |   |   | $   462,644 |   |   |   |   |
| Interest spread                                       |   |   |   |   | 3.57% |   |   |   |   |   | 3.61% |
| Net interest income-FTE                               |   |   | $  8,491.0 |   |   |   |   |   | $  9,780.6 |   |   |
| Net interest margin                                   |   |   |   |   | 4.15% |   |   |   |   |   | 4.36% |

|  | (1)      | Average yieldsin 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 feestotaling $154,000in 2008and $195,000 in 2007. |
|--|-----------------------------------|------------------------------------------------------------------------------------------|

13

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**Interest Earning Assets/Interest Income**

Onatax equivalent basis, interest incomedecreased $1,617,000(20.3%) inthesecondquarter of        2008compared to thesecondquarter of 2007.Theyield onaverage earningassetsdecreased by90basis pointscombined with adecreaseof$39,065,000 (8.9%)inaverageearning assets.

The quarterly average balance of short term investments, certificates of depositandsecuritiesincreased approximately$3,246,000 (6.2%)in thesecondquarter of 2008as compared with the same period in 2007.Loans,which earn a higheryield than investments, had adecrease in average balances of$42,311,000(11.0%)in thesecondquarter of 2008compared to the same period last yearcombined with a102basispointdecreasein yield.The largest decline in terms of average balance was in commercial loans, the majority of ourloanportfolio.This decline from the prior year is due todecreases in the prime rate,continued competition in loan pricingand higher average balances of nonperforming loans in 2008.Moreover, competitive pressures as well as the weakened local economy have had,and are expected to continue to have,a negative impact on commercial loanbalancesand yields.

For the first half of the year, tax equivalent interest income decreased $2,807,000 (17.6%). Loan interest income decreased $2,927,000 (20.0%) due to lower average balances of $41,495,000 (10.7%)combined withthe average yield decreasing 78 basis points. The decrease in loanbalances primarilyoccurred in commercial loans as the average commercial loanbalances decreased $33,442,000 (10.0%). Short-term investments, certificates of depositsand securities interest income increased by $121,000 (9.2%) due to an increase in average balances of $1,323,000 (2.3%),combined withan increase in the average yield of30basis points.

**Interest Bearing Liabilities/Interest Expense**

Interest expense on deposits for thesecondquarter of 2008decreased $1,048,000 (35.5%) compared to thesecondquarter of 2007. This was the result oflower cost of funds due tolowerinterest rates paid on deposits of106basis points,combinedwithloweraveragedepositbalances of $26,395,000(7.9%).Pricing competition in the local market for deposits continues to be a factor in attracting deposits at reasonable costs.

Interest expense on deposits for the first half of 2008 decreased $1,474,000 (25.0%) compared to the first half of 2007. This was a result of a decrease in the average interest rate paid on deposits of 67 basis points along with lower average balances of $26,034,000 (7.7%) in 2008 compared to 2007.

Borrowed funds’average balancedecreased $731,000(7.4%)in thesecondquarter of 2008compared        to 2007.As ofJune 30, 2008,the Bankhada $797,000 loan advanceoutstanding, included in borrowedfunds,whichwasentered into in 2000from the FHLBIplusan$8,000,000 loan advance entered into in 2007 from the FHLBI. AdditionalFHLBIborrowings are available to fund future loan growth if needed.The holding        company has a $445,000 advance outstanding atJune 30, 2008from a correspondent bank used to pay the Februaryand May2008 dividend to shareholders.This advance matures on October 31, 2008.

**Liquidity**

Liquidity is monitored by the Bank’s Asset/Liability Management Committee (ALCO) which meets at least monthly.The Board of Directors has approved a liquidity policy which requires the Bank, while it is well capitalized as defined by the Federal Financial Institutions Examination Council (FFIEC), to maintain a current        ratio of no less than 1:1 (core basic surplus liquidity equal to 0), representing that the Bank’s contingency for unexpected funding outflowsis being primarily met by shortterm investments and unencumbered treasury and agency securities. Additional requirements of the policy are that when FHLBI available credit is added to core basic surplus liquidity, the Bank must have liquidity totaling 5% of        assets;and when brokered CDs and FederalFunds lines are added, the Bank must have liquidity totaling 8% of assets. Should the Bank’s capital ratios fall below the “well capitalized” level, additional liquidity totaling 5% of assetswouldbe required.

 

14

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Deposits are the principal source of funds for the Bank. Management monitors rates at other financial institutions in the area to ascertain that its rates are competitive in the market. Management also attempts to offer a wide variety of products to meet the needs of its customers. The makeup of the Bank’s “Large Certificates”,which are generally considered to be more volatile and sensitive to changes in rates, consist principally of local depositors known to the Bank.The Bank hadLarge Certificates totaling approximately$72,000,000atJune 30, 2008 andDecember 31, 2007.

It is the intention of the Bank’s management to handle unexpected liquidity needs through its Federal Funds position with a correspondent bank and byFHLBIborrowings. The Bank has a line of credit of approximately $25,000,000available at the        FHLBIand has pledged certain commercial and consumer loans secured by residential real estate as collateral for this borrowing. As ofJune 30, 2008,the Bank had$8,797,000in borrowings against the line.Management mayalso need        tolook to “available for sale” securities in the investment portfolio to meet additional liquidity needs.

**Interest Rate Risk**

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

In addition to liquidity and interest rate risk management issues, ALCO discusses the Bank’s performance and the current economic outlook and its impact on the Bank and current interest rate forecasts. Actual results are compared to budget in terms of growth and income. A yield and cost analysis is done to monitor interest margin.        Various ratios are discussed including capital ratios, other balance sheet ratios, and profitability ratios.

| **Interest Rate Sensitivity as of June 30, 2008** |                             |   |                                                                              |   |                                                                                    |   |
|---------------------------------------------------|----------------------------------|--------|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|
|                                              | 0-3                              |   | 4-12                                                                              |   | 1-5                                                                                     |   | 5+ |   |   |
| (in thousands)                                    | Months                           |   | Months                                                                            |   | Years                                                                                   |   | Years |   | Total |
| **Assets:**                                       |                             |   |                                                                              |   |                                                                                    |   |   |   |   |
| Loans, net                                        | $     86,421 |   | $    63,779                                                        |   | $   149,931                                                                   |   | $    23,099 |   | $   323,230 |
| Securities                                        | 4,050                            |   | 6,530                                                                             |   | 18,177                                                                                  |   | 8,000 |   | 36,757 |
| Certificates of deposit                           | -                                |   | 490                                                                               |   | 4,123                                                                                   |   | - |   | 4,613 |
| Short term investments                            | 30,363                           |   | -                                                                                 |   | -                                                                                       |   | - |   | 30,363 |
| Total rate sensitive assets                       | $   120,834            |   | $   70,799                                                              |   | $     172,231                                                       |   | $    31,099 |   | $   394,963 |
|                                              |                             |   |                                                                              |   |                                                                                    |   |   |   |   |
| **Liabilities:**                                  |                             |   |                                                                              |   |                                                                                    |   |   |   |   |
| NOW, savings & MMDA                           | $     71,945 |   | $              - |   | $               - |   | $    71,936 |   | $   143,881 |
| Time deposits                                     | 76,547                           |   | 69,231                                                                            |   | 26,742                                                                                  |   | 234 |   | 172,754 |
| Other borrowings                                  | -                                |   | 8,828                                                                             |   | 414                                                                                     |   | - |   | 9,242 |
| Total rate sensitive liabilities                  | $   148,492       |   | $    78,059                                                        |   | $     27,156                                                   |   | $    72,170 |   | $   325,877 |
|                                              |                             |   |                                                                              |   |                                                                                    |   |   |   |   |
| Rate sensitivity gap and ratios:                  |                             |   |                                                                              |   |                                                                                    |   |   |   |   |
| Gap for period                                    | $   (27,658)           |   | $    (7,260)                                                       |   | $   145,075                                                                   |   | $  (41,071) |   |   |
| Cumulative gap                                    | (27,658)                         |   | (34,918)                                                                          |   | 110,157                                                                                 |   | 69,086 |   |   |
|                                              |                             |   |                                                                              |   |                                                                                    |   |   |   |   |
| Cumulative rate sensitive ratio                   | 0.81                             |   | 0.85                                                                              |   | 1.43                                                                                    |   | 1.21 |   |   |
| December 31, 2007 rate sensitive ratio            | 0.83                             |   | 0.84                                                                              |   | 1.42                                                                                    |   | 1.19 |   |   |

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

15

----

        In the gap table above, the short term (one year and less) cumulative interest rate sensitivity isliabilitysensitive as ofJune 30, 2008.Aliabilitysensitive position wouldnormallyindicate        increased net interest income in afallingrate environmentas liabilities would be repriced quicker than assets.Gap analysis is limited and may not provide an accurate indication of the impact of general interest rate movements on the net interest margin since repricing of various categories of assets and liabilities is subject to the        Bank’s needs, competitive pressures, and the needs of the Bank’s customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within the period and at different rate indices.Due to these inherent limitations in the GAP analysis, theCorporation also utilizessimulation modeling, which        measures the impact of upward and downward movements of interest rates on interest margin andprovides meaningful insight into strategies management can take to help mitigate themovementof interest rates.

| **Provision for Loan Losses** |               |   |             |   |          |   |
|-------------------------------|--------------------|--------|------------------|--------|---------------|--------|
| (in thousands)                | **Second Quarter** |   | **Year-to-Date** |
|                          | **2008**           |   | **2007**         |   | **2008**      |   | **2007** |
| Total                         | $  8,211      |   | $  6,535    |   | $  8,900 |   | $  7,474 |

The Corporation recorded a provision of $8,211,000 in thesecondquarter of 2008and $6,535,000in the same period last year.The provision is based upon an analysis of        estimated losses inherent in the portfolio and other economic factors.Nonperforming loans atJune 30, 2008have increased $13,565,000to $28,138,000fromthe December31, 2007balance of$14,573,000and increased $11,533,000 fromtheJune30, 2007balance of$16,605,000.Net charge offs for thesecondquarter of        2008 were$2,629,000 compared to $6,591,000 in the same period in 2007.The provision washigherin thesecondquarter of 2008 as compared to 2007 due toadverse trends inadversely classified        creditsand nonperforming loans.Management, through internal and external resources, undertook an extensive evaluation of $140 million of commercial loans. This resulted in partial chargeoffs, increased nonperforming loans, impaired loans (discussed below), and higher specific reserves, largely the result of declines in collateral value.The provision for 2007 was impacted by        a $3,568,000 charge-off related to the reclassification of $16,642,000 of net loans into the held for sale classification.Nonperforming loans as a percentage of total loans was 8.30%atJune30, 2008 compared to4.19% at December 31, 2007 and4.41% atJune30, 2007.Management has determined that the allowance is adequate based on potential losses in the portfolio.

Year to date, the provision is $8,900,000 compared to $7,474,000 in the prior year. At June 30, 2008, the allowance for loan losses as a percent of loans was 4.61% compared to 2.96% at December 31, 2007 and 2.05% at June 30, 2007. For the first half of 2008, the bank had net charge-offs of $3,520,000 compared to $7,265,000 for 2007.

Impaired loans, as defined by Statement of Financial Accounting Standards No. 114,*Accounting by Creditors for Impairment of a Loan,*totaled approximately $34,854,000atJune 30,2008, and included non-accrualand past due 90 days other than homogenous residential and consumer loans, and $8,007,000of commercial loans separately identified as impaired.Included in impaired loans is $3,501,000of commercial loans with no specific reserve allocation based on the FAS 114 analysis which        indicates the loan is adequately collateralized at this time. A loan is considered impaired when it is probable that all or part of amounts due according to the contractual terms of the loan agreement will not becollectedon a timely basis.Impaired loans totaled$17,000,000atDecember 31, 2007and$16,023,000atJune 30,2007, which included $9,542,000 of commercial loans held for sale.Impaired commercial loans had specific reserves calculated in accordance withStatementNo. 114 of$5,641,000atJune 30,2008,$1,720,000 at December 31, 2007and$225,000atJune 30, 2007.

 

16

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The adequacy ofthe allowance for loan losses isdetermined by management’s assessment of the composition of the loan portfolio,an evaluation of specific credits,an analysis of the value of the underlying        collateral for those loans,historical loss experience, relevant economic factors,the level of nonperforming loans,loans that have been identified as impaired, and the overall credit quality of the portfolio.Management continues to refine its techniques in this analysis.Due to the concentration of the        Bank in residential real estate development and construction loans and the continued decline in the Michigan real estate market, theBank is particularly focused on this segment of loans.

Nonperforming assets are loans for which the accrual of interest has been discontinued, accruing loans 90 days or more past due in payments, and other real estate which has been acquired primarily through foreclosure and is waiting disposition.

Loans are generally placed on a nonaccrual basis when principal or interest is past dueninetydays or more and when, in the opinion of management, full collection of principal and interest is unlikely.However, as of June 30, 2008, approximately        $13.5 million of nonperforming loans aremaking scheduled payments on their loans. Management has decided, based upon the declines in the value of the real estate securing these loans and concerns regarding the cash flow of the borrowers, that ultimate collectibility of the full principal and interest on these loans is uncertain.Loans categorized as ninety days past due and still accruing are well secured and in        the process of collection.Nonperforming loans are reviewed regularly for collectibility.The following table reflectsnonperforming assets:

|                                             |   |                                               |                                               |                                               |                                               |                                               |
|--------------------------------------------------|--------|----------------------------------------------------|----------------------------------------------------|----------------------------------------------------|----------------------------------------------------|----------------------------------------------------|
| **Nonperforming Assets**

(in thousands)         |   |                                               | **June 30,**

**2008**                             |                                               | **December 31,**

**2007**                         |                                               | **June 30,**

**2007** |
| Nonaccrual Loans                                 |   |                                               | $        28,086 |                                               | $        14,459 |                                               | $        16,605 |
| 90 days or more past due and still accruing      | 52     |                                               | 114                                                |                                               | -                                                  |
| Total nonperforming loans                        |   | $        28,138 |                                               | $        14,573 |                                               | $        16,605 |
| Other real estate owned                          |   | 1,974                                              |                                               | 1,523                                              |                                               | 833                                                |
| Total nonperforming assets                       |   | $        30,112 |                                               | $        16,096 |                                               | $        17,438 |
|                                             |   |                                               |                                               |                                               |                                               |                                               |   |   |
| Nonperforming loans as a percent of total loans  | 8.30%  |                                               | 4.19%                                              |                                               | 4.41%                                              |
| Nonperforming loans (excluding loans HFS) as     |   |                                               |                                               |                                               |                                               |
| a percent of total loans(1)                      |   | N/A                                                |                                               | N/A                                                |                                               | 1.88%                                              |
| Allowance for loan losses as a percent of        |   |                                               |                                               |                                               |                                               |
| nonperforming loans (excluding loans HFS)        | 56%    |                                               | 71%                                                |                                               | 109%                                               |
| Nonperforming assets as a percent of total loans |   |                                               |                                               |                                               |                                               |
| and other real estate owned                      |   | 8.83%                                              |                                               | 4.61%                                              |                                               | 4.62%                                              |
| Nonperforming assets as a percent of total loans |   |                                               |                                               |                                               |                                               |
| and other real estate owned (excluding loans     |   |                                               |                                               |                                               |                                               |
| (HFS)(1)                                         |   |                                               | N/A                                                |                                               | N/A                                                |                                               | 2.11% |

|  | (1)      | Percentage computed by excluding total held for sale loans of $13,140,590 from total loans and $9,757,000 of nonperforming loans included in held for sale loans at June 30, 2007. |
|--|-----------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

17

 

----

 

A summary of the composition of loans is presented below. Included in residential first mortgage totals are “real estate mortgage” loans listed in the consolidated financial statements and other loans(primarily commercial)to customers who pledge their homes as collateral        for their borrowings.

|                                                                                     | **June 30, 2008**                            |    | **December 31, 2007** |
|------------------------------------------------------------------------------------------|----------------------------------------------|---------|-----------------------|
| **Loans**(in thousands)                                                                  | Balances                                     | Percent |                  | Balances | Percent |
| Secured by real estate:                                                                  |                                         |    |                  |   |   |
|     Residential first mortgage                                            | $       33,859 | 10.0%   |                  | $       35,545 | 10.2% |
|     Residential home equity/other junior liens                            | 20,557                                       | 6.1%    |                  | 19,353 | 5.6% |
|     1-4 family residential construction loans                             | 18,625                                       | 5.5%    |                  | 29,201 | 8.4% |
|     Other construction, land development, and                             |                                         |    |                  |   |   |
|     other land loans                                                      | 30,579                                       | 9.0%    |                  | 23,182 | 6.7% |
|     Multifamily residential properties                                    | 2,759                                        | 0.8%    |                  | 4,083 | 1.2% |
|     Owner-occupied nonfarm, nonresidential

    properties | 89,887                                       | 26.5%   |                  | 89,600 | 25.7% |
|     Other nonfarm, nonresidential properties                              | 99,083                                       | 29.2%   |                  | 99,101 | 28.4% |
| Consumer                                                                                 | 9,021                                        | 2.7%    |                  | 11,113 | 3.2% |
| Commercial                                                                               | 31,739                                       | 9.4%    |                  | 33,677 | 9.7% |
| Other                                                                                    | 3,116                                        | 0.9%    |                  | 3,510 | 1.0% |
| Total gross loans                                                                        | 339,225                                      | 100.0%  |                  | 348,365 | 100.0% |
| Net unearned fees                                                                        | (372)                                        |    |                  | (489) |   |
| Total loans                                                                              | $     338,853            |    |                  | $     347,876 |   |

TheCorporation’s exposure to real estate secured loans continues as the economy and real estate values have continued to deteriorate. If the economy continues to weaken and/or real estate values decline further,nonperforming loansmay        increasein subsequent quarters.In addition, continued adverse economic conditions could result in further deterioration in the overall loan portfolio.

18

 

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The following tablesummarizes the changes in the allowance for loan lossesand reserve for unfunded credit commitmentsfor thefirstsixmonths of2008and2007(in thousands):

| Components:                                                        | **2008**                               |   | **2007**                              |
|--------------------------------------------------------------------|----------------------------------------|--------|---------------------------------------|
| **Allowance for loan losses**                                      |                                   |   |                                  |
| Balance, beginning of year                                         | $      10,314 |   | $      7,598 |
| Loans charged off:                                                 |                                   |   |                                  |
| Real estate mortgage                                               | 222                                    |   | 242                                   |
| Commerical                                                         | 3,222                                  |   | 3,223                                 |
| Consumer                                                           | 299                                    |   | 450                                   |
| Subtotal                                                           | 3,743                                  |   | 3,915                                 |
| Charge-offs on loans transferred to held for sale                  | -                                      |   | 3,568                                 |
| Total charge-offs                                                  | 3,743                                  |   | 7,483                                 |
| Recoveries to loans previously charged off:                        |                                   |   |                                  |
| Real estate mortgage                                               | 66                                     |   | -                                     |
| Commerical                                                         | -                                      |   | 91                                    |
| Consumer                                                           | 157                                    |   | 127                                   |
| Total recoveries                                                   | 223                                    |   | 218                                   |
| Net loans charged off                                              | 3,520                                  |   | 7,265                                 |
| Additions to allowance charged to operations                       | 8,829                                  |   | 7,133                                 |
| Balance, end of quarter                                            | 15,623                                 |   | 7,466                                 |
| **Reserve for unfunded credit commitments**                        |                                   |   |                                  |
| Balance, beginning of year                                         | 739                                    |   | 331                                   |
| Additions to reserve charged to operations                         | 71                                     |   | 341                                   |
| Balance, end of quarter                                            | 810                                    |   | 672                                   |
| **Total allowance for loan losses and reserve for**                |                                   |   |                                  |
| **unfunded credit commitments**                                    | $     16,433  |   | $      8,138 |
| Ratios:                                                            |                                   |   |                                  |
| Net loans charged off (annualized) to average loans outstanding    | 2.04%                                  |   | 3.76%                                 |
| Net loans charged off (annualized) to average loans outstanding(1) | N/A                                    |   | 2.83%                                 |
| Allowance for loan losses to loans outstanding                     | 4.61%                                  |   | 2.05%                                 |

(1)Computed without annualizing the charge-off related to transferring loans to held for sale.

| **Noninterest Income** | **Second Quarter**                  |   | **Year-to-Date**                    |
|------------------------|-------------------------------------|--------|-------------------------------------|
| (in thousands)         | **2008**                            |   | **2007**                            |   | **2008** |   | **2007** |
| Total                  | $      821 |   | $      369 |   | $      1,675 |   | $      1,307 |

Noninterest income which includes service charges and other fee income, trust income, gain on sale ofmortgageloans,and other miscellaneousincomeincreased by$452,000 (122.4%)during thesecondquarter of 2008compared to the samequarter in 2007.The primary reason for the increase was the loss onavailable for salesecurities of $553,000 in 2007 due to restructuring of the investment portfolio.This favorable variance was offset by servicecharges and other fee incomewhichdecreased$95,000 (11.6%)during thesecondquarter of 2008from thesecondquarter of 2007primarilydue todecreasesinreturned check fees.Trust incomealso decreased $4,900(4.9%) inthesecondquarter 2008compared to the same period last year.The Bank had nogain on sale ofmortgage loans in thesecondquarter of 2008compared to $5,000 in the same period in 2007.The Bank is now using a third party tounderwrite, fund, and close mortgage loans, and the Bank receives a commission for taking the loan application and performing related services.        The Bank received $8,000 in commissions in thesecondquarter of 2008 which are included in other fee income.

 

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For the six months endedJune 30, 2008, noninterest income increased $367,000(28.1%). This increase, as noted above, wasprimarilydue to the restructuring of the investment portfolio in the second quarter of        2007, which resulted in a $553,000 loss. Service charges and other fee income decreased $193,000 (11.8%) due primarily to lower returned check fees$77,000 (9.1%)and loanlatefeesandservicecharges $132,000 (53.8%).Gain on sale of mortgage loans decreased$24,000 due to the bank no longer originating mortgage loans in 2008.The Bank is now using a third party to originate mortgage loans and received $19,000 in commissions for thesix monthsended June 30, 2008 which are included in other fee income. Other income increased        $29,000 primarily due to the gain on sale offourother real estate owned properties.

| **Noninterest Expense** | **Second Quarter**              |   | **Year-to-Date**                |
|-------------------------|---------------------------------|--------|---------------------------------|
| (in thousands)          | **2008**                        |   | **2007**                        |   | **2008** |   | **2007** |
| Total                   | $     3,956 |   | $     3,570 |   | $     7,432 |   | $     7,029 |

Noninterest expenseincreased $387,000 (10.8%) in thesecondquarter of 2008compared to the same quarter in 2007.Salaries andemployeebenefitsincreased $250,000 (15.2%) in thesecondquarter of 2008compared to thesecondquarter of 2007primarily due tohighersalaries of $214,000andprofit sharing expense of $63,000offset by lower overtime wages of $34,000.The Bank had filled the majority ofthepositionsthat        had been open in prior periodsby the end of the second quarter.Profit sharing expense increased in the second quarter of 2008 compared to the same period of 2007 due to the Bank reducing the accrual inthe second quarter of2007 by $71,000 based on the Bank’s results through June 30, 2007as        measured against peer banks.Overtime wages decreased in the second quarter of 2008 compared to the same quarter of 2007 due tohigher overtime wages in 2007 due tothe core system conversion in April 2007.Net occupancy costsdecreased $15,000 (5.3%) in 2008compared        to 2007due tolower property taxes anddepreciationexpense.Equipment expense increased $5,000 (3.5%) primarily due tohigherequipment maintenancecosts.Professional and service feesincreased $78,000 (14.1%)primarilyduetohigher legal fees.Legal feesincreased $124,000 in the second quarter of 2008from the first quarter of 2008andare expected to remainelevatedas the Bank will require additional legalservicesas nonperformingloans are worked out.Loan        collection and foreclosed property expense increased $204,000 in the second quarter compared to 2007 due to higher nonperforming loans and foreclosed assets. These costsare expected to remain high in the near term future partially due to additional appraisal expense as loans and the related appraisals continue to be reviewed.Computer service feesdecreased $33,000 (20.5%)as2007 included costs related tothecore system conversionwhich occurred in April 2007.Printing and suppliesdecreased $78,000 (59.2%)as2007 included costs related tothecore system conversionwhich occurred in April 2007.Director fees decreased $12,000 (15.1%) due tono profit sharing bonus accrual for directors in 2008. Advertising expensedecreased $15,000 (20.9%) in thesecondquarter of 2008compared to 2007due to not renewing the Corporation’s outside advertising agency, which was on a retainer basis throughJune2007.

For the first half of 2008, noninterest expense increased $403,000 (5.7%) compared to 2007. Salaries and employee benefits increased $93,000 (2.6%) primarily due tosalaries and wages increasing $137,000offset by lower overtime wagesfor reasons        mentioned above. Net occupancy expense increased $38,000 (6.6%) primarily due to an increase in building servicesprimarily related to increased snow removal services in 2008.Equipment expense increased $14,000(5.8%)due to higher equipment maintenance costs. Professional and service fees increased $75,000(7.0%)due to an increase in legal fees of $187,000 as noted above. Partially offsetting the increase in legal fees was a decrease in other fees of $104,000 due to a consulting project related to the core system conversion in 2007.Loan collection and foreclosed property expense increased $254,000 compared to same period in 2007forreasons noted above.Computer service fees decreased $29,000 (10.1%)for the reasons mentioned above. Printing and supplies decreased $24,000 (13.0%)for reasons noted above.Directorfees decreased $53,000 (29.7%)due tono profit sharing bonus accrualfor directorsin 2008and fewer committee meetings in 2008. Advertising expense decreased $31,000 (21.5%)for reasons noted above. Other expenses increased $67,000(9.0%) in the first half of 2008 compared to 2007 primarily due tohigher FDIC assessment feesin 2008anda 2007 reversal of a $78,000 settlement accrued in 2006.

 

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The Bank will be subject to higherdeposit insurancepremiums inthe second half of2008 as compared to 2007,becausetheremainingone-time assessmentcreditwasprimarily used to offset premiumsin2007 and the first quarter of 2008.The total increase in premiums in 2008 as compared to 2007 is estimated to be        approximately $160,000,based on current assessments, of which $29,000had been incurred through June 30, 2008.

| **Income Tax Expense** | **Second Quarter**    |   | **Year-to-Date**      |
|------------------------|-----------------------|--------|-----------------------|
| (in thousands)         | **2008**              |   | **2007**              |   | **2008** |   | **2007** |
| Total                  | $   (2,493) |   | $   (1,754) |   | $   (2,300) |   | $   (1,365) |

Fluctuations in income taxes resulted primarily from changes in the level of profitability and in variations in the amount of tax-exempt incomeas a percentage of the pre-tax loss.

| **Capital**(in thousands)       | **June 30, 2008**    |   | **March 31, 2008**   |   | **December 31, 2007** |
|---------------------------------|----------------------|--------|----------------------|--------|-----------------------|
| Stockholders' Equity            | $   35,978 |   | $   41,133 |   | $   40,627  |
| Ratio of Equity to Total Assets | 8.47%                |   | 9.77%                |   | 9.39%                 |

The Federal Reserve Board provides guidelines for the measurement of capital adequacy. The Bank’s capital, as adjusted under these guidelines, is referred to as risk-based capital. The Bank’s Tier 1 risk-based capital ratio atJune30,2008was10.21%and total risk-based capital was11.50%.AtJune30,2007,these ratios were11.27% and12.53%, respectively. Minimum regulatory Tier 1 risk-based and total risk-based capital ratios under the Federal Reserve Board guidelines are 4% and 8%,respectively.The capital guidelines also provide for a standard to measure risk-based capital to total assets which is called the leverage ratio.The Bank’s leverage ratio was8.76% atJune30, 2008and9.97%atJune30, 2007. The minimum standard leverage ratio is 3% but financial institutions are        expected to maintain a leverage ratioof1 to 2 percentage points above the 3% minimum.

While the Bank remains well capitalized, further dividends from the Bank to theCorporationwill require OCC approval.This is due to the fact that, undercurrent banking regulations,the Bank may only pay dividends,without priorOCCapproval,to the extent ofitscurrent year’s retained earnings(currentyear’searnings lesscurrent year’sdividends paid)plus the prior two years’retained earnings.TheBank’spriorand currentyear’slosses obligatethe Bank to obtain this approval.To the extent that the Corporation pays dividends at the currentrateor a reduced rate, given(1)the loss incurred in 2007and to date in 2008,and(2)dividends paid by the Bank to the Corporationin2007,and based on an assumption of future earnings commensurate with historical earning levels, OCC approval will be required as a condition to future dividends        until at least2010.We have no basis or understanding with the OCC that such approval will be granted.In July 2008, the Corporation announced it had discontinueditsquarterly dividend to shareholdersindefinitely.

**Critical Accounting Policies**

The Corporationmaintains critical accounting policies for the allowance for loan losses. Refer to notes 1c and 1dof the Notes to Consolidated Financial Statements for additional information included inForm 10-Kfor the year endedDecember 31, 2007.

**Contractual Obligations**

As ofJune30,2008, December 31, 2007,andJune30, 2007,the Bank had outstanding irrevocable standby        letters of credit, which carry a maximum potential commitment ofapproximately $1,724,000, $2,328,000and $2,900,000, respectively. These letters of credit are conditional commitmentsissued 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 commitmentsatJune30,2008,December 31, 2007andJune30,2007, where there is collateral, is in excess of the committed amount. A letter of credit is not recorded on the balance sheet unlessa customer fails to perform.

 

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**I****mpact of New****Accounting Standards**

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157,*Fair Value Measurements*. The Statement defines fair value, establishes a framework for measuring fair value and        expands disclosures about fair value measurements. This Statement applies to other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. The Statement does not require any new fair value measurements and was initially effective for the Corporation beginning January 1, 2008. In February 2008, the FASB approved the issuance of FASB        Staff Position (FSP) FAS157-2. FSP FAS 157-2 allows entities to electively defer the effective date ofStatementNo. 157 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. The Corporation will apply the fair value measurement and disclosure        provisions ofStatementNo. 157 to nonfinancial assets and liabilities effective January 1, 2009. Such is not expected to be material to our results of operations or financial position. See Note7for a discussion regarding the January 1, 2008 implementation ofStatementNo. 157 relating tothe Corporation’sfinancial assets and liabilities.

In February 2007, the FASB issued Statement No. 159,*The Fair Va**lue Option for Financial Assets and Financial Liabilities.*This Statement permits entities to choose to measure eligible items at fair value at specified        election dates. For items for which the fair value option has been elected, unrealized gains and losses are to be reported in earnings at each subsequent reporting date. The fair value option is irrevocable unless a new election date occurs, may be applied instrument by instrument, with a few exceptions, and applies only to entire instruments and not to portions of instruments. This Statement provides an opportunity to mitigate volatility in reported earnings caused by measuring related        assets and liabilities differently without having to apply complex hedge accounting. Statement No. 159 waseffective for the Corporation beginning January 1, 2008.ThroughJune30, 2008, theCorporation has not elected the fair value option for any of its financial assets or liabilities.

In December2007,the FASB issued Statement No. 141(R),*Business Combinations,*to further enhance the accounting and financial reporting to related business combinations. This Statementestablishesprinciplesand requirements for how the acquirer in a businesscombinations(1) recognizesand measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrollinginterestsin theacquiree, (2) recognizesand measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Statement No. 141(R) applies prospectively        to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Therefore, the effects of the Corporation’s adoption of Statement No. 141(R) will depend upon the extent and magnitude of acquisitions after December 31, 2008.

In May 2008, the FASB issued Statement No. 162,*The Hierarchy of Generally Accepted Accounting Principles*.  This Statement is intended to improve financial reporting by identifying        a consistent framework, or hierarchy, for selecting accounting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. generally accepted accounting principles (“GAAP”).  Statement No. 162 directs the GAAP hierarchy to the entity, not the independent auditors, as the entity is responsible for selecting accounting principles for financial statements that are presented in conformity with        GAAP.  Statement No. 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to remove the GAAP hierarchy from the auditing standards.  Management does not expect Statement No. 162 to have a material effect on the Corporation’s results of operations or financial position upon adoption.

 

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**Item 3. Quantitative and Qualitative Disclosures About Market Risk**

There hasbeen no material change in the market risk faced by the CorporationsinceDecember 31, 2007.

**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 theCorporation’s disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e)and 15d–15(e))for the period endedJune30, 2008, have concluded that, as of such date,theCorporation’s disclosure controls and                    procedures were effective. |
|--|-----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|  | (b)      | Changes in Internal Control Over Financial Reporting. 

During the quarter ended June30,2008therewere nochanges inthe Corporation’sinternal control                    overfinancial reporting that havematerially affected, orarereasonably likely to materially affect, our internal control over financial reporting. |
|--|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**PART II - OTHER INFORMATION**

**Item 1A. Risk Factors**

There havebeen no material changes from the risk factors previously disclosed inPart I, Item 1A ofthe Corporation’sForm 10-K.

**Item 2.****Unregistered Sales of Equity Securities and****Use of Proceeds**

All securities sold by the Corporationthrough the Employee Stock Purchase Plan and the Long-Term Incentive Planduring the quarter endedJune 30,2008were registered under the        Securities Act.

There were no purchases of common stock for the three months endedJune30, 2008. On May 17, 2007, the Corporation’s Board of Directors authorized a share repurchase program. This repurchase program authorizes the repurchase of up to 100,000 shares of the Corporation’s common        stock after August 17, 2007 and expires on August 17, 2008. No shares have yet been repurchased under this program.

Basedon the Bank’s current capitalposition,it islikely noshares will be repurchased in 2008.

**Item 4. Submission of Matters to a Vote of Security Holders**

The registrant’s annual meeting of stockholders was heldonApril 16, 2008.

|  | (1)      | The stockholders voted on the election of directors. |
|--|-----------------------------------|------------------------------------------------------|

The following nominee for the office of director was elected for a term expiring in 2010:

|            | Votes For | Votes Against |
|-----------------|-----------|---------------|
| Dagmar K. Moore | 1,713,335 | 445,255       |

(As reported in the Form 8-K filed on June 13, 2008, Ms. Moore subsequently resigned from the Board of Directors.)

The following four nominees for the office of director were elected for a term expiring in 2011:

|               | Votes For | Votes Against |
|--------------------|-----------|---------------|
| R. Michael Yost    | 1,711,773 | 446,837       |
| Dona Scott Laskey  | 1,688,061 | 470,549       |
| Athena Bacalis     | 1,713,025 | 445,585       |
| James R. McAuliffe | 1,721,989 | 436,621       |

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Additionally, the following directors continue in office:

        Term expiring in 2009:        Gary R. Boss        Richard F. Hopper        John M. Pfeffer

Term expiring in 2010:        W. Rickard Scofield        Randolph E. Rudisill        Barbara Draper         

|  | (2)      | The ratification of the selection of BDO Seidman, LLP as the independent auditors for 2008 was alsoapproved.

              Votes for: 1,913,131          Votes Against: 165,302          Votes Abstained: 80,177 |
|--|-----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item 6. Exhibits**

     The following exhibits (listed by number corresponding to the Exhibit Table as Item 601 in Regulation S-K) are filed with this report:

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).

     

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form10-Q for the quarter endedJune30, 2008to be signed on its behalf by the        undersigned hereunto duly authorized.

> 
          FNBH BANCORP, INC.                                                                                                                                                                                                                 /s/ Ronald L. Long                             

          Ronald L. Long

          President and Chief Executive Officer                                                                                                  

          /s/ Janice B. Trouba                                     Janice B. Trouba          Chief Financial Officer                                                                                                                                                   

Date:August11, 2008

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