# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

# Form 10-Q

[X]        QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
quarterly period ended June 30, 2007OR[_]         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 check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition or accelerated filer and large accelerated filer Rule 12b-2 of
the Exchange Act. (Check one): Large accelerated filer [__]    
Accelerated filer [ X ]     Non-accelerated filer [__]

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 practicable date:
3,045,346 shares of the Corporations Common Stock (no par value) were outstanding as
of July 31, 2007.

---



# TABLE OF CONTENTS

|                                                                                                  
|--------------------------------------------------------------------------------------------------
|Part I. Financial Information (unaudited)                                                         
|Item 1. Financial Statements:                                                                     
|Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006                             
|Consolidated Statements of Income for the three months and six months ended June 30, 2007 and 2006
|Consolidated Statements of Stockholders' Equity and Comprehensive Income                          
|for the three months ended June 30, 2007 and 2006                                                 
|Consolidated Statements of Stockholders' Equity and Comprehensive                                 
|Income for the six months ended June 30, 2007 and 2006                                            
|Consolidated Statements of Cash Flows for the six months ended June 30, 2007and 2006              
|Notes to Consolidated Financial Statements                                                        
|                                                                                                  
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations     
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                
|Item 4. Controls and Procedures                                                                   
|                                                                                                  
|Part II. Other Information                                                                        
|Item 1A. Risk Factors                                                                             
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                               
|Item 4. Submission of Matters to a Vote of Security Holders                                       
|Item 6. Exhibits                                                                                  
|                                                                                                  
|Signatures                                                                                        
|                                                                                                  

---



# PART I  FINANCIAL
INFORMATIONItem 1. Financial Statements

# FNBH BANCORP, INC. AND
SUBSIDIARIESConsolidated Balance Sheets
(Unaudited)

|                                                                       | June 302007 | December 312006
|---------------------------------------------------------------------- | ----------- | ---------------
|                                                                       |             |                
|                                                                       |             |                
|Assets                                                                 |             |                
|Cash and due from banks                                                |             |                
|Short term investments                                                 |             |                
|                                                                       |             |                
|Total cash and cash equivalents                                        |             |                
|Certificates of deposit                                                |             |                
|Investment Securities:                                                 |             |                
|Investment securities held to maturity, net (fair value of $15,800,451 |             |                
|at June 30, 2007 and $17,030,269 at December 31, 2006)                 |             |                
|Investment securities available for sale, at fair value                |             |                
|Mortgage-backed securities available for sale, at fair value           |             |                
|FHLBI and FRB stock, at cost                                           |             |                
|                                                                       |             |                
|Total investment securities                                            |             |                
|Loans held for sale                                                    |             |                
|Loans held for investment:                                             |             |                
|Commercial                                                             |             |                
|Consumer                                                               |             |                
|Real estate mortgage                                                   |             |                
|                                                                       |             |                
|Total loans held for investment                                        |             |                
|Less allowance for loan losses                                         |             |                
|                                                                       |             |                
|Net loans held for investment                                          |             |                
|Premises and equipment, net                                            |             |                
|Other real estate owned, held for sale                                 |             |                
|Accrued interest and other assets                                      |             |                
|                                                                       |             |                
|                                                                       |             |                
|Total assets                                                           |             |                
|                                                                       |             |                
|                                                                       |             |                
|                                                                       |             |                
|Liabilities and Stockholders' Equity                                   |             |                
|Liabilities                                                            |             |                
|Deposits:                                                              |             |                
|Demand (non-interest bearing)                                          |             |                
|NOW                                                                    |             |                
|Savings and money market                                               |             |                
|Time deposits                                                          |             |                
|Brokered certificates of deposit                                       |             |                
|                                                                       |             |                
|Total deposits                                                         |             |                
|Other borrowings                                                       |             |                
|Accrued interest, taxes, and other liabilities                         |             |                
|                                                                       |             |                
|Total liabilities                                                      |             |                
|Stockholders' Equity                                                   |             |                
|Common stock, no par value. Authorized 4,200,000 shares; 3,045,346     |             |                
|shares issued and outstanding at June 30, 2007 and 3,074,528 shares    |             |                
|issued and outstanding at December 31, 2006                            |             |                
|Retained earnings                                                      |             |                
|Deferred directors' compensation                                       |             |                
|Accumulated other comprehensive loss, net                              |             |                
|                                                                       |             |                
|Total stockholders' equity                                             |             |                
|                                                                       |             |                
|Total liabilities and stockholders' equity                             |             |                
|                                                                       |             |                
|                                                                       |             |                

See notes to consolidated financial
statements.

1

---



# FNBH BANCORP, INC. AND
SUBSIDIARIESConsolidated Statements of Income (Unaudited)

|                                                 | Tree months ended June 30 | Six months ended June 30
|------------------------------------------------ | ------------------------- | ------------------------
|                                                 |                           |                         
|                                                 |                           |                         
|                                                 |                           |                         
|Interest and dividend income:                    |                           |                         
|Interest and fees on loans                       |                           |                         
|Interest and dividends on investment securities: |                           |                         
|U.S. Treasury and agency securities              |                           |                         
|Obligations of states and political subdivisions |                           |                         
|Corporate bonds                                  |                           |                         
|Other securities                                 |                           |                         
|Interest on certificates of deposit              |                           |                         
|Interest on short term investments               |                           |                         
|                                                 |                           |                         
|Total interest and dividend income               |                           |                         
|                                                 |                           |                         
|                                                 |                           |                         
|Interest expense:                                |                           |                         
|Interest on deposits                             |                           |                         
|Interest on other borrowings                     |                           |                         
|                                                 |                           |                         
|Total interest expense                           |                           |                         
|                                                 |                           |                         
|                                                 |                           |                         
|Net interest income                              |                           |                         
|                                                 |                           |                         
|Provision for loan losses                        |                           |                         
|                                                 |                           |                         
|Net interest income (loss)                       |                           |                         
|after provision for loan losses                  |                           |                         
|                                                 |                           |                         
|                                                 |                           |                         
|Noninterest income:                              |                           |                         
|Service charges and other fee income             |                           |                         
|Trust income                                     |                           |                         
|Gain on sale of mortgage loans                   |                           |                         
|Loss on available for sale securities            |                           |                         
|Other                                            |                           |                         
|                                                 |                           |                         
|Total noninterest income                         |                           |                         
|                                                 |                           |                         
|                                                 |                           |                         
|Noninterest expense:                             |                           |                         
|Salaries and employee benefits                   |                           |                         
|Net occupancy expense                            |                           |                         
|Equipment expense                                |                           |                         
|Professional and service fees                    |                           |                         
|Computer service fees                            |                           |                         
|Printing and supplies                            |                           |                         
|Director fees                                    |                           |                         
|Advertising                                      |                           |                         
|Other                                            |                           |                         
|                                                 |                           |                         
|Total noninterest expense                        |                           |                         
|                                                 |                           |                         
|Income (loss) before federal income taxes        |                           |                         
|Federal income taxes (credit)                    |                           |                         
|                                                 |                           |                         
|Net income (loss)                                |                           |                         
|                                                 |                           |                         
|                                                 |                           |                         
|                                                 |                           |                         
|Per share statistics:                            |                           |                         
|Basic EPS                                        |                           |                         
|Diluted EPS                                      |                           |                         
|Dividends                                        |                           |                         
|Basic average shares outstanding                 |                           |                         
|Diluted average shares outstanding               |                           |                         

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, 2007 and 2006(Unaudited)

|                                                     | Common Stock | Retained  Earnings | Deferred Directors' Compensation | Accumulated Other Comprehensive Loss | Total     
|---------------------------------------------------- | ------------ | ------------------ | -------------------------------- | ------------------------------------ | ----------
|                                                     |              |                    |                                  |                                      |           
|Balances at March 31, 2006                           |              |                    | $                                | 6,106,215                            |           
|Earned portion of long term incentive plan           |              |                    |                                  | 43,070                               |           
|Issued 262 shares for employee stock purchase plan   |              |                    |                                  | 6,502                                |           
|Issued 46 shares for current directors' fees         |              |                    |                                  | 1,202                                |           
|Issued 1,244 shares for variable directors' fees     |              |                    |                                  | 32,257                               |           
|Directors' deferred compensation (2,543 stock units) |              |                    |                                  |                                      | 66,154    
|Comprehensive income:                                |              |                   
|Net income                                           |              |                    |                                  |                                      | 1,353,597 
|Change in unrealized loss on debt securities         |              |                   
|available for sale, net of tax effect                |              |                    |                                  |                                      | (162,347  
|                                                     |              |                    |                                  |                                      |           
|Total comprehensive income                           |              |                    |                                  |                                      | 1,191,250 
|Repurchase of common stock (23,000 shares)           |              |                    |                                  | (45,610                              | )         
|Cash dividends ($.21 per share)                      |              |                    |                                  |                                      | (668,750  
|                                                     |              |                    |                                  |                                      |           
|Balances at June 30, 2006                            |              |                    | $                                | 6,143,636                            |           
|                                                     |              |                    |                                  |                                      |           
|                                                     |              |                   
|Balances at March 31, 2007                           |              |                    | $                                | 6,050,161                            |           
|Earned portion of long term incentive plan           |              |                    |                                  | 8,442                                |           
|Issued 286 shares for employee stock purchase plan   |              |                    |                                  | 6,595                                |           
|Issued 124 shares for current directors' fees        |              |                    |                                  | 3,009                                |           
|Issued 1,141 shares for variable directors' fees     |              |                    |                                  | 30,020                               |           
|Directors' deferred compensation (2,768 stock units) |              |                    |                                  |                                      | 70,216    
|Comprehensive income:                                |              |                   
|Net loss                                             |              |                    |                                  |                                      | (3,212,874
|Change in unrealized loss on debt securities         |              |                   
|available for sale, net of tax effect                |              |                    |                                  |                                      | (135,865  
|Less reclassification adjustment for net losses      |              |                   
|included in net loss, net of tax effect              |              |                    |                                  |                                      | 365,249   
|                                                     |              |                    |                                  |                                      |           
|Total comprehensive loss                             |              |                    |                                  |                                      | (2,983,490
|Cash dividends ($.21 per share)                      |              |                    |                                  |                                      | (638,553  
|                                                     |              |                    |                                  |                                      |           
|Balances at June 30, 2007                            |              |                    | $                                | 6,098,227                            |           
|                                                     |              |                    |                                  |                                      |           

See notes to consolidated financial statements.

3

---



FNBH BANCORP, INC. AND
SUBSIDIARIES          Consolidated Statements of Stockholders' Equity and Comprehensive
Income        For the Six Months Ended June 30, 2007 and 2006 (Unaudited)

|                                                     | Common Stock | Retained  Earnings | Deferred Directors' Compensation | Accumulated Other Comprehensive Loss | Total     
|---------------------------------------------------- | ------------ | ------------------ | -------------------------------- | ------------------------------------ | ----------
|                                                     |              |                    |                                  |                                      |           
|Balances at December 31, 2005                        |              |                    | $                                | 6,088,540                            |           
|Earned portion of long term incentive plan           |              |                    |                                  | 57,925                               |           
|Issued 696 shares for employee stock purchase plan   |              |                    |                                  | 17,175                               |           
|Issued 270 shares for current directors' fees        |              |                    |                                  | 6,999                                |           
|Issued 1,244 shares for variable directors' fees     |              |                    |                                  | 32,257                               |           
|Directors' deferred compensation (3,511 stock units) |              |                    |                                  |                                      | 91,197    
|Comprehensive income:                                |              |                   
|Net income                                           |              |                    |                                  |                                      | 2,956,345 
|Change in unrealized loss on debt securities         |              |                   
|available for sale, net of tax effect                |              |                    |                                  |                                      | (208,873  
|                                                     |              |                    |                                  |                                      |           
|Total comprehensive income                           |              |                    |                                  |                                      | 2,747,472 
|Repurchase of common stock (30,000 shares)           |              |                    |                                  | (59,260                              | )         
|Cash dividends ($.42 per share)                      |              |                    |                                  |                                      | (1,336,628
|                                                     |              |                    |                                  |                                      |           
|Balances at June 30, 2006                            |              |                    | $                                | 6,143,636                            |           
|                                                     |              |                    |                                  |                                      |           
|                                                     |              |                   
|Balances at December 31, 2006                        |              |                    | $                                | 6,005,835                            |           
|Earned portion of long term incentive plan           |              |                    |                                  | 103,476                              |           
|Issued 699 shares for employee stock purchase plan   |              |                    |                                  | 16,966                               |           
|Issued 199 shares for current directors' fees        |              |                    |                                  | 4,991                                |           
|Issued 1,141 shares for variable directors' fees     |              |                    |                                  | 30,020                               |           
|Issued 685 shares for deferred directors' fees       |              |                    |                                  | 14,549                               |           
|Directors' deferred compensation (3,298 stock units) |              |                    |                                  |                                      | 102,323   
|Comprehensive income:                                |              |                    |                                  |                                      | -         
|Net loss                                             |              |                    |                                  |                                      | (2,233,750
|Change in unrealized loss on debt securities         |              |                   
|available for sale, net of tax effect                |              |                    |                                  |                                      | (63,115   
|Less reclassification adjustment for net losses      |              |                   
|included in net loss, net of tax effect              |              |                    |                                  |                                      | 365,249   
|                                                     |              |                    |                                  |                                      |           
|Total comprehensive loss                             |              |                    |                                  |                                      | (1,931,616
|Repurchase of common stock (39,000 shares)           |              |                    |                                  | (77,610                              | )         
|Cash dividends ($.42 per share)                      |              |                    |                                  |                                      | (1,284,294
|                                                     |              |                    |                                  |                                      |           
|Balances at June 30, 2007                            |              |                    | $                                | 6,098,227                            |           
|                                                     |              |                    |                                  |                                      |           

See notes to consolidated financial statements.

4

---



# FNBH BANCORP, INC. AND
SUBSIDIARIESConsolidated Statements of Cash Flows (Unaudited)

|                                                                     | Six months ended June 30
|-------------------------------------------------------------------- | ------------------------
|                                                                     |                         
|                                                                     |                         
|                                                                     |                         
|Cash flows from operating activities:                                |                         
|Net income (loss)                                                    |                         
|Adjustments to reconcile net income (loss) to net cash provided by   |                         
|operating activities:                                                |                         
|Provision for loan losses                                            |                         
|Depreciation and amortization                                        |                         
|Deferred income tax expense (benefit)                                |                         
|Net amortization on investment securities                            |                         
|Earned portion of long term incentive plan                           |                         
|Shares issued for current and variable directors' compensation       |                         
|Shares earned for deferred directors' compensation                   |                         
|Loss on disposal of equipment                                        |                         
|Loss on available for sale securities                                |                         
|Gain on sale of loans held for sale                                  |                         
|Proceeds from sale of loans                                          |                         
|Origination of loans held for sale                                   |                         
|Loss on the sale of other real estate owned, held for sale           |                         
|(Increase) decrease in accrued interest income and other assets      |                         
|Decrease in accrued interest, taxes, and other liabilities           |                         
|                                                                     |                         
|Net cash provided by operating activities                            |                         
|                                                                     |                         
|Cash flows from investing activities:                                |                         
|Purchases of available for sale securities                           |                         
|Purchases of held to maturity securities                             |                         
|Proceeds from maturities and calls of available for sale securities  |                         
|Proceeds from mortgage-backed securities paydowns-available for sale |                         
|Proceeds from maturities and calls of held to maturity securities    |                         
|Purchases of certificates of deposit                                 |                         
|Maturity of certificates of deposit                                  |                         
|Proceeds from sale of other real estate owned, held for sale         |                         
|Net (increase) decrease in loans                                     |                         
|Capital expenditures                                                 |                         
|                                                                     |                         
|Net cash provided by investing activities                            |                         
|                                                                     |                         
|Cash flows from financing activities:                                |                         
|Net decrease in deposits                                             |                         
|Payments on FHLBI note                                               |                         
|Proceeds from issuance of short term debt                            |                         
|Repayment of short term debt                                         |                         
|Repurchase of common stock                                           |                         
|Dividends paid                                                       |                         
|Shares issued for employee stock purchase                            |                         
|                                                                     |                         
|Net cash used in financing activities                                |                         
|                                                                     |                         
|Net decrease in cash and cash equivalents                            |                         
|Cash and cash equivalents at beginning of year                       |                         
|                                                                     |                         
|Cash and cash equivalents at end of period                           |                         
|                                                                     |                         
|                                                                     |                         
|Supplemental disclosures:                                            |                         
|Interest paid                                                        |                         
|Federal income taxes paid                                            |                         
|Loans, net of reserves, transferred to held for sale                 |                         
|Loans transferred to other real estate                               |                         
|Loans charged off                                                    |                         

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 of FNBH Bancorp, Inc. (the Corporation), 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 the Corporation as of June
          30, 2007, and consolidated results of operations and cash flows for the six
          months ended June 30, 2007 and 2006.

2.    
          The results of operations for the six months ended June 30, 2007 are 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 the 2006 Annual Report
          contained in the Corporations report on Form 10-K filing.

4.    
          The provision for income taxes represents federal income tax expense calculated
          using estimated annualized rates on taxable income generated during the
          respective periods.

5.    
          Investment and Mortgage-Backed Securities. A summary of the amortized cost and
          approximate fair value of investment and mortgage-backed securities at June 30,
          2007 and December 31, 2006 follows:

|                           | June 30, 2007 | December 31, 2006
|-------------------------- | ------------- | -----------------
|                           |               |                  
|                           |               |                  
|                           |               |                  
|Held to maturity:          |               |                  
|Obligations of state and   |               |                  
|political subdivisions     |               |                  
|                           |               |                  
|Total held to maturity     |               |                  
|                           |               |                  
|Available for sale:        |               |                  
|U.S Treasury and agency    |               |                  
|securities                 |               |                  
|Mortgage-backed securities |               |                  
|                           |               |                  
|Total available for sale   |               |                  
|                           |               |                  
|                           |               |                  
|Total securities           |               |                  
|                           |               |                  

There were nine available for sale
securities in a continuous loss position for 12 months or more at June 30, 2007, which
consist of nine agency securities. Because the declines in fair value were due to changes
in market interest rates, not in estimated cash flows, and the securities are bank
qualified municipals, federal agencies or mortgage-backed securities issued by federal
agencies, no other-than-temporary impairment was recorded at June 30, 2007. The
Corporation has both the intent and ability to hold these securities for the time
necessary to recover the amortized cost. 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 subsequent to June 30, 2007 in the third quarter of
2007, and reinvested in higher yielding securities of similar nature.

6

---



The following is a summary of the
unrealized losses and fair value of the securities available for sale at June 30, 2007, by
length of time that individual securities in each category have been in a continuous loss
position:

|                           | Less than 12 months | June 30, 200712 months or more | Total
|-------------------------- | ------------------- | ------------------------------ | -----
|                           |                     |                                |      
|                           |                     |                                |      
|                           |                     |                                |      
|Held to Maturity:          |                     |                                |      
|Obligations of state and   |                     |                               
|pollitical subdivisions    |                     |                                | $    
|                           |                     |                                |      
|Available for sale:        |                     |                                |      
|U.S. Treasury and agency   |                     |                               
|securities                 |                     |                                | $    
|Mortgage-backed securities |                     |                                |      
|                           |                     |                                |      
|Total available for sale   |                     |                                | $    
|                           |                     |                                |      

As of December 31, 2006, there were
36 investments that had been in a continuous loss position for 12 months or more and no
impairment was recorded.

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 $16,605,000 at June 30, 2007, $12,487,000
          at December 31, 2006, and $7,001,000 at June 30, 2006. (See Managements
          Discussion and Analysis of Financial Condition and Results of Operations).

7.    
          Basic net income (loss) per common share and diluted net loss per share are
          computed by dividing net income (loss) applicable to common stock by the
          weighted average number of shares of common stock and deferred director fee
          stock units outstanding during the period. Diluted net income per common share
          is computed by dividing net income applicable to common stock by the weighted
          average number of shares and deferred director fee stock units outstanding and
          potential common stock outstanding, such as shares of unvested restricted stock
          outstanding during the period calculated under the treasury stock method.

The following table presents basic
and diluted net income (loss) per share:

|                                            | Second Quarter | Year-to-Date
|------------------------------------------- | -------------- | ------------
|                                            |                |             
|                                            |                |             
|Weighted average basic shares outstanding   |                |             
|Effect of dilutive restricted stock         |                |             
|                                            |                |             
|Weighted average diluted shares outstanding |                |             
|                                            |                |             
|Net income (loss)                           |                |             
|Basic net income (loss) per share           |                |             
|Diluted net income (loss) per share         |                |             

8.    
          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 the Plan to date. The
          restricted stock awards have a five year vesting period. The awards are recorded
          at fair market value on the grant date and are amortized into salary expense
          over the vesting period. The number of shares available for issuance under the
          Plan cannot exceed 200,000. A summary of the activity under the Plan for the six
          months ended June 30, 2007 and 2006 is presented below:

7

---



|                          | 2007 | 2006
|------------------------- | ---- | ----
|                          |      |     
|                          |      |     
|                          |      |     
|Outstanding at January 1, |      |     
|Granted                   |      |     
|Vested                    |      |     
|Forfeited                 |      |     
|                          |      |     
|Outstanding at June 30,   |      |     
|                          |      |     

The total fair value of awards
granted during the three months ended June 30, 2007 and 2006 was $107,531 and $58,187,
respectively. The total fair value of awards vested during the three months ended at June
30, 2007 and 2006 was $8,442 and $43,093, respectively. As of June 30, 2007, there was
$190,759 of total unrecognized compensation cost related to non-vested stock awards
under the Plan. That cost is expected to be recognized over a weighted-average period of
3.8 years.

9.    
          Certain amounts included in the 2006 Consolidated Financial Statements have been
          reclassified to conform to the 2007 presentation.

8

---



Item 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 which the Corporation operates, 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.

The Corporation, a Michigan business
corporation, is a one bank holding company which owns all of the outstanding capital stock
of First National Bank in Howell (the Bank) and all of the outstanding stock of HB Realty
Co., a subsidiary. The following is a discussion of the Corporations results of
operations for the three and six months ended June 30, 2007 and 2006, and also provides
information relating to the Corporations financial condition, focusing on its
liquidity and capital resources.

|                                              | Second Quarter | Year-to-Date
|--------------------------------------------- | -------------- | ------------
|Earnings
(in thousands except per share data) |                |             
|                                              |                |             
|Net income (loss)                             |                |             
|Basic and diluted net income (loss) per share |                |             

Net income (loss) for the three
months ended June 30, 2007 as compared to the same period last year was negatively
affected by lower net interest income, a substantially higher provision for loan losses,
and lower noninterest income only partially offset by lower noninterest and lower tax
expense.

Net income (loss) for the three
months ended June 30, 2007 decreased $4,566,000 compared to the same period last year. In
the second quarter of 2007, net interest income decreased $768,000 (13.9%) combined with
an increase in the provision for loan losses of $5,781,000 (766.7%), and a decrease in
noninterest income of $646,000 (63.7%), partially offset by a decrease in noninterest
expense of $292,000 (7.6%) and federal income taxes of $2,336,000 (401.4%).

Net income (loss) for the six months
ended June 30, 2007 decreased $5,190,000 (175.6%) compared to the same period last year.
Net interest income decreased $1,725,000 (15.2%), combined with an increase in the
provision for loan losses of $6,120,000 (452.0%), and a decrease in noninterest income of
$715,000 (35.3%). Offsetting these unfavorable occurrences was a decrease in noninterest
expenses of $718,000 (9.3%) and federal income tax expense of $2,651,000 (206.1%).

|                                   | Second Quarter | Year-to-Date
|---------------------------------- | -------------- | ------------
|Net Interest Income
(in thousands) |                |             
|                                   |                |             
|Interest and dividends income      |                |             
|Interest expense                   |                |             
|Net interest income                |                |             

9

---



The following tables illustrate some
of the significant factors contributing to the changes in net interest income (fully tax
equivalent basis) for the three and the six months ended June 30.

# INTEREST YIELDS AND
COSTS (in thousands)June 30, 2007 and 2006

|                                               | ----------Second Quarter Averages----------
|---------------------------------------------- | -------------------------------------------
|                                               |                                            
|                                               |                                            
|                                               |                                            
|Assets:                                        |                                            
|Interest earning assets:                       |                                            
|Short term investments                         |                                            
|Certificates of deposit                        |                                            
|Securities:  Taxable                           |                                            
|Tax-exempt (1)                                 |                                            
|Commercial loans (2)(3)                        |                                            
|Consumer loans (2)(3)                          |                                            
|Mortgage loans (2)(3)                          |                                            
|                                               |                                            
|                                               |                                            
|Total earning assets and total interest income |                                            
|                                               |                                            
|Cash and due from banks                        |                                            
|All other assets                               |                                            
|Allowance for loan losses                      |                                            
|                                               |                                            
|Total Assets                                   |                                            
|                                               |                                            
|                                               |                                            
|Liabilities and Stockholders' Equity:          |                                            
|Interest bearing liabilities:                  |                                            
|NOW, Savings & MMDA                            |                                            
|Time                                           |                                            
|Short term borrowings                          |                                            
|FHLBI advances                                 |                                            
|                                               |                                            
|Total interest bearing liabilities and         |                                            
|Total interest expense                         |                                            
|                                               |                                            
|Non-interest bearing deposits                  |                                            
|All other liabilities                          |                                            
|Stockholders' Equity                           |                                            
|                                               |                                            
|Total Liabilities and Shareholders' Equity     |                                            
|                                               |                                            
|Interest spread                                |                                            
|                                               |                                            
|Net interest income-FTE                        |                                            
|                                               |                                            
|Net interest margin                            |                                            
|                                               |                                            

| | (1) | Average yields in the above table have been adjusted to a tax-equivalent basis
               using a 34% tax rate and exclude the effect of any market value adjustments
               recorded under Statement of Financial Accounting Standards No. 115.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | For
purposes of the computation above, non-accruing loans are included in the
               average daily loan balances.
| | --- | -------------------------------------------------------------------------------------------------------------------------

| | (3) | Interest
on loans includes origination fees                totaling $109,000 in 2007 and $123,000
in 2006.
| | --- | ----------------------------------------------------------------------------------------------------------

10

---



# INTEREST YIELDS AND
COSTS (in thousands)June 30, 2007 and 2006

|                                               | ----------Year-to-Date Averages----------
|---------------------------------------------- | -----------------------------------------
|                                               |                                          
|                                               |                                          
|                                               |                                          
|                                               |                                          
|Assets:                                        |                                          
|Interest earning assets:                       |                                          
|Short term investments                         |                                          
|Certificates of deposit                        |                                          
|Securities:  Taxable                           |                                          
|Tax-exempt (1)                                 |                                          
|Commercial loans (2)(3)                        |                                          
|Consumer loans (2)(3)                          |                                          
|Mortgage loans (2)(3)                          |                                          
|                                               |                                          
|                                               |                                          
|Total earning assets and total interest income |                                          
|                                               |                                          
|Cash and due from banks                        |                                          
|All other assets                               |                                          
|Allowance for loan losses                      |                                          
|                                               |                                          
|Total Assets                                   |                                          
|                                               |                                          
|                                               |                                          
|Liabilities and Stockholders' Equity:          |                                          
|Interest bearing liabilities:                  |                                          
|NOW, Savings & MMDA                            |                                          
|Time                                           |                                          
|Short term borrowings                          |                                          
|FHLBI advances                                 |                                          
|                                               |                                          
|Total interest bearing liabilities and         |                                          
|Total interest expense                         |                                          
|                                               |                                          
|                                               |                                          
|Non-interest bearing deposits                  |                                          
|All other liabilities                          |                                          
|Stockholders' Equity                           |                                          
|                                               |                                          
|Total Liabilities and Shareholders' Equity     |                                          
|                                               |                                          
|                                               |                                          
|Interest spread                                |                                          
|                                               |                                          
|Net interest income-FTE                        |                                          
|                                               |                                          
|Net interest margin                            |                                          
|                                               |                                          

| | (1) | Average yields in the above table have been adjusted to a tax-equivalent basis
               using a 34% tax rate and exclude the effect of any market value adjustments
               recorded under Statement of Financial Accounting Standards No. 115.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | For
purposes of the computation above, non-accruing loans are included in the
               average daily loan balances.
| | --- | -------------------------------------------------------------------------------------------------------------------------

| | (3) | Interest
on loans includes origination fees                totaling $195,000 in 2007 and $279,000
in 2006.
| | --- | ----------------------------------------------------------------------------------------------------------

11

---



Interest Earning
Assets/Interest IncomeOn a tax equivalent basis, interest
income decreased $92,000 (1.1%) in the second quarter of 2007 compared to the second
quarter of 2006. The yields on average earning assets decreased by 4 basis points combined
with a decrease of $2,850,000 (0.6%) in average earning assets.

The quarterly average balance of
short term investments, certificates of deposit and securities decreased approximately
$17,346,000 (24.7%) in the second quarter of 2007 as compared with the same period in
2006. Partially offsetting the decrease in average balances was an increase in the yield
on these investments of 22 basis points due to higher yields on short term investments.
Loans, which earn a higher yield than investments, had an increase in average balances of
$14,496,000 (3.9%) in the second quarter of 2007 compared to the same period last year
offset by a 22 basis point decrease in yield. While yields on our consumer and mortgage
loans increased slightly, the decrease in yield on commercial loans, the bulk of our
portfolio, decreased our overall yield. This decline from the prior year is due to
continued competition in loan pricing. Competition is expected to continue to impact loan
pricing throughout 2007. Moreover, these competitive pressures as well as the weakened
local economy have had and are expected to continue to have a negative impact on
commercial loan balances and yields.

For the first half of the year, tax
equivalent interest income decreased $109,000 (0.7%). Loan interest income increased
$236,000 (1.6%) due to higher average balances of $14,652,000 (3.9%) offset by the average
yield decreasing 17 basis points. The increase in loan growth occurred in commercial loans
as the average commercial loan balances increased $26,440,000 (8.6%). Short term
investment and securities interest income decreased by$346,000 (20.9%) due to a
decrease in the average balances of $17,677,000 (23.8%), partially offset by an increase
in the average yield of 17 basis points.

Interest Bearing
Liabilities/Interest ExpenseInterest expense on deposits for the
second quarter of 2007 increased $588,000 (24.9%) compared to the second quarter of 2006.
This was the result of higher cost of funds due to higher interest rates paid on deposits
of 75basis points partially offset by lower average balances of $5,007,000 (1.5%).

Interest expense on deposits for the
first half of 2007 increased $1,462,000 (33.1%) compared to the first half of 2006. This
was the result of an increase in the average interest rate paid on deposits of 90 basis
points, partially offset by lower average balances of $3,976,000 (1.2%) in 2007 compared
to 2006. Deposits have shifted to relatively higher cost time deposits as rates increased.
For competitive purposes, rates on deposit products were increased in the second half of
2006.

Borrowed funds average balance
increased $7,426,000 in the second quarter of 2007 compared to 2006 due to an increase in
Federal Funds and short term advances. At period end, borrowed funds were down $6,175,000
over the December 31, 2006 balances due to lower public fund deposit balances which is the
normal pattern for these funds. As of June 30, 2007, the Bank also had a $1,152,000 loan
advance outstanding, included in borrowed funds, which were entered into in 2000 from the
FHLBI. Additional FHLBI borrowings are available to fund future loan growth if needed.

LiquidityLiquidity 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 outflows
is being primarily met by short term 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 Federal Funds lines are added, the Bank must have liquidity
totaling 8% of assets. Should the Banks capital ratios fall below the well
capitalized level, additional liquidity totaling 5% of assets will be required.

12

---



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. As of June 30, 2007, the Bank had Large Certificates totaling approximately
$80,000,000 compared to $89,000,000 at December 31, 2006, including brokered certificates
of $4,000,000 at June 30, 2007. At June 30, 2007, the Bank had (including those over
$100,000) $20,000,000 in brokered certificates compared to $18,000,000 at December 31,
2006.

It is the intention of the
Banks management to handle unexpected liquidity needs through its Federal Funds
position with a correspondent bank and by FHLBI borrowings. The Bank has a line of credit
of approximately $34,000,000 available at the FHLBI. As of June 30, 2007, approximately
$1,200,000 of the line had been used for long term advances, as previously described, and
$2,000,000 for short term advances. The Bank has pledged certain mortgage loans as
collateral for this borrowing. The Bank also has a repurchase agreement in place where it
can borrow from a broker who will lend money against certain securities of the Bank.
Finally, management may look to available for sale securities in the
investment portfolio to meet additional liquidity needs.

Interest Rate RiskInterest rate risk is also addressed
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.

13

---



|Interest Rate
Sensitivity as of June 30, 2007
|---------------------------------------------

|0-3
Months                       | 4-12
Months | 1-5
Years | 5+
Years | Total  
|-------------------------------- | ----------- | --------- | -------- | -------
|                                 |             |           |          |        
|                                 |             |           |          |        
|Assets:                          |             |          
|Loans, net                       |             |           | $        | 118,191
|Securities                       |             |           |          | 5,618  
|Certificates of deposit          |             |           |          | 687    
|Short term investments           |             |           |          | 54     
|                                 |             |           |          |        
|Total rate sensitive assets      |             |           | $        | 124,550
|                                 |             |          
|Liabilities:                     |             |          
|NOW, savings & MMDA              |             |           | $        | 65,160 
|Time deposits                    |             |           |          | 60,729 
|Other borrowings                 |             |           |          | 4,154  
|                                 |             |           |          |        
|Total rate sensitive liabilities |             |           | $        | 130,043
|                                 |             |          
|Rate sensitivity gap and ratios: |             |          
|Gap for period                   |             |           | $        | (5,493 
|Cumulative gap                   |             |           |          | (5,493 
|                                 |             |          
|Cumulative rate sensitive ratio  |             |           |          | 0.96   

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

In the gap table above, the short
term (one year and less) cumulative interest rate sensitivity is asset sensitive as of
June 30, 2007. An asset sensitive position would normally indicate increased net interest
income in a rising rate environment. Gap analysis is limited and may not provide an
accurate indication of the impact of general interest rate movements on the net interest
margin since repricing of various categories of assets and liabilities is subject to the
Banks needs, competitive pressures, and the needs of the Banks customers. In
addition, various assets and liabilities indicated as repricing within the same period may
in fact reprice at different times within the period and at different rate indices.
Additionally, simulation modeling, which measures the impact of upward and downward
movements of interest rates on interest margin, provides meaningful insight into
strategies management can take to help mitigate the movement of interest rates.

|                                         | Second Quarter | Year-to-Date
|---------------------------------------- | -------------- | ------------
|Provision for Loan Losses
(in thousands) |                |             
|                                         |                |             
|Total                                    |                |             

The Corporation recorded a loan loss
provision of $6,535,000 in the second quarter of 2007 compared to a provision of $754,000
in the same period last year. The provision was impacted by a $3,568,000 charge-off
related to the reclassification of $16,642,000 of net loans ($18,421,000 of loans net of
reserves of $1,779,000) into the held for sale classification. The provision is based upon
an analysis of estimated losses inherent in the portfolio and other economic factors.
Nonperforming loans at June 30, 2007 have increased $4,118,000 to $16,605,000, from
December 31, 2006 ($12,487,000), and increased $9,604,000 from June 30, 2006 ($7,001,000).
Nonperforming loans at June 30, 2007 included $9,757,000 of loans held for sale. Net
charge-offs for the second quarter of 2007 were $6,591,000 compared to $486,000 in the
same period in 2006. Charge-offs reflect the $3,568,000 loss resulting from marking to
estimated fair market value the $18,421,000 of loans classified as held for sale in the
second quarter of 2007. There were additional charge-offs of $1,410,000 on loans not held
for sale during the second quarter. If the loans classified as held for sale at June 30,
2007 are sold, the actual loss may or may not equal the loss recorded at June 30, 2007 as
this is based on estimated fair market values at the time the loans were classified as
held for sale.

14

---



Year to date, the provision is
$7,474,000 compared to $1,354,000 in the prior year. Management has determined that the
allowance is adequate based on potential losses in the portfolio. At June 30, 2007, the
allowance for loan losses as a percent of loans, excluding loans held for sale, was 2.05%
compared to 1.98% at December 31, 2006 and 2.02% at June 30, 2006. For the first half of
2007, the Bank had net charge-offs of $7,265,000, which includes the $3,568,000 discussed
above related to the reclassification of loans to held for sale, compared to $852,000 for
2006. Non-accrual, past due 90 days, and renegotiated loans were 4.41% of total loans at June 30, 2007 and
1.88% of total loans at
June 30, 2007 (excluding nonperforming loans held for sale $9,757,000), compared to 3.25%
at December 31, 2006 and 1.90% at June 30, 2006.

Impaired loans, as defined by
Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan, totaled approximately $16,023,000 at June 30, 2007, and included
non-accrual and past due 90 days other than homogenous residential and consumer loans, and
$522,000 of commercial loans separately identified as impaired. Impaired loans included
$9,542,000 of commercial loans held for sale. Impaired loans totaled $15,500,000 at
December 31, 2006 and $9,900,000 at June 30, 2006. 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 be collectable on a timely basis. Nonperforming loans are reviewed
regularly for collectability. Any uncollectable balances are promptly charged off.

The adequacy of the allowance for
loan losses is determined by managements assessment of the composition of the loan
portfolio, an evaluation of specific credits, an analysis of the value of the underlying
collateral for those loans, historical loss experience, 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. Impaired commercial loans had specific reserves calculated in accordance with
SFAS No. 114 of $225,000 at June 30, 2007, $1,980,000 at December 31, 2005, and $2,400,000
at June 30, 2006.

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. The Corporation is looking into various
alternatives to reduce its level of nonperforming loans which may include selling loans.
Due to the economy in Michigan, the decline in the real estate market and the high level
of loan delinquencies on real estate secured loans, nonperforming loans may increase in
subsequent quarters, (without consideration of any loan sales). For these reasons,
management is considering the possibility of selling nonperforming loans due to the length
of time required to workout such loans in the current economy. As discussed
previously, $16,642,000 of net loans were classified as held for sale at June 30, 2007.
Accounting rules require loans to be classified as held for sale based on
managements intent. The ultimate disposition of the loans will be subject to the
final pricing, and other terms and conditions that are acceptable to the Bank.

Loans are generally placed on a
nonaccrual basis when principal or interest is past due ninety days or more and when, in
the opinion of management, full collection of principal and interest is unlikely. Loans
categorized as ninety days past due and still accruing are well secured and in the process
of collection. The following table reflects nonperforming assets.

15

---



|Nonperforming Assets
(in thousands)              | June 30, 2007 | March 31, 2007 | December 31, 2006 | June 30, 2006
|------------------------------------------------ | ------------- | -------------- | ----------------- | -------------
|                                                 |               |                |                   |              
|Nonaccrual loans                                 |               |                | $                 | 16,605       
|90 days or more past due and still accruing      |               |                |                   | -            
|                                                 |               |                |                   |              
|Total nonperforming loans                        |               |                |                   | 16,605       
|Other real estate owned                          |               |                |                   | 833          
|                                                 |               |                |                   |              
|Total nonperforming assets                       |               |                | $                 | 17,438       
|                                                 |               |               
|Nonperforming loans as a percent of total loans  |               |                |                   | 4.41         
|Nonperforming loans (excluding loans HFS) as a   |               |                |                   | 1.88         
|percent of total loans (1)                       |               |               
|Allowance for loan losses as a percent of        |               |               
|nonperforming loans (excluding loans HFS)        |               |                |                   | 109          
|Nonperforming assets as a percent of total loans |               |               
|and other real estate owned                      |               |                |                   | 4.62         
|                                                 |               |               
|Nonperforming assets as a percent of total loans |               |                |                   | 2.11         
|and other real estate owned (exluding loans      |               |               
|HFS) (1)                                         |               |               

|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---



The following table summarizes the
changes in the allowance for loan losses and reserve for unfunded credit commitments for
the first six months of 2007 and 2006 (in thousands):

|Components:                                                         | 2007 | 2006
|------------------------------------------------------------------- | ---- | ----
|                                                                    |      |     
|Allowance for loan losses                                           |      |     
|Balance, beginning of year                                          |      |     
|Loans charged off:                                                  |      |     
|Real estate mortgage                                                |      |     
|Commerical                                                          |      |     
|Consumer                                                            |      |     
|                                                                    |      |     
|Subtotal                                                            |      |     
|Charge-offs on loans transferred to held for sale                   |      |     
|                                                                    |      |     
|Total charge-offs                                                   |      |     
|                                                                    |      |     
|Recoveries to loans previously charged off:                         |      |     
|Real estate mortgage                                                |      |     
|Commerical                                                          |      |     
|Consumer                                                            |      |     
|                                                                    |      |     
|Total recoveries                                                    |      |     
|                                                                    |      |     
|Net loans charged off                                               |      |     
|Additions to allowance charged to operations                        |      |     
|                                                                    |      |     
|Balance, end of quarter                                             |      |     
|Reserve for unfunded credit commitments                             |      |     
|Balance, beginning of year                                          |      |     
|Additions to reserve charged to operations                          |      |     
|                                                                    |      |     
|Balance, end of quarter                                             |      |     
|                                                                    |      |     
|Total allowance for loan losses and reserve for                     |      |     
|unfunded credit commitments                                         |      |     
|                                                                    |      |     
|Ratios:                                                             |      |     
|Net loans charged off (annualized) to average loans outstanding     |      |     
|Net loans charged off (annualized) to average loans outstanding (1) |      |     
|Allowance for loan losses to loans outstanding                      |      |     

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

|                                  | Second Quarter | Year-to-Date
|--------------------------------- | -------------- | ------------
|Noninterest Income
(in thousands) |                |             
|                                  |                |             
|Total                             |                |             

Noninterest income which includes
service charges and other fee income, trust income, gain on sale of loans, loss on
available for sale securities, and other miscellaneous income decreased by $646,000 (63.7%) during the second
quarter of 2007 compared to the same quarter in 2006. Service charges and other fee income
decreased $103,000 (11.2%) during the second quarter of 2007 from the second quarter of
2006 due to decreases in service charges on deposit accounts, returned check fees and loan
service fees. The decrease in deposit service charges is primarily due to the bank waiving
charges during the conversion to our new core system. Trust income increased $21,000
(26.5%) in the second quarter 2007 compared to the same period last year due to higher
assets under management. Gain on the sale of loans decreased $11,000 (71.1%) due to lower
volume of mortgage loans originated for sale. During the second quarter of 2007, $353,000
of loans were sold compared to $1,003,000 in the same quarter of 2006. In the second
quarter of 2007, there was a loss on available for sale securities of $553,000. Management intends to
restructure the investment portfolio by selling all available for sale securities that
mature after June 30, 2008 and reinvest the proceeds into similar higher yielding
securities during the third quarter of 2007. Due to managements change in intention,
thereby making the unrealized loss on the securities other than a temporary loss, an
impairment of $553,000 was recorded as a loss on the available for sale securities at June 30, 2007.

17

---



For the six months ending June 30,
2007, noninterest income decreased $715,000 (35.3%). Service charges and other fee income
decreased $190,000 (10.4%) due primarily to lower deposit service charges (for the reason
discussed above), returned check fees and commercial and consumer loan late fees and
service charges. Trust income increased $31,000 (18.8%) due to the reason discussed above.
Gain on sale of loans decreased $3,000 (12.5%) due to fewer mortgages originated for sale
in 2007. There was a loss on available for sale securities of $553,000 through June 30, 2007 as discussed
above.

|                                   | Second Quarter | Year-to-Date
|---------------------------------- | -------------- | ------------
|Noninterest Expense
(in thousands) |                |             
|                                   |                |             
|Total                              |                |             

Noninterest expense decreased
$292,000 (7.6%) in the second quarter of 2007 compared to the same quarter in 2006.
Salaries and benefits decreased $580,000 (26.0%) in the second quarter of 2007 compared to
the second quarter of 2006 primarily due to decreased profit sharing expense of $363,000
(96.7%) and lower salaries of $180,000 (12.0%) due to open positions filled late in the
quarter, managements decision not to fill several vacant positions and the change in
chief executive officer in the second quarter of 2006. Net occupancy costs increased
$2,000 (0.7%) in 2007 compared to 2006 due to lower building maintenance expense and
building supplies offset by increased building services. Equipment expenses decreased
$5,000 (3.9%) due to lower depreciation expense in 2007. Professional and service fees
increased $70,000 (14.5%) due to a consulting project related to our core system
conversion, higher audit fees partially offset by lower legal fees. Computer service fees
increased $81,000 (97.9%) due to costs associated with the core system conversion in April
2007 and doubling of maintenance costs on the core system for a period of approximately
six months. Printing and supplies increased $47,000 (55.8%) primarily due to purchasing
supplies related to the core system conversion. Director fees decreased $6,000 (6.8%) due
to fewer committee meetings. Advertising expense increased $25,000 (50.7%) due to
outsourcing marketing in the first half of 2007 compared to the same period in 2006. Other
expenses increased $76,000 (17.6%) due to higher software amortization due to the core
system conversion, higher losses on the sale of three properties in other real estate
owned, partially offset by lower charitable contribution expense due to timing of
contributions. Due to the new core operating system placed in service during the second
quarter of 2007, software amortization and maintenance is expected to increase during the
remaining quarters of 2007.

For the first half of 2007,
noninterest expense decreased $718,000 (9.3%) compared to 2006. Salaries and employee
benefits decreased $839,000 (19.2%) primarily due to decreased profit sharing expense of
$664,000 (83.1%) and salaries of $101,000 (3.6%) due to same reasons as above. Net
occupancy expense decreased $10,000 (1.7%) primarily due to lower repair and maintenance
expenses partially offset by higher building services and property taxes. Equipment
expense decreased $28,000 (10.5%) due to lower other equipment expense and depreciation
expense. Professional and service fees increased $86,000 (8.8%) due to a consulting
project related to the core system conversion, higher audit fees partially offset by lower
legal fees. Computer service fees increased $125,000 (76.3%) due to the costs associated
with the core conversion, doubling of maintenance costs on the core system and increased
software maintenance costs. Printing and supplies increased $27,000 (17.0%) primarily due
to supplies related to the core system conversion. Director fees increased $13,000 (8.0%)
due to increased board and committee fees in the first quarter of 2007. Advertising
expense decreased $9,000 (5.7%). Other operating expenses decreased by $83,000 (9.3%) due
to a decrease in appraisal fees and charitable contributions and the partial reversal of
an accrual for a legal settlement which was recorded in the fourth quarter of 2006, and
settled for a lesser amount in the first quarter of 2007. These decreases were partially
offset by higher losses on the sale of five properties in other real estate owned.

18

---



|                                           | Second Quarter | Year-to-Date
|------------------------------------------ | -------------- | ------------
|Income Tax Expense (Credit)
(in thousands) |                |             
|                                           |                |             
|Total                                      |                |             

Fluctuations in income taxes resulted
primarily from changes in the level of profitability and in variations in the amount of
tax-exempt income.

|June 30, 2007                   | March 31, 2007 | December 31, 2006
|------------------------------- | -------------- | -----------------
|                                |                |                  
|Stockholders' Equity            |                |                  
|Ratio of Equity to Total Assets |                |                  

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 at June 30, 2007 was 11.27% and total risk-based capital was
12.53%. At June 30, 2006, these ratios were 13.03% and 14.29%, 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 was 9.97% at June 30, 2007, and 11.00% at June 30, 2006.
The minimum standard leverage ratio is 3% but financial institutions are expected to
maintain a leverage ratio of 1 to 2 percentage points above the 3% minimum.

Critical Accounting
PoliciesThe Corporation maintains critical
accounting policies for the allowance for loan losses. Refer to notes 1c and 1d of the
Notes to Consolidated Financial Statements for additional information included in Form
10-K for the year ended December 31, 2006.

Contractual
ObligationsAs of June 30, 2007, December 31,
2006, and June 30, 2006, the Bank had outstanding irrevocable standby letters of credit,
which carry a maximum potential commitment of approximately $2,900,000, $3,300,000 and
$5,500,000, respectively. These letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party. The majority of
these letters of credit are short-term guarantees of one year or less, although some have
maturities which extend as long as two years. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loans to customers. The
Bank primarily holds real estate as collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held on those commitments at June
30, 2007, December 31, 2006 and June 30, 2006, where there is collateral, is in excess of
the committed amount. A letter of credit is not recorded on the balance sheet unless a
customer fails to perform.

# Impact 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 in generally accepted accounting principles, 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. This
Statement does not require any new fair value measurements and is effective for the
Corporation beginning January 1, 2008. Management has not completed its review of the new
guidance; however, the effect of the Statements implementation is not expected to be
material to the Corporations financial statements or results of operations.

19

---



In February 2007, the FASB issued
Statement No. 159, The Fair Value Option for Financial Assets and FinancialLiabilities. 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 is effective for the Corporation beginning January 1, 2008. Management has not
completed its review of the new guidance; however, the effect of the Statements
implementation is not expected to be material to the Corporations results of
operations or financial position.

# Item 3. Quantitative and
Qualitative Disclosures About Market Risk

There has been no material change in
the market risk faced by the Corporation since December 31, 2006.

# Item 4. Controls and
Procedures

| | (a) | Evaluation
of Disclosure Controls and Procedures.
| | --- | -------------------------------------------------

| | With
the participation of management, the Corporations chief executive officer and chief
financial officer, after evaluating the effectiveness of the Corporations disclosure
controls and procedures (as defined in Exchange Act Rules 13a  15(e) and 15d 
15(e)) for the period ended June 30, 2007, have concluded that, as of such date, the
Corporations disclosure controls and procedures were effective.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | During
the quarter ended June 30, 2007, the Corporation converted to a new core operating system.
Due to the nature of a conversion of this magnitude, a number of critical internal
controls were affected. However, management believes the conversion went well and
appropriate internal controls were maintained or implemented during the process. Such
controls will be tested during the third quarter. There were no other changes in the
Corporations internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---



# PART II  OTHER
INFORMATION

# Item 1A. Risk Factors

There have been no material changes
from the risk factors previously disclosed in Part I, Item 1A of the Corporations
Form 10-K.

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

All securities sold by the
Corporation during the quarter ended June 30, 2007 were registered under the Securities
Act. There were no purchases of common stock by the Corporation for the three-months ended
June 30, 2007.

On August 17, 2006, the
Corporations Board of Directors authorized a new share repurchase program. The new
repurchase program authorizes the repurchase of up to 100,000 shares of the
Corporations common stock and expires August 17, 2007. The Corporation has
repurchased 49,700 shares under this program.

On May 17, 2007, the
Corporations Board of Directors authorized an additional repurchase plan. This
repurchase plan program authorizes the repurchase of up to 100,000 additional 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.

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

The registrants annual meeting
of stockholders was held on May 16, 2007.

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

The following two nominees for the
office of director were elected for a term expiring in 2009:

|               
|---------------
|John M. Pfeffer
|Steven T. Walsh

The following three nominees for the
office of director were elected for a term expiring in 2010:

|                    
|--------------------
|W. Rickard Scofield 
|Randolph E. Rudisill
|Barbara Draper      

|Additionally,
the following directors continue in office:
Term expiring in 2009:Gary R. BossRichard F. Hopper 
Term expiring in 2008:Athena BacalisDona Scott LaskeyJames R. McAuliffeR. Michael Yost
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(2)    The
ratification of the selection of BDO Seidman, LLP as the independent auditors for 2007
was also             approved.         Votes for:  1,982,296             Votes
against:  3,426                 Votes abstained:  18,672

21

---



# 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:

| | 10.1 | Management
Continuity Agreement
| | ---- | -------------------------------

| | 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).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

22

---



SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on
Form 10-Q for the quarter ended June 30, 2007 to be signed on its behalf by the
undersigned hereunto duly authorized.

| |  | FNBH BANCORP, INC./s/ Steven T. Walsh
Steven T. WalshPresident and Chief Executive Officer
/s/ Janice B. Trouba
Janice B. TroubaChief Financial Officer
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DATE: August 9, 2007

23