# UNITED STATES

# SECURITIES AND
EXCHANGE COMMISSION

# Washington, D.C. 20549

# Form 10-Q

[X]  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009

OR

[_]  TRANSITION
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the transition period from ________ to _______

Commission file number
0-25752

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

|MICHIGAN
(State or other jurisdiction ofincorporation or organization) | 38-2869722
(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 has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
      Yes[_]  No  [_]

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act.
Large accelerated filer  [_]  Accelerated filer  [_]  
Non-accelerated filer  [_]  Smaller reporting company  [X]

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:
3,138,190 shares of the Corporations Common Stock (no par value) were
outstanding as of July 31, 2009.

---



# TABLE OF CONTENTS

|           |  | PageNumber
|---------- |  | ----------
|           |  |           
|           |  |           
|Part I.    |  |           
|Item 1.    |  |           
|           |  |           
|           |  |           
|           |  |           
|           |  |           
|           |  |           
|           |  |           
|           |  |           
|Item 2.    |  |           
|Item 3.    |  |           
|Item 4.    |  |           
|           |  |           
|Part II.   |  |           
|Item 1A.   |  |           
|Item 2.    |  |           
|Item 4.    |  |           
|Item 6.    |  |           
|           |  |           
|Signatures |  |           

---



# PART I  FINANCIAL
INFORMATIONItem 1. Financial Statements

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

|                                                                    | June 30,2009 | December 31,2008
|------------------------------------------------------------------- | ------------ | ----------------
|                                                                    |              |                 
|                                                                    |              |                 
|Assets                                                              |              |                 
|Cash and due from banks                                             |              |                 
|Short term investments                                              |              |                 
|                                                                    |              |                 
|Total cash and cash equivalents                                     |              |                 
|Certificates of deposit                                             |              |                 
|Investment securities:                                              |              |                 
|Investment securities available for sale, at fair value             |              |                 
|FHLBI and FRB stock, at cost                                        |              |                 
|                                                                    |              |                 
|Total investment securities                                         |              |                 
|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                              |              |                 
|Facilities held for sale, net                                       |              |                 
|Deferred taxes, net                                                 |              |                 
|Accrued interest and other assets                                   |              |                 
|                                                                    |              |                 
|Total assets                                                        |              |                 
|                                                                    |              |                 
|                                                                    |              |                 
|Liabilities and Shareholders' 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                                                   |              |                 
|Shareholders' Equity                                                |              |                 
|Preferred stock, no par value.  Authorized 30,000 shares; no shares |              |                 
|issued and outstanding at June 30, 2009                             |              |                 
|Common stock, no par value. Authorized 7,000,000 shares; 3,138,190  |              |                 
|shares issued and outstanding at June 30, 2009 and 3,119,620        |              |                 
|shares issued and outstanding at December 31, 2008                  |              |                 
|Retained earnings                                                   |              |                 
|Deferred directors' compensation                                    |              |                 
|Accumulated other comprehensive income                              |              |                 
|                                                                    |              |                 
|Total shareholders' equity                                          |              |                 
|                                                                    |              |                 
|Total liabilities and shareholders' equity                          |              |                 
|                                                                    |              |                 

See notes to consolidated financial
statements.

1

---



# FNBH Bancorp, Inc.Consolidated
Statements of Operations (Unaudited)

|                                                        | Three 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, agency securities and CMO's              |                            |                         
|Obligations of states and political subdivisions        |                            |                         
|Preferred stock                                         |                            |                         
|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 deficiency after provision for loan losses |                            |                         
|                                                        |                            |                         
|                                                        |                            |                         
|Noninterest income:                                     |                            |                         
|Service charges and other fee income                    |                            |                         
|Trust income                                            |                            |                         
|Gain 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                                   |                            |                         
|FDIC assessment fees                                    |                            |                         
|Amortization expense                                    |                            |                         
|Printing and supplies                                   |                            |                         
|Director fees                                           |                            |                         
|Loan collection and foreclosed property expenses        |                            |                         
|Net loss on sale of OREO/repossessions                  |                            |                         
|Other                                                   |                            |                         
|                                                        |                            |                         
|Total noninterest expense                               |                            |                         
|                                                        |                            |                         
|                                                        |                            |                         
|Loss before federal income tax expense                  |                            |                         
|                                                        |                            |                         
|Federal income tax expense (benefit)                    |                            |                         
|                                                        |                            |                         
|                                                        |                            |                         
|Net loss                                                |                            |                         
|                                                        |                            |                         
|                                                        |                            |                         
|Per share statistics:                                   |                            |                         
|Basic and Diluted EPS                                   |                            |                         
|Dividends                                               |                            |                         
|Basic average shares outstanding                        |                            |                         
|Diluted average shares outstanding                      |                            |                         

See notes to consolidated financial
statements.

2

---



FNBH BANCORP, INC. AND
SUBSIDIARIESConsolidated
Statements of Shareholders Equity and Comprehensive IncomeFor the Six Months
Ended June 30, 2009 and 2008 (Unaudited)

|                                                        | Common Stock | Retained Earnings | Deferred Directors' Compensation | Accumulated Other Comprehensive Income (Loss) | Total
|------------------------------------------------------- | ------------ | ----------------- | -------------------------------- | --------------------------------------------- | -----
|                                                        |              |                   |                                  |                                               |      
|                                                        |              |                   |                                  |                                               |      
|Balances at December 31, 2007                           |              |                   | $                                | 6,141,835                                     |      
|Earned portion of long term incentive plan              |              |                   |                                  | 112,405                                       |      
|Issued 536 shares for employee stock purchase plan      |              |                   |                                  | 6,105                                         |      
|Issued 799 shares for current directors' fees           |              |                   |                                  | 9,497                                         |      
|Issued 712 shares for deferred directors' fees          |              |                   |                                  | 15,108                                        |      
|Directors' deferred compensation (2,911 stock units)    |              |                   |                                  |                                               |      
|Comprehensive income (loss):                            |              |                  
|Net loss                                                |              |                   |                                  |                                               |      
|Change in unrealized gain (loss) on investment          |              |                  
|securities available for sale, net of tax effect        |              |                   |                                  |                                               |      
|                                                        |              |                   |                                  |                                               |      
|Total comprehensive loss                                |              |                   |                                  |                                               |      
|Cash dividends ($.16 per share)                         |              |                   |                                  |                                               |      
|                                                        |              |                  
|Balances at June 30, 2008                               |              |                   | $                                | 6,284,950                                     |      
|                                                        |              |                  
|                                                        |              |                  
|Balances at December 31, 2008                           |              |                   | $                                | 6,583,158                                     |      
|Cumulative effect of change in accounting               |              |                  
|principle, adoption of FSP SFAS 115-2 and               |              |                  
|SFAS 124-2, net of tax                                  |              |                   |                                  |                                               |      
|Earned portion of long term incentive plan              |              |                   |                                  | 59,056                                        |      
|Issued 1,394 shares for employee stock purchase    plan |              |                   |                                  | 3,154                                         |      
|Issued 16,907 shares for current directors' fees        |              |                   |                                  | 40,155                                        |      
|Issued 823 shares for deferred directors' fees          |              |                   |                                  | 16,414                                        |      
|Comprehensive income (loss):                            |              |                  
|Net loss                                                |              |                   |                                  |                                               |      
|Change in unrealized gain (loss) on investment          |              |                  
|securities available for sale                           |              |                   |                                  |                                               |      
|Less reclassification adjustment for realized           |              |                  
|securities net gain included in net loss                |              |                   |                                  |                                               |      
|                                                        |              |                   |                                  |                                               |      
|Total comprehensive loss                                |              |                   |                                  |                                               |      
|                                                        |              |                  
|Balances at June 30, 2009                               |              |                   | $                                | 6,701,937                                     |      
|                                                        |              |                  

See notes to consolidated financial
statements.

3

---



FNBH BANCORP, INC. AND
SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)

|                                                                               | Six months ended June 30
|------------------------------------------------------------------------------ | ------------------------
|                                                                               |                         
|                                                                               |                         
|                                                                               |                         
|Cash flows from operating activities:                                          |                         
|Net loss                                                                       |                         
|Adjustments to reconcile net loss to net cash provided by operating activites: |                         
|Provision for loan losses                                                      |                         
|Depreciation and amortization                                                  |                         
|Deferred income tax expense                                                    |                         
|Net amortization on investment securities                                      |                         
|Earned portion of long term incentive plan, net                                |                         
|Shares issued for current and variable directors' compensation                 |                         
|Shares earned for deferred directors' compensation                             |                         
|(Gain)loss on disposal of equipment                                            |                         
|Gain on sale of available for sale securities                                  |                         
|Loss on the sale of other real estate owned, held for sale                     |                         
|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 sales of available for sale 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                                            |                         
|Net decrease in loans                                                          |                         
|Proceeds from sale of other real estate owned, held for sale                   |                         
|Capital expenditures                                                           |                         
|Proceeds from the sale of equipment                                            |                         
|                                                                               |                         
|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                                                   |                         
|Maturity of long term debt                                                     |                         
|Dividends paid                                                                 |                         
|Shares issued for employee stock purchase plan                                 |                         
|                                                                               |                         
|Net cash used in financing activities                                          |                         
|                                                                               |                         
|Net increase 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                                                                  |                         
|Net federal income taxes refunded                                              |                         
|Loans transferred to other real estate                                         |                         
|Loans charged off                                                              |                         

See notes to consolidated financial
statements.

4

---



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, 2009 and consolidated results of operations and cash flows for the
          six months ended June 30, 2009 and 2008.

2.    
          The results of operations for the six months ended June 30, 2009 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 2008 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 or loss generated during the
          respective periods adjusted, as necessary, to avoid recording tax benefits
          during loss periods in excess of amounts expected to be realized.

5.    
          Investment Securities. A summary of the amortized cost and approximate fair
          value of investment securities available for sale at June 30, 2009 and
          December 31, 2008 follows:

|                              | June 30, 2009 | December 31, 2008
|----------------------------- | ------------- | -----------------
|                              |               |                  
|                              |               |                  
|                              |               |                  
|                              |               |                  
|Obligations of state and      |               |                  
|political subdivisions        |               |                  
|U.S. Treasury and agency      |               |                  
|securities                    |               |                  
|Mortgage-backed/CMO           |               |                  
|securities                    |               |                  
|Preferred stock securities(1) |               |                  
|                              |               |                  
|Total securities              |               |                  
|                              |               |                  

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

In early April 2009, the FASB
issued the following FSPs that are intended to provide additional guidance and require
additional disclosures relating to fair value measurements and other-than-temporary
impairment (OTTI) on an interim and/or annual basis:

FSP No. FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This
FSP provides additional guidance for estimating fair value in accordance with SFAS
No. 157, Fair Value Measurements, when the volume and level of activity for
the asset or liability have significantly decreased. The FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. The FSP is required
to be applied prospectively and retrospective application is not permitted. It is
effective for interim and annual periods ending after June 15, 2009. The Corporation
adopted this FSP effective April 1, 2009.

5

---



FSP No. FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments. This FSP, which
applies to debt securities, is intended to provide greater clarity to investors about the
credit and noncredit components of an OTTI event and to more effectively communicate when
an OTTI event has occurred. This FSP defines the credit component of an OTTI charge as the
difference between the present value of the cash flows expected to be collected and the
amortized cost basis of the debt security. When an entity does not intend to sell the
security and it is more likely than not that the entity will not have to sell the security
before recovery of its cost basis, it will recognize the credit component of an OTTI
charge in earnings and the remaining portion in other comprehensive income. In addition,
this FSP requires additional disclosures about investment securities on an interim basis.
The FSP is effective for interim and annual periods ending after June 15, 2009. This
FSP is to be applied prospectively with a cumulative effect transition adjustment, if
applicable, as of the beginning of the period in which it is adopted.

Through March 31, 2009, the
Corporation had previously recognized a cumulative other-than-temporary impairment charge
of $1,338,938 on a non-government agency CMO security. Based on managements intent
not to sell this security before recovery and the likelihood that the Corporation will not
have to sell the security before recovery of its cost basis, the Corporation adopted FSP
No. FAS 115-2 and FAS 124-2 effective April 1, 2009, and reversed $1,049,951
($692,967 net of tax) of the non credit portion of the cumulative life-to-date OTTI
charge. The adoption of the FSP was recognized as a cumulative effect adjustment that
increased retained earnings and decreased accumulated other comprehensive income as of
April 1, 2009. At June 30, 2009, the unrealized (non credit) loss on the
CMO security was determined to be $778,585 using the valuation methodology, inputs and
assumptions described more fully below.

At June 30, 2009, there were
five municipal securities in a continuous loss position for 12 months or more. The related
loss is primarily due to changes in interest rates and conditions within municipal
insurance markets, rather than credit concerns. Unrealized losses on these securities at
June 30, 2009 have not been recognized in income because management does not intend
to sell the securities and it is not more than likely than not that the Corporation will
be required to sell the securities before the anticipated recovery of their remaining
amortized cost basis. As of December 31, 2008, there were no securities in a
continuous loss position for 12 months or more.

Based on managements review of
the securities portfolio for the existence of other-than-temporary impairment, no
additional impairment charges were required to be recognized during the six months ended
June 30, 2009. Managements evaluation considered various qualitative and
quantitative factors regarding each investment category, including if the securities were
U.S. Government issued, the credit rating on the securities, credit outlook, payment
status and financial condition, the length of time the security has been in a loss
position, the size of the loss position and other meaningful information. In addition,
with respect to the Corporations non-government agency CMO security, management
regularly completes a cash flow analysis of the CMO with the assistance of a third party
vendor. The analysis considers assumptions regarding voluntary prepayment speed, default
rate, and loss severity using the CMOs original yield as the discount rate. At
June 30, 2009, the estimated fair value of the CMO, based on a combination of Level 2
and Level 3 inputs, including a market participant discount rate, indicated that the
related cash flows continue to support the amortized cost of the security and no
additional other-than-temporary impairment had been incurred.

6

---



The following is a summary of the
unrealized losses and fair value of the securities available for sale portfolio at
June 30, 2009 by length of time that individual securities in each category have been
in a continuous loss position:

|                           |  | June 30, 2009 |  
|-------------------------- |  | ------------- | -
|                           |  |               |  
|                           |  |              
|                           |  |               |  
|                           |  |               |  
|                           |  |               |  
|                           |  |               |  
|Obligations of state and   |  |              
|political subdivisions     |  |               | $
|U.S. Treasury and agency   |  |              
|securities                 |  |               |  
|Mortgage-backed/CMO        |  |              
|securities                 |  |               |  
|Preferred stock securities |  |               |  
|                           |  |               |  
|Total available for sale   |  |               | $
|                           |  |               |  

|                           |  | December 31, 2008 |  
|-------------------------- |  | ----------------- | -
|                           |  |                   |  
|                           |  |                  
|                           |  |                   |  
|                           |  |                   |  
|                           |  |                   |  
|                           |  |                   |  
|Obligations of state and   |  |                  
|political subdivisions     |  |                   | $
|U.S. Treasury and agency   |  |                  
|securities                 |  |                   |  
|Mortgage-backed/CMO        |  |                  
|securities                 |  |                   |  
|Preferred stock securities |  |                   |  
|                           |  |                   |  
|Total available for sale   |  |                   | $
|                           |  |                   |  

The amortized cost and approximate
fair value of investment securities at June 30, 2009 and December 31, 2008, by
contractual maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

|                                      | June 30, 2009 | December 31, 2008
|------------------------------------- | ------------- | -----------------
|                                      |               |                  
|                                      |               |                  
|                                      |               |                  
|                                      |               |                  
|Due in one year or less               |               |                  
|Due after one year through five years |               |                  
|Due after five years through          |               |                  
|ten years                             |               |                  
|Due after ten years                   |               |                  
|                                      |               |                  
|                                      |               |                  
|Mortgage-backed/CMO securities        |               |                  
|                                      |               |                  
|Totals                                |               |                  
|                                      |               |                  

Investment securities, with an
amortized cost of approximately $13,099,000 at June 30, 2009 and $17,871,000 at
December 31, 2008 were pledged to secure public deposits and for other purposes
required or permitted by law.

The Bank owns stock in both the
Federal Home Loan Bank of Indianapolis (FHLBI) and the Federal Reserve Bank (FRB),
both of which are recorded at cost. The Bank is required to hold stock in the FHLBI equal
to 5% of the institutions borrowing capacity with the FHLBI. The Banks
investment in FHLBI stock amounted to $950,700 at June 30, 2009 and December 31,
2008. The Banks investment in FRB stock, which totaled $44,250 at June 30, 2009
and December 31, 2008, is a requirement for the Banks membership in the Federal
Reserve System. These investments can only be resold to, or redeemed by, the issuer.

7

---



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 $44,692,000 at June 30, 2009,
          $38,656,000 at December 31, 2008, and $28,138,000 at June 30, 2008.
          (See Managements Discussion and Analysis of Financial Condition and
          Results of Operations).

7.    
          In April 2009, the FASB also issued FSP No. FAS 107-1 and APB 28-1,
          Interim Disclosures about Fair Value of Financial Instruments which
          requires disclosures about fair value of financial instruments for interim
          reporting periods of publicly traded companies in addition to annual reporting
          periods. This FSP also requires disclosure of the method(s) and significant
          assumptions used to estimate the fair value of financial instruments and changes
          in method(s) and significant assumptions, if any, during the period. This
          FSP is effective for interim reporting periods ending after June 15, 2009.
          In conjunction with the adoption of FSP 157-4 and FSP FAS 115-2 and FAS 124-2
          (see Note 5), the Corporation also adopted this FSP effective April 1, 2009
          and has included additional required disclosures below.

Fair value is defined as a price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. A fair value measurement assumes that the
transaction to sell the asset or transfer the liability occurs in the principal market for
the asset or liability. The price in the principal (or most advantageous) market used
to measure the fair value of the asset or liability shall not be adjusted for transaction
costs. An orderly transaction is a transaction that assumes exposure to the market for a
period prior to the measurement date to allow for marketing activities that are usual and
customary for transactions involving such assets and liabilities; it is not a forced
transaction. Market participants are buyers and sellers in the principal market that are
(i) independent, (ii) knowledgeable, (iii) able to transact and
(iv) willing to transact.

Fair value requires the use of
valuation techniques that are consistent with the market approach, the income approach
and/or the cost approach. The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable assets and liabilities.
The income approach uses valuation techniques to convert future amounts, such as cash
flows and earnings, to a single present amount on a discounted basis. The cost approach is
based on the amount that currently would be required to replace the service capacity of an
asset (replacement cost). Valuation techniques should be consistently applied. Inputs to
valuation techniques refer to the assumptions that market participants would use in
pricing the asset or liability. Inputs may be observable, meaning those that reflect the
independent sources, or unobservable, meaning those that reflect the reporting
entitys own assumptions about the assumptions market participants would use in
pricing the asset or liability developed based on the best information available in the
circumstances. In that regard, the fair value hierarchy for valuation inputs that gives
the highest priority to quoted prices in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:

| | Level
1: Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement date.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Level
2: Significant other observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; or other inputs that are observable
or can be derived from or corroborated by observable market data by correlation or other
means.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Level
3: Significant unobservable inputs that reflect a reporting entitys own assumptions
about the assumptions that market participants would use in pricing an asset or liability.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

---



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

| | Securities
available for sale. Securities available for sale are recorded at fair value on a
recurring basis. Fair value measurement is based on quoted prices, if available. If quoted
prices are not available, fair values are measured using independent pricing models. Level
2 securities include U.S. government and agency securities, other U.S. government and
agency mortgage-backed securities, municipal bonds and preferred stock securities. Level 3
securities include private collateralized mortgage obligations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | See
Note 5 for additional information on securities available for sale and their fair values.
| | ---------------------------------------------------------------------------------------------

| | Loans.  The
Corporation does not record loans at fair value on a recurring basis.
                    However, from time to time, the Corporation records nonrecurring fair
value                     adjustments to collateral dependent loans to reflect partial
write-downs or                     specific reserves that are based on the observable
market price or current                     appraised value of the collateral. These
loans are reported in the nonrecurring                     table below at initial
recognition of impairment and on an ongoing basis until                     recovery or
charge off. When the fair value of the collateral is based on an
                    observable market price or a current appraised value, the Corporation
records                     the impaired loan as nonrecurring Level 2. When a current
appraised value is not                     available or management determines the fair
value of the collateral is further                     impaired below the appraised value
and there is no observable market price, the                     Corporation records the
impaired loan as nonrecurring Level 3.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
real estate owned.Real estate acquired through foreclosure is adjusted to fair value
less costs to sell upon transfer of the loan to other real estate owned, usually based on
an appraisal of the property. Subsequently, other real estate owned is carried at the
lower of carrying value or fair value. A valuation based on a current appraisal or by a
brokers opinion is considered a Level 2 fair value.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Assets and liabilities measured at
fair value on a recurring basis are as follows:

|                                         |  | Fair Value Measurements at June 30, 2009
|---------------------------------------- |  | ----------------------------------------
|                                         |  |                                         
|                                         |  |                                         
|                                         |  |                                         
|                                         |  |                                         
|Investment securities available for sale |  |                                         

|                                         |  | Fair Value Measurements at December 31, 2008
|---------------------------------------- |  | --------------------------------------------
|                                         |  |                                             
|                                         |  |                                             
|                                         |  |                                             
|                                         |  |                                             
|Investment securities available for sale |  |                                             

9

---



Assets and liabilities measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) for the
quarter ended June 30, 2009 are as follows:

|                                                                       | Three months endedJune 30, 2009 | Six months endedJune 30, 2009                                         
|---------------------------------------------------------------------- | ------------------------------- | ----------------------------------------------------------------------
|Fair Value
Measurements Using Significant Unobservable Inputs(Level 3) |                                 | Fair Value Measurements Using
Significant Unobservable Inputs(Level 3)
|                                                                       |                                 |                                                                       
|                                                                       |                                 |                                                                       
|Fair value of CMO, beginning of period(1)                              |                                 |                                                                       
|Total gains (losses) realized/unrealized:                              |                                 |                                                                       
|Included in earnings                                                   |                                 |                                                                       
|Included in other comprehensive income                                 |                                 |                                                                       
|Purchases, issuances, and other settlements                            |                                 |                                                                       
|Transfers into Level 3                                                 |                                 |                                                                       
|                                                                       |                                 |                                                                       
|Fair value of CMO, June 30, 2009                                       |                                 |                                                                       
|                                                                       |                                 |                                                                       
|                                                                       |                                 |                                                                       
|Total amount of losses for the period included                         |                                 |                                                                       
|in earnings attributable to the change in unrealized                   |                                 |                                                                       
|losses relating to assets still held at June 30, 2009                  |                                 |                                                                       
|                                                                       |                                 |                                                                       

|(1) | Non-agency
CMO classified as available for sale is valued using internal
                    valuation models and pricing information from third parties.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

Assets and liabilities measured at
fair value on a nonrecurring basis are as follows:

|                        |  | Fair Value Measurements at June 30, 2009
|----------------------- |  | ----------------------------------------
|                        |  |                                         
|                        |  |                                         
|                        |  |                                         
|                        |  |                                         
|Impaired loans (1)      |  |                                         
|Other real estate owned |  |                                         

|                  |  | Fair Value Measurements at December 31, 2008
|----------------- |  | --------------------------------------------
|                  |  |                                             
|                  |  |                                             
|                  |  |                                             
|                  |  |                                             
|Impaired loans(1) |  |                                             

|(1) | Represents
carrying value and related write-downs and specific reserves           pertaining to
collateral dependent loans for which adjustments are based on the           appraised
value of the collateral or by other unobservable inputs.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---



Fair value disclosures require
fair-value information about financial instruments for which it is practicable to estimate
that value. In cases where quoted market prices are not available, fair values are based
on estimates using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and estimates
of future cash flows. In that regard, the derived fair-value estimates cannot be
substantiated by comparison to independent markets and, in many cases, cannot be realized
in immediate settlement of the instrument.

Fair-value methods and assumptions
for the Corporations financial instruments are as follows:

| | Cash
and cash equivalents  The carrying amounts reported in the
consolidated balance sheet for cash and short term investments reasonably approximate
those assets fair values.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Investment
securities  Fair values for investment securities are determined as
discussed above.
| | ------------------------------------------------------------------------------------------------

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

| | Loans
 For variable-rate loans that reprice frequently, fair values are generally based on
carrying values, adjusted for credit risk. The fair value of fixed-rate loans is estimated
by discounting future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining maturities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accrued
interest income  The carrying amount of accrued interest income is a
reasonable estimate of fair value.
| | ----------------------------------------------------------------------------------------------------------------

| | Deposit
liabilities  The fair value of deposits with no stated maturity, such
as demand deposit, NOW, savings, and money market accounts, is equal to the amount payable
on demand. The fair value of certificates of deposit is estimated using rates currently
offered for wholesale funds with similar remaining maturities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
borrowings  The fair value of other borrowings is estimated based on
quoted market prices.
| | -------------------------------------------------------------------------------------------------

| | Accrued
interest payable  The carrying amount of accrued interest payable is
a reasonable estimate of fair value.
| | ------------------------------------------------------------------------------------------------------------------

| | Off-balance-sheet
instruments  The fair value of commitments to extend credit is
estimated using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value of
commitments to extend credit, including letters of credit, is estimated to approximate
their aggregate book balance and is not considered material and therefore not included in
the following table.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---



The estimated fair values of the
Corporations financial instruments are as follows:

|                                          | June 30, 2009 | December 31, 2008
|----------------------------------------- | ------------- | -----------------
|                                          |               |                  
|                                          |               |                  
|                                          |               |                  
|                                          |               |                  
|Financial assets:                         |               |                  
|Cash and cash equivalents                 |               |                  
|Certificates of deposit                   |               |                  
|Investment and mortgage-backed securities |               |                  
|FHLBI and FRB stock                       |               |                  
|Loans, net                                |               |                  
|Accrued interest income                   |               |                  
|Financial liabilities:                    |               |                  
|Deposits:                                 |               |                  
|Demand                                    |               |                  
|NOW                                       |               |                  
|Savings and money market accounts         |               |                  
|Time deposits                             |               |                  
|Brokered certificates                     |               |                  
|Other borrowings                          |               |                  
|Accrued interest expense                  |               |                  

Current accounting pronouncements
require disclosure of the estimated fair value of financial instruments. Given the current
market conditions, a portion of our loan portfolio is not readily marketable and market
prices do not exist. We have not attempted to market our loans to potential buyers, if any
exist, to determine the fair value of those instruments in accordance with the definition
in Statement No. 157. Since negotiated prices in illiquid markets depend upon the then
present motivations of the buyer and seller, it is reasonable to assume that actual sales
prices could vary widely from any estimate of fair value made without the benefit of
negotiations. Additionally, changes in market interest rates can dramatically impact the
value of financial instruments in a short period of time. Accordingly, the fair value
measurements for loans included in the table above are unlikely to represent the
instruments liquidation values.

Limitations
Fair-value estimates are made at a
specific point in time based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or discounts that could
result from offering for sale at one time the Corporations entire holdings of a
particular financial instrument. Because no market exists for a significant portion of the
Corporations financial instruments, fair-value estimates are based on judgments
regarding future loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment, and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.

8.    
          Basic earnings per share is based on the weighted average number of common
          shares and participating securities outstanding during the period. Diluted
          earnings per share are the same as basic earnings per share because any
          additional potential common shares issuable are included in the basic earnings
          per share calculation. FSP EITF 03-6-1 was adopted effective January 1,
          2009. This FSP requires that unvested stock awards which contain non-forfeitable
          rights to dividends or dividend equivalents, whether paid or unpaid (referred to
          as participating securities), be included in the number of shares
          outstanding for both basic and diluted earnings per share calculations. Our
          unvested restricted stock under the Long-Term Incentive Plan is considered a
          participating security. All prior period earnings per share data presented is
          required to be adjusted retrospectively to conform to the provisions of the FSP.
          In the event of a net loss, the participating securities are excluded from the
          calculation of both basic and diluted earnings per share. Due to our net loss
          for the three and six months ended June 30, 2009 and 2008, the unvested
          restricted shares of 4,636 and 9,711 for the three and six months ended
          June 30, 2009 and 2008, were not included in determining both basic and
          diluted earnings per share for the respective periods.

12

---



The following table presents basic
and diluted earnings per share:

|                                                                | Second Quarter | Year-to-Date
|--------------------------------------------------------------- | -------------- | ------------
|                                                                |                |             
|                                                                |                |             
|                                                                |                |             
|Weighted average common shares outstanding                      |                |             
|Weighted average unvested restricted stock outstanding          |                |             
|                                                                |                |             
|Weighted average basic and diluted common shares    outstanding |                |             
|                                                                |                |             
|Net loss available to common shareholders                       |                |             
|Basic and diluted net loss per share                            |                |             

9.    
          Under the Long-Term Incentive Plan (the Plan), the Corporation
          had the authority to grant stock options and
restricted stock as compensation to key employees. Under the terms of the Plan, such authority
expired April 22, 2008.  The
          Corporation did not award any stock options under the Plan. The
          restricted shares have a five-year vesting period. The awards are recorded at
          fair value on the grant date and are amortized into salary expense over the
          vesting period.

A summary of the activity under the
Plan for the six months ended June 30, 2009 and 2008 is presented below:

|                          | 2009 | 2008
|------------------------- | ---- | ----
|                          |      |     
|Restricted Stock Awards   |      |     
|                          |      |     
|                          |      |     
|Outstanding at January 1, |      |     
|Granted                   |      |     
|Vested                    |      |     
|Forfeited                 |      |     
|                          |      |     
|Outstanding at June 30,   |      |     
|                          |      |     

The total fair value of stock awards
granted during the three and six months periods ended June 30, 2008 was $43,697 and
$177,233, respectively. No stock awards have been granted during 2009, as the Corporation's
authority to grant awards expired April 22, 2008. The total fair
value of the awards vested during the three months ended June 30, 2009 and 2008 was
$44,765 and $97,394, respectively. The total fair value of the awards vested during the
six months ended June 30, 2009 and 2008 was $59,056 and $111,109, respectively. As of
June 30, 2009, there was $80,926 of total unrecognized compensation cost related to
nonvested stock awards under the Plan. That cost is expected to be recognized over a
weighted-average period of 3.3 years.

10.    
          Certain amounts included in the 2008 Consolidated Financial Statements have been
          reclassified to conform to the 2009 presentation.

11.    
          The Corporation has evaluated subsequent events through August 14, 2009,
the filing date of this Form 10-Q.  The Corporation has determined that there were no
subsequent events that require disclosure.

# 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. Important factors also include the Corporation's ability to raise additional
capital and the nature and scope of any additional enforcement actions that may be taken
by the agencies that regulate the Corporation and its subsidiary bank.

13

---



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 six months ended June 30, 2009 and 2008, and the
Corporations financial condition, focusing on its
liquidity and capital resources.

On October 16, 2008, the Bank
entered into a formal agreement with the Office of the Comptroller of the Currency (OCC).
Pursuant to the agreement, the Bank has agreed to take certain actions intended to address
various issues that have impacted the Banks financial condition and performance. The
agreement primarily pertains to actions regarding asset quality and overall administration
of the Banks credit functions. The Bank has implemented a new loan policy, completed
additional evaluations of the loan portfolio (using both internal and external
resources) and obtained updated appraisals on the majority of adversely rated
credits. The Bank has also obtained a new outside independent loan review service for
2009. The Corporation believes that the Bank has made progress in addressing the issues
set forth in the formal agreement; however, to date, the issues have not all
been resolved and the Bank remains subject to the terms
of that agreement. The Bank has also been advised of additional capital requirements, which
the Bank is currently failing to meet.  See the Capital section of
this Managements Discussion and Analysis for further
details.

|                                    
|------------------------------------
|                                    
|                                    
|                                    
|Net loss                            
|Basic and diluted net loss per share

Net loss for the six months ended
June 30, 2009 as compared to the same period last year, was negatively affected by a
substantially higher loan loss provision, lower interest income on loans due to lower
average balances, higher nonaccrual loans and lower yields, higher noninterest expense
(primarily due to an industry wide FDIC special assessment fee and higher losses on OREO
properties), and recognition of federal income tax expense necessary to adjust realizable
deferred tax assets. These unfavorable variances were partially offset by lower interest
expense due to lower average deposit balances and lower rates and higher noninterest
income.

Net loss for the three months ended
June 30, 2009 increased $7,453,000 compared to the same period last year. In the
second quarter of 2009, net interest income decreased $863,000, provision for loan losses
increased $3,486,000, noninterest expense increased $327,000 and federal income tax credit
decreased $2,961,000. Partially offsetting these unfavorable variances was an increase in
noninterest income of $184,000.

Net loss for the six months ended
June 30, 2009, increased $8,663,000 compared to six months ended June 30, 2008.
Net interest income decreased $1,386,000, provision for loan loss increased $3,997,000,
noninterest expense increased $646,000 and federal income tax credit decreased $2,767,000.
Partially offsetting these unfavorable variances is an increase in noninterest income of
$133,000.

|                            
|----------------------------
|                            
|                            
|                            
|                            
|Interest and dividend income
|Interest expense            
|                            
|Net interest income         
|                            

14

---



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 six months ended June 30:

# INTEREST YIELDS AND
COSTS              June 30, 2009 and 2008(in thousands)

|                                               | ----------Second Quarter----------
|---------------------------------------------- | ----------------------------------
|                                               |                                   
|                                               |                                   
|                                               |                                   
|                                               |                                   
|                                               |                                   
|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 Shareholders' 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                          |                                   
|Shareholders' 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, average non-accruing loans of $39,279,000
in 2009 and $20,468,000 in 2008 are included in the average daily
loan balance.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Interest
on loans includes origination fees totaling $27,000 in 2009 and $61,000
                    in 2008.
|--- | -------------------------------------------------------------------------------------------------------------

15

---



# INTEREST YIELDS AND
COSTS              June 30, 2009 and 2008(in thousands)

|                                               | ----------Year-to-Date----------
|---------------------------------------------- | --------------------------------
|                                               |                                 
|                                               |                                 
|                                               |                                 
|                                               |                                 
|                                               |                                 
|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 Shareholders' 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                          |                                 
|Shareholders' 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, average non-accruing loans of $37,834,000
                    in 2009 and $18,200,000 in 2008 are included in the average daily
loan balance.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Interest
on loans includes origination fees totaling $55,000 in 2009 and
                    $154,000 in 2008.
|--- | --------------------------------------------------------------------------------------------------------------

16

---



Interest Earning
Assets/Interest IncomeOn a tax equivalent basis, interest
income decreased $1,631,000 (25.7%) in the second quarter of 2009 compared to the
second quarter of 2008. This is due to a decrease in average earning assets of $48,684,000
(12.2%) combined with a decrease in the yield on average earning assets of 97 basis
points.

The average balance of short term
investments, certificates of deposit and securities decreased $9,786,000 (17.5%) in
the second quarter of 2009 as compared with the same period in 2008. Loans, which earn a
higher yield than investments, had a decrease in average balances of $38,898,000
(11.3%) combined with a 115 basis point decrease in yield in the second quarter of
2009 compared to the same period last year. It is expected that continued efforts to
manage the Banks regulatory capital levels (i.e., shrinking the Banks
size) will further compress net interest margin in future periods.

For the first half of the year, tax
equivalent interest income decreased $3,404,000 (25.9%). Short-term investments,
certificates of deposits and securities interest income decreased by $197,000
(13.8%) due to a decrease in average balances of $5,642,000 (9.7%), combined with a
decrease in the average yield of 22 basis points. Loan interest income decreased
$3,207,000 (27.4%) due to lower average balances of $35,974,000 (10.4%) along
with the average yield decreasing 125 basis points.

The largest decline in terms of
average balances was in commercial loans, the majority of our loan portfolio, which
decreased $32,575,000 (10.9%) in the first half of 2009 compared to the first half of
2008. This is primarily due to decreased loan origination activities and charge offs. The
decline in interest income from the prior year is due to decreases in the prime rate and
higher average balances of nonperforming loans in 2009. The increasing level of
nonperforming loans has negatively impacted loan interest income in 2009. Management
expects the average balance of nonperforming loans to continue to remain high in 2009,
adversely impacting net interest income. Moreover, competitive pressures as well as the
weakened local economy have had, and are expected to continue to have, a negative impact
on commercial balances and yields.

Interest Bearing
Liabilities/Interest ExpenseInterest expense on deposits for the
second quarter of 2009 decreased $642,000 (33.7%) compared to the second quarter of
2008. This was the result of lower cost of funds due to lower interest rates paid on
deposits of 76 basis points combined with lower average deposit balances of $14,986,000
(4.9%). Pricing competition in the local market for deposits continues to be a factor in
attracting deposits at reasonable costs.

Interest expense on deposits for the
first half of 2009 decreased $1,819,000 (41.2%) compared to the first half of 2008.
This was a result of a decrease in the average interest rate paid on deposits of 105 basis
points along with lower average balances of $19,258,000 (6.1%) in 2009 compared to
2008.

Borrowed funds average balance
decreased $8,680,000 (95.1%) in the second quarter of 2009 compared to the second
quarter of 2008. The Bank repaid an $8,000,000 FHLBI advance in February 2009. As of
June 30, 2009, the Bank had a $414,000 loan advance outstanding, included in borrowed
funds, which was entered into in 2000 with the FHLBI. Additional FHLBI and Federal
Reserve discount borrowings are available to fund future loan growth if needed. As of
June 30, 2009, the Corporation has a note outstanding of $33,333 which matured on
July 6, 2009. The Corporation made the principal payment of $33,333 plus accrued interest
at prime plus 1.50% on July 6, 2009.

LiquidityLiquidity risk is the risk of the
Corporation being unable to meet current and future financial obligations in a timely
manner. Liquidity is managed to ensure stable, reliable and cost-effective sources of
funds to satisfy demand for credit, deposit withdrawals and investment opportunities. The
Corporation relies on a large, stable core deposit base and a diversified base of
wholesale funding sources to manage liquidity risk.

17

---



The Corporation identifies measures
and monitors its liquidity profile. The profile is evaluated daily, weekly and monthly by
analyzing the composition of all funding sources, reviewing projected liquidity
commitments by future month and identifying sources and uses of funds. A contingency
funding plan is also prepared that details the potential erosion of funds in the event of
systemic financial market crisis or institution-specific stress. In addition, the overall
management of the Corporations liquidity position is integrated into retail deposit
pricing policies to ensure a stable core deposit base.

Asset liquidity for financial
institutions typically consists of cash and cash equivalents, certificates of deposits and
investment securities available for sale. These categories totaled $69.8 million at
June 30, 2009 or about 19.3% of total assets. This compares to $67.9 million or about
17.5% of total assets at year end 2008. Liquidity is important for financial institutions
because of their need to meet loan funding commitments and depositor withdrawal requests.
Liquidity can vary significantly on a daily basis based on customer activity.

Deposits are the principal source of
funds for the Bank. Management monitors rates at other financial institutions in the area
to ascertain that its rates are competitive in the market. Management also attempts to
offer a wide variety of products to meet the needs of its customers. The makeup of the
Banks Large Certificates, which are generally considered to be more
volatile and sensitive to changes in rates, consist principally of local depositors known
to the Bank. The Bank had Large Certificates totaling approximately $54,000,000 at
June 30, 2009 and $61,000,000 at December 31, 2008. The Bank has $13.5 million
of brokered deposits at June 30, 2009. Due to the Banks capital classification
as undercapitalized at June 30, 2009, these brokered deposits may not be
renewed or additional brokered deposits taken without prior approval of the Federal Deposit
Insurance Corporation (FDIC). See Capital section of this
Managements Discussion and Analysis for further details.

It is the intention of the
Banks management to handle unexpected liquidity needs through its cash and cash
equivalents, FHLBI borrowings, or Federal Reserve discount borrowings. The Bank has an
$18,000,000 line of credit available at the FHLBI and the Bank has pledged certain
commercial and consumer loans secured by residential real estate as collateral for this
borrowing. As of June 30, 2009, the Bank had $414,000 in borrowings against the line.
The Bank has a $27,000,000 line of credit available at the Federal Reserve and the Bank
has pledged certain commercial loans as collateral for the available borrowing. At
June 30, 2009 the Bank did not have any borrowings against the line. The Bank could
also put in place a repurchase agreement which would allow it to borrow from a broker,
pledging investment securities as collateral. In the event the Bank must borrow for an
extended period, management may look to available for sale securities in the
investment portfolio for liquidity.

Interest Rate RiskInterest
rate risk is the potential for economic losses due to future rate changes and can be reflected as a loss of future
net interest income and/or a loss of current market values. The Corporations
Asset/Liability Management Committees (ALCO) 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 reflects the repricing schedule for various asset and liability categories
and an interest rate shock simulation report. The Bank has no market risk sensitive
instruments held for trading purposes. However, the 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.

18

---



The table below shows the scheduled
maturity and repricing of the Corporations interest sensitive assets and liabilities
as of June 30, 2009:

|                                      
|--------------------------------------
|                                      
|                                      
|                                      
|Assets:                               
|Loans, net                            
|Securities                            
|Certificates of deposit               
|Short term investments                
|                                      
|Total rate sensitive assets           
|                                      
|Liabilities:                          
|NOW, savings & MMDA                   
|Time deposits                         
|Other borrowings                      
|                                      
|Total rate sensitive liabilities      
|                                      
|Rate sensitivity gap and ratios:      
|Gap for period                        
|Cumulative gap                        
|                                      
|Cumulative rate sensitive ratio       
|December 31, 2008 rate sensitive ratio

The preceding table sets forth the
time periods in which earning assets and interest bearing liabilities will mature or may
re-price in accordance with their contractual terms. The entire balance of savings
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 1.30% asset
sensitive as of June 30, 2009.

Because of the Banks asset
sensitive position, if market interest rates increase, this positive GAP position
indicates that the interest margin would be positively affected. However, GAP analysis is
limited and may not provide an accurate indication of the impact of general interest rate
movements on the net interest margin since repricing of various categories of assets and
liabilities is subject to the Banks needs, competitive pressures, and the needs of
the Banks customers. In addition, various assets and liabilities indicated as
repricing within the same period may in fact reprice at different times within the period
and at different rate indices. Due to these inherent limitations in the GAP analysis, the
Corporation also utilizes simulation modeling, which means the impact of upward and
downward movements of interest rates on interest margin.  This modeling indicates that a 100 basis
point increase in interest rates would increase net interest income by approximately 1.0%
in the first year, while a 200 basis point increase in interest rates would increase net
interest income by approximately 1.1% in the first year. This is influenced by the
assumptions regarding how quickly and to what extent liabilities will reprice with a
decline in interest rates.

# Loans

|     
|-----
|     
|     
|     
|     
|Total

The Corporation recorded a provision
of $11,697,000 in the second quarter of 2009 compared to $8,211,000 in the same period of
2008. The increase in the provision was determined based on a detailed analysis of the
loan portfolio to appropriately identify and quantify the credit risk to estimate losses
inherent in the portfolio. The evaluation considered identified problem loans, loss
experience, and current and future economic factors impacting the portfolio at large to
determine the required reserve level.

19

---



During the quarter, management
performed a detailed review of the portfolio to attempt to ensure that loans are
appropriately risk rated and that problem loans are identified. As borrowers current
financial statements were received and analyzed they revealed weaker operating results,
deterioration of debt service coverage and/or decreased liquidity. In addition, updated
appraisals received during the quarter indicated continued declines in property values for
collateral. Due to these factors, the review resulted in an increase in criticized and
non-performing loans. At present, the weak Michigan economy, coupled with historically
high unemployment, does not suggest near term signs of relief or stabilization. As a
result, management determined that it was prudent to increase the level of reserves
through an $11,697,000 loan loss provision during the quarter.

Nonperforming loans at June 30,
2009 increased $6,036,000 to $44,692,000 from the December 31, 2008 balance of
$38,656,000, and increased $16,554,000 from the June 30, 2008 balance of $28,138,000.
Nonperforming loans as a percentage of total loans were 15.04% at June 30, 2009
compared to 12.24% at December 31, 2008, and 8.30% at June 30, 2008. Net charge
offs for the second quarter of 2009 were $4,052,000 compared to $2,629,000 in the second
quarter of 2008.

Year to date, the provision is
$12,897,000 compared to $8,900,000 in the prior year. At June 30, 2009, the allowance
for loan losses as a percent of loans was 6.97% compared to 4.47% at December 31,
2008 and 4.61% at June 30, 2008. For the first half of 2009, the Bank had net
charge-offs of $6,337,000 compared to $3,520,000 for 2008.

The following table reflects the
composition of the commercial and consumer loans in the Consolidated Financial Statements.
Included in the residential first mortgage totals below are the real estate
mortgage loans listed in the Consolidated Financial Statements and other loans to
customers who pledge their homes as collateral for their borrowings. A portion of the
loans listed in residential first mortgages represent commercial loans where the borrower
has pledged his/her residence as collateral. In the majority of the loans to commercial
customers, the Bank is relying on the borrowers cash flow to service the loans.

The following table shows the balance
and percentage composition of loans as of:

|                                                 
|-------------------------------------------------
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Secured by real estate:                          
|Residential first mortgage                       
|Residential home equity/other junior liens       
|1-4 family residential construction loans        
|Other construction, land development, and        
|other land loans                                 
|Multifamily residential properties               
|Owner-occupied nonfarm, nonresidential properties
|Other nonfarm, nonresidential properties         
|Commercial                                       
|Consumer                                         
|Other                                            
|                                                 
|Total gross loans                                
|                                                 
|Net unearned fees                                
|                                                 
|Total loans                                      
|                                                 

Loans secured by 1-4 family
residential construction and other construction, land development and other land loans
decreased a total of $12,422,000 (29.1%) through the second quarter of 2009 from
December 31, 2008. This is due primarily to the completion of construction projects,
charge offs, and the intentional run-off of such loans to reduce exposure within this
segment of the loan portfolio.

20

---



The Corporations exposure to
real estate secured loans continues as the economy and real estate values have continued
to deteriorate. If the economy continues to weaken and/or real estate values decline
further, nonperforming loans may increase in subsequent quarters. Due to current economic
conditions and the continued decline in real estate values, the provision for loan losses
for the balance of 2009 may continue to be impacted by the Banks concentration in real estate
secured loans.

Loans also include the
reclassification of demand deposit overdrafts, which amounted to $143,000 and $122,000 at
June 30, 2009 and December 31, 2008, respectively.

Nonperforming assets consist of loans
accounted for on a nonaccrual basis, loans contractually past due 90 days or more as to
interest or principal payments (but not included in nonaccrual loans), and other real
estate which has been acquired primarily through foreclosure and is actively managed
through the time of disposition to minimize loss. The aggregate amount of nonperforming
loans and other nonperforming assets are presented below:

|                                                
|------------------------------------------------
|                                                
|                                                
|                                                
|Nonaccrual Loans                                
|90 days or more past due and still accruing     
|                                                
|Total nonperforming loans                       
|Other real estate owned                         
|                                                
|Total nonperforming assets                      
|                                                
|                                                
|Nonperforming loans as a percent of  total loans
|Allowance for loan losses as a percent of       
|nonperforming loans                             
|Nonperforming assets as a percent of            
|total loans and other real estate owned         

The following table shows
nonperforming loans by type of loan collateral and percentage composition of nonperforming
loans as of:

|                                          
|------------------------------------------
|                                          
|                                          
|                                          
|                                          
|                                          
|Secured by real estate:                   
|Residential first mortgage                
|Residential home equity/other junior liens
|1-4 family construction loans             
|Other construction, land development      
|and other land loans                      
|Multifamily residential properties        
|Owner-occupied nonfarm, nonresidential    
|properties                                
|Other nonfarm, nonresidential properties  
|Commercial                                
|Consumer                                  
|                                          
|Total nonperforming loans                 
|                                          

Loans are placed on a nonaccrual
basis when principal or interest is past due ninety days or more. If management believes
there is significant risk of not collecting full principal and interest, the Bank may elect to
place the loan in nonaccrual even if the borrower is current. As of June 30, 2009,
approximately $20,357,000 million of nonperforming loans are making scheduled payments on
their loans. Management continually evaluates the condition of problem credits and when
reduced cash flows coupled with collateral shortfalls are evident, the loans are placed
in nonaccrual. Loans categorized as 90 days past due and still accruing are well
secured and in the process of collection. Nonperforming assets increased $16,912,000 from
the second quarter of 2008 primarily due to deteriorating economic conditions that have
impacted customers cash flows and lowered collateral values of real estate.
Nonperforming loans are reviewed regularly for collectibility and uncollectible balances
are promptly charged off.

21

---



Impaired loans, as defined by
Statement of Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan, totaled approximately $42,140,000 at June 30, 2009, and
include specifically identified commercial loans included in non-accrual loans, other than
homogenous small commercial, residential and consumer loans, and $1,405,000 of commercial
loans separately identified as troubled debt restructurings. Included in impaired loans is
$4,225,000 of commercial loans with no specific reserve allocation based on the Statement
No. 114 analysis which indicates the loan is adequately collateralized at this time. A
loan is considered impaired when it is probable that all or part of amounts due according
to the contractual terms of the loan agreement will not be collected on a timely basis or
the loan has been restructured and is classified as a trouble debt restructuring. Impaired
loans totaled $26,175,000 at March 31, 2009, $27,867,000 at December 31, 2008,
and $34,854,000 at June 30, 2008. Impaired commercial loans had specific reserves
calculated in accordance with Statement No. 114 of $8,534,000 at June 30, 2009,
$3,175,000 at March 31, 2009, $4,289,000 at December 31, 2008 and $5,641,000 at
June 30, 2008.

22

---



The following table summarizes the
changes in the allowance for loan losses and reserve for unfunded credit commitments for
the first six months of 2009 and 2008:

|                                                               
|---------------------------------------------------------------
|                                                               
|                                                               
|                                                               
|Allowance for loan losses                                      
|Balance, beginning of year                                     
|Loans charged off:                                             
|Secured by real estate:                                        
|Residential first mortgage                                     
|Residential home equity/junior liens                           
|1-4 family residential construction loans                      
|Other construction and land development and other land loan    
|Multifamily residential properties                             
|Owner-occupied nonfarm, nonresidential properties              
|Other nonfarm, nonresidential properties                       
|Commerical                                                     
|Consumer                                                       
|                                                               
|Total charge off                                               
|Recoveries to loans previously charged off:                    
|Secured by real estate:                                        
|Residential home equity/junior liens                           
|1-4 family residential construction loans                      
|Other nonfarm, nonresidential properties                       
|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
|Allowance for loan losses to loans outstanding                 

Management estimates the required
allowance balance using past loan loss experience, the nature and volume of the portfolio
segments and concentrations, information about specific borrower situations, estimated
collateral values, economic conditions and trends, and other factors. Allocations of the
allowance are made for specific loans, but the entire allowance is available for any loan
that, in managements judgment, should be charged off. Management continually
analyzes portfolio risk to refine the process of effective risk identification and
measurement for determination of the required allowance balance. When all of these factors
were considered, management determined that the $12,897,000 provision for the
second quarter of 2009 and the $20,999,000
allowance as of June 30, 2009 were appropriate.

23

---



|     
|-----
|     
|     
|     
|     
|Total

Noninterest income, which includes
service charges and other fee income, trust income, gain on sale of available for sale
securities, and other miscellaneous income, increased by $185,000 (22.4%) during the
second quarter of 2009 compared to the same quarter in 2008. Service charges and other fee
income increased $124,000 (17.1%) during the second quarter of 2009 from the second
quarter of 2008 primarily due to higher returned check fees due to the Bank implementing
an overdraft protection program, lower deposit service charge reversals, an increase in
ATM network fees and service charges on sold mortgages. These favorable variances were
partially offset by a decrease in consumer loan late fees and lower check printing fees.
Trust income decreased $9,800 (10.2%) in the second quarter 2009 compared to the same
period last year. Trust income is lower due to lower asset values and a higher percentage
of investments in fixed income products. Gain on available for sale securities of $77,000
resulted from the sale of nine municipal securities in April 2009.

For the six months ended
June 30, 2009, noninterest income increased $133,000 (8.1%). Service charges and
other fee income increased $93,000 (6.4%) due primarily to higher returned check
fees, lower deposit service charge reversals, an increase in ATM network income and
service charges on sold mortgages. These favorable variances were offset by lower deposit
service charges on business accounts and lower consumer loan late fee income. Trust income
decreased $28,000 due to lower asset values and higher percentage of investments in fixed
income products as noted above. The $77,000 gain on sale of available for sale securities
is the result of the Bank selling nine municipal securities.

|     
|-----
|     
|     
|     
|     
|Total

Noninterest expense increased
$327,000 (8.3%) in the second quarter of 2009 compared to the same quarter in 2008.

Salaries and employee benefits
decreased $164,000 (8.6%) in the second quarter of 2009 compared to the second
quarter of 2008 primarily due to a decrease of $286,000 in wages and employee benefits,
partially offset by approximately $70,000 of severance expense recognized in the second
quarter of 2009. Wages and employee benefits decreased due to fewer employees in 2009
compared to 2008. These favorable variances were partially offset by an increase in
contracted payroll of $54,000. Contracted payroll has increased due to the Bank hiring
additional temporary help in the commercial loan workout area.

Net occupancy costs decreased $14,000
(5.5%) in the second quarter of 2009 compared to the second quarter of 2008 due to
lower building maintenance and operating costs partially due to the Bank closing one of
its retail branches.

Equipment expense decreased $49,000
(35.4%) in the second quarter of 2009 compared to the same quarter in 2008 primarily
due to lower depreciation expense and lower equipment maintenance costs.

Professional and service fees
decreased $111,000 (17.6%) in the second quarter of 2009 compared to the same quarter
in 2008 primarily due to lower audit and accounting fees of $16,000, lower legal fees of
$22,000, and lower consulting fees of $94,000. These decreased fees were partially offset
by higher OCC fees of $25,000.

Computer service fees decreased
$10,000 (8.0%) in the second quarter of 2009 compared to the same quarter in 2008 due
to timing of service contract renewals.

FDIC assessment fees increased
$424,000 in the second quarter of 2009 compared to the second quarter of 2008 due to
higher FDIC rates assessed in 2009 and an industry wide special assessment fee imposed on
all insured depository institutions. The Bank recorded approximately $173,000 for the
special assessment fee at June 30, 2009 which is to be paid on September 30,
2009.

24

---



Director fees decreased $48,000
(69.7%) in the second quarter of 2009 compared to the same quarter of 2008 due to a
reduction in the number of directors and reductions in director compensation.

Loan collection and foreclosed
property expense decreased $64,000 (25.7%) in the second quarter of 2009 compared to
2008 due to lower expenses on foreclosed properties in 2009. These costs are expected to
remain relatively high, despite the current quarter decrease, in the near term future.

Net loss on sale of
OREO/repossessions of $415,000 is the result of net losses on sales and valuation write
downs on foreclosed properties during the second quarter of 2009. These losses reflect the
continued deterioration of real estate values experienced in the Banks market area.

Other expenses increased $61,000
(19.9%) in the second quarter 2009 compared to the same quarter in 2008 primarily due
to the Corporation paying higher business insurance premiums partially offset by lower
advertising expense. Business insurance premiums increased due to the overall instability
in the financial markets and the Corporations financial performance in 2008 and
2007. Business insurance premiums are expected to continue to increase in 2009.

For the first half of the year
noninterest expense increased $646,000 (8.7%) compared to 2008.

Salaries and employee benefits decreased
$193,000 (5.3%) in 2009 compared to 2008 primarily due to a decrease of $398,000 in
wages and employee benefits, partially offset by approximately $115,000 of severance
expense recognized in 2009. Wages and employee benefits decreased due to fewer employees
in 2009 compared to 2008. These variances were partially offset by an increase in
contracted payroll of $99,000. Contracted payroll has increased due to the Bank hiring
additional temporary help in the commercial loan workout area.

Net occupancy costs decreased $35,000
(5.7%) in 2009 compared to 2008 due to lower building maintenance and operating costs
partially due to the bank closing one of its retail branches.

Equipment expense decreased $59,000
(23.2%) in 2009 compared to 2008 primarily due to lower depreciation expense and
lower equipment maintenance costs.

Professional and service fees
decreased $99,000 (8.7%) in 2009 compared 2008 primarily due to lower consulting fees
of $168,000. These fees were partially offset by higher OCC fees of $50,000 and higher
legal fees of $27,000 relating to nonperforming loans.

Computer service fees decreased
$33,000 (12.8%) in 2009 compared to 2008 due to timing of service contract renewals.

FDIC assessment fees increased
$728,000 in 2009 compared to 2008 due to higher FDIC rates assessed in 2009 and an
industry wide special assessment fee imposed on all insured depository institutions. The
Bank recorded approximately $173,000 for the special assessment fee at June 30, 2009
which is to be paid on September 30, 2009. The FDIC indicated that it is probable
that an additional special assessment will be necessary in the fourth quarter, although
the amount of such a special assessment is uncertain at this time. In addition, due to the
Banks undercapitalized regulatory classification (see Capital section of
this Managements Discussion and Analysis) at June 30, 2009, the FDIC
rates to be paid by the Bank in subsequent periods will significantly increase.  Based on
current rates, management estimates that the FDIC assessment for the remainder of
2009 will be approximately $800,000.

Printing and supplies decreased
$65,000 (40.5%) in 2009 compared to 2008 primarily due to the outsourcing of our
statement rendering department in 2009, which accounted for a majority of our printing and
supplies expense. In addition, the Bank changed its debit card provider in 2009 which
further decreased expense.

Director fees decreased $83,000
(65.2%) in 2009 compared to 2008 due to a reduction in the number of directors and
reductions in director compensation.

25

---



Loan collection and foreclosed
property expense decreased $90,000 (24.1%) in 2009 compared to 2008 due to lower
expenses on foreclosed properties in 2009. These costs are expected to remain relatively
high, despite the current period decrease, in the near term future.

Net loss on sale of
OREO/repossessions of $595,000 is the result of net losses on sales and valuation write
downs incurred on foreclosed properties during 2009. These losses reflect the continued
deterioration of real estate values experienced in the Banks market area.

Other expenses increased $76,000
(13.2%) in 2009 compared to 2008 primarily due to the Corporation paying higher
business insurance premiums partially offset by lower advertising expense. Business
insurance premiums are increasing due to the overall instability in the financial markets
and the Corporations financial performance in 2008 and 2007. Business insurance
premiums are expected to continue to increase in 2009, and will be approximately $525,000
for the 2009 year.

|     
|-----
|     
|     
|     
|     
|Total

Fluctuations in income taxes resulted
primarily from changes in the level of profitability and in variations in the amount of
tax-exempt income as a percentage of the pre-tax loss. In the second quarter of 2009,
the Corporation recorded $467,000 of federal income tax expense for an additional
valuation allowance on previously recorded deferred tax assets.  The Corporation recorded a federal
deferred tax valuation allowance of $4,243,000 on the tax credit for the loss recognized
during the six months ended June 30, 2009 due to the uncertainty of future taxable
income necessary to fully realize the recorded net deferred tax asset.

26

---



CapitalThe Corporations and the
Banks actual capital amounts and ratios are presented in the following table as of
June 30, 2009, December 31, 2008, and June 30, 2008:

|                                         | Actual | Minimum for Capital Adequacy Purposes | To be Well Capitalized
Under Prompt Corrective Action Provision
|---------------------------------------- | ------ | ------------------------------------- | ---------------------------------------------------------------
|                                         |        |                                       |                                                                
|                                         |        |                                       |                                                                
|                                         |        |                                       |                                                                
|                                         |        |                                       |                                                                
|Total Capital (to risk weighted assets)  |        |                                      
|Bank                                     |        |                                       | $                                                              
|FNBH Bancorp                             |        |                                       |                                                                
|                                         |        |                                      
|Tier 1 Capital (to risk weighted assets) |        |                                      
|Bank                                     |        |                                       |                                                                
|FNBH Bancorp                             |        |                                       |                                                                
|                                         |        |                                      
|Tier 1 Capital (to average assets)       |        |                                      
|Bank                                     |        |                                       |                                                                
|FNBH Bancorp                             |        |                                       |                                                                
|                                         |        |                                      

|As of December 31, 2008                  | Amount | Ratio | Amount | Ratio      | Amount | Ratio
|---------------------------------------- | ------ | ----- | ------ | ---------- | ------ | -----
|                                         |        |       |        |            |        |      
|                                         |        |       |        |            |        |      
|Total Capital (to risk weighted assets)  |        |      
|Bank                                     |        |       | $      | 31,419,000 |        |      
|FNBH Bancorp                             |        |       |        | 31,365,000 |        |      
|                                         |        |      
|Tier 1 Capital (to risk weighted assets) |        |      
|Bank                                     |        |       |        | 27,183,000 |        |      
|FNBH Bancorp                             |        |       |        | 27,129,000 |        |      
|                                         |        |      
|Tier 1 Capital (to average assets)       |        |      
|Bank                                     |        |       |        | 27,183,000 |        |      
|FNBH Bancorp                             |        |       |        | 27,129,000 |        |      
|                                         |        |      

|As of June 30, 2008                      | Amount | Ratio | Amount | Ratio      | Amount | Ratio
|---------------------------------------- | ------ | ----- | ------ | ---------- | ------ | -----
|                                         |        |       |        |            |        |      
|                                         |        |       |        |            |        |      
|Total Capital (to risk weighted assets)  |        |      
|Bank                                     |        |       | $      | 41,110,000 |        |      
|FNBH Bancorp                             |        |       |        | 40,779,000 |        |      
|                                         |        |      
|Tier 1 Capital (to risk weighted assets) |        |      
|Bank                                     |        |       |        | 36,493,000 |        |      
|FNBH Bancorp                             |        |       |        | 36,162,000 |        |      
|                                         |        |      
|Tier 1 Capital (to average assets)       |        |      
|Bank                                     |        |       |        | 36,493,000 |        |      
|FNBH Bancorp                             |        |       |        | 36,162,000 |        |      

The OCC has established the following
minimum capital standards for national banks: a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total average assets of 3% for the most highly-rated
banks, with minimum requirements of 4% to 5% for all others, and a risk-based capital
requirement consisting of a minimum ratio of total capital to total risk-weighted assets
of 8%, at least one-half of which must be Tier 1 capital. Tier 1 capital consists
principally of stockholders equity. These capital requirements are minimum
requirements. Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions.

Federal law provides the federal
banking regulators with broad power to take prompt corrective action to resolve the
problems of undercapitalized institutions. The extent of the regulators powers
depends on whether the institution in question is well capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized, or critically undercapitalized. Federal regulations
define these capital categories as follows:

27

---



|                               | Total Risk-Based Capital Ratio | Tier 1 Risk-Based Capital Ratio | Leverage Ratio
|------------------------------ | ------------------------------ | ------------------------------- | --------------
|                               |                                |                                 |               
|                               |                                |                                 |               
|Well capitalized               |                                |                                 | 10% or above  
|Adequately capitalized         |                                |                                 | 8% or above   
|Undercapitalized               |                                |                                 | Less than 8%  
|Significantly undercapitalized |                                |                                 | Less than 6%  
|Critically undercapitalized    |                                |                                 | -             
|                               |                                |                                 |               

At June 30, 2009, based on the
above minimum capital requirements, the Corporation and its subsidiary Bank are classified
as undercapitalized.

The above capital requirements are
minimum requirements. Higher capital levels may be required by the regulators if warranted
by the particular circumstances or risk profiles of individual institutions. As discussed
earlier, on October 16, 2008, the Bank entered into a formal agreement with the OCC.
Pursuant to the agreement, the Bank has agreed to take certain actions intended to address
various issues that have impacted the Banks financial condition and performance.
Separate from the agreement, the OCC
imposed higher minimum capital requirements on the Bank than those set forth above,
and those minimum requirements have not been met. As of June 30,
2009, the Banks capital ratios are now significantly below the increased minimum
requirements imposed by the OCC. In light of the Banks continued losses and capital position
through June 30, 2009, it is reasonable to anticipate further regulatory enforcement
action by the OCC.  See the Risk Factors disclosed in Part II - Item 1A below.

Given our recent losses, asset
quality issues, and overall financial condition, management anticipates that the Bank will
need to raise additional capital in the near future to provide sufficient capital
resources and liquidity to meet our commitments and business needs. Accordingly,
management is actively soliciting potential accredited investors and exploring the capital
markets with the aid of consultants to determine the sources and most immediate timing for
the additional equity believed necessary to recapitalize the Bank to a level appropriate
to meet existing and future operating needs. While the Corporation's common stock is traded
in the public markets, the size of the institution and other factors are likely to limit
our ability to access the capital markets.  As such, the Corporation's alternatives for
additional capital are somewhat limited.  The ongoing liquidity crisis and the loss of
confidence in financial institutions will likely serve to only further increase our cost
of funding and further limit our access to capital. We may not be able to raise the
necessary capital on favorable terms, or at all.  An inability to raise capital on
acceptable terms is likely to have a materially adverse effect on our business, financial
condition and results of operations.

On February 19, 2009, in
anticipation of the need to raise additional capital, the shareholders of the Corporation
approved an amendment to the Corporations Articles of Incorporation to authorize the
Board of Directors to issue up to 30,000 shares of preferred stock. The terms and
conditions of these securities, when and if issued, including dividend or interest rates,
conversion process, voting rights, redemption prices, maturity dates and similar matters
will be determined by the Board of Directors. There were no issued and outstanding shares
of preferred stock through the date of filing of this Form 10-Q.

Additionally, at the annual meeting
of shareholders on May 28, 2009, shareholders approved a 2,800,000 increase in the
number of authorized shares of common stock.

The Corporations ability to pay
dividends is subject to various regulatory and state law requirements. Due to the
Banks financial condition, the Bank cannot pay a dividend to the Corporation without the
prior approval of the OCC. The Corporation suspended, indefinitely, the payment of
dividends in the third quarter of 2008 due to the Banks inability to pay dividends
to the holding company and insufficient cash at the holding company to pay the dividends.

28

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Critical Accounting
PoliciesThe Corporation maintains critical
accounting policies for the allowance for loan losses. Refer to Notes 1c, 1d and 1j of the
December 31, 2008 Consolidated Financial Statements as included in Form 10-K for
additional information on critical accounting policies.

Contractual ObligationsThe Bank had outstanding irrevocable
standby letters of credit, which carry a maximum potential commitment of approximately
$248,000 at June 30, 2009, $332,000 at December 31, 2008 and $1,724,000 at
June 30, 2008. 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, 2009, December 31, 2008 and June 30, 2008, where there is
collateral, was 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
StandardsIn early April 2009, the FASB
issued the following FSPs that are intended to provide additional guidance and require
additional disclosures relating to fair value measurements and other-than-temporary
impairment (OTTI) on an interim and/or annual basis:

FSP No. FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This
FSP provides additional guidance for estimating fair value in accordance with SFAS
No. 157, Fair Value Measurements, when the volume and level of activity for
the asset or liability have significantly decreased. The FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. The FSP is required
to be applied prospectively and retrospective application is not permitted. It is
effective for interim and annual periods ending after June 15, 2009. The Corporation
adopted this FSP effective April 1, 2009 and has included additional disclosures
regarding the adoption of this FSP in Note 5.

FSP No. FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments. This FSP, which
applies to debt securities, is intended to provide greater clarity to investors about the
credit and noncredit components of an OTTI event and to more effectively communicate when
an OTTI event has occurred. This FSP defines the credit component of an OTTI charge as the
difference between the present value of the cash flows expected to be collected and the
amortized cost basis of the debt security. When an entity does not intend to sell the
security and it is more likely than not that the entity will not have to sell the security
before recovery of its cost basis, it will recognize the credit component of an OTTI
charge in earnings and the remaining portion in other comprehensive income. In addition,
this FSP requires additional disclosures about investment securities on an interim basis.
The FSP is effective for interim and annual periods ending after June 15, 2009. This
FSP is to be applied prospectively with a cumulative effect transition adjustment, if
applicable, as of the beginning of the period in which it is adopted. The Corporation
adopted this FSP effective April 1, 2009. The FSP did not have a material impact of
our results of operations or financial position. Related disclosures regarding adoption of
the FSP and the impact on our accounting for a non-government CMO security are included in
Note 5.

FSP No. FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments. This FSP requires
disclosures about fair value of financial instruments for interim reporting periods of
publicly traded companies in addition to annual reporting periods. This FSP also requires
disclosure of the method(s) and significant assumptions used to estimate the fair
value of financial instruments and changes in method(s) and significant assumptions,
if any, during the period. This FSP is effective for interim reporting periods ending
after June 15, 2009. The Corporation adopted this FSP effective April 1, 2009
and has included additional required fair value disclosures in Note 7.

29

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In December 2007, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 141(R), Business Combinations, to further enhance the accounting
and financial reporting related to business combinations. SFAS No. 141(R) establishes
principles and requirements for how the acquirer in a business combination
(1) recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the acquiree,
(2) recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase, and (3) determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial effects of
the business combination. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008. Therefore, the
effects of the adoption of SFAS No. 141(R) will depend upon the extent and magnitude
of acquisitions after December 31, 2008.

In September 2006, the FASB
issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value
measurements. SFAS No. 157 applies to other accounting pronouncements that require or
permit fair value measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 does
not require any new fair value measurements and was originally effective beginning
January 1, 2008. In February 2008, the FASB issued FASB Staff Position
(FSP) FAS 157-2. FSP FAS 157-2 allowed entities to electively defer the
effective date of SFAS No. 157 until January 1, 2009 for nonfinancial assets and
nonfinancial liabilities except those items recognized or disclosed at fair value on an
annual or more frequently recurring basis. We applied the fair value measurement and
disclosure provisions of SFAS No. 157 to nonfinancial assets and nonfinancial liabilities
effective January 1, 2009. The application of such was not material to our results of
operations or financial position, although it did result in additional disclosures
included in Note 7 relating to nonfinancial assets.

In June 2008, the FASB issued
FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities. This FSP provides that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend equivalents,
whether paid or unpaid, are participating securities and are required to be included in
the computation of earnings per share pursuant to the two-class method described in SFAS
No. 128, Earnings Per Share. The two-class method of computing earnings per share
includes an earnings allocation formula that determines earnings per share for common
stock and any participating securities according to dividends declared, whether paid or
unpaid, and participation rights in undistributed earnings. This FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those years. All prior period earnings per share data presented is
required to be adjusted retrospectively to conform with the provisions of this FSP.
Adoption of this FSP had no impact on our first and second quarter 2009 or 2008 earnings
per share.

In March 2008, the FASB issued
SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities-
an Amendment of FASB Statement No. 133. SFAS No. 161 expands disclosure
requirements regarding an entitys derivative instruments and hedging activities.
Expanded qualitative disclosures that are required under SFAS No. 161 include:
(1) how and why an entity uses derivative instruments; (2) how derivative
instruments and related hedged items are accounted for under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,and related interpretations; and
(3) how derivative instruments and related hedged items affect an entitys
financial statements. SFAS No. 161 was adopted January 1, 2009 and did not have an
effect on our disclosures as we had no derivative instruments outstanding during the
current year.

In May 2009, the FASB issued
SFAS No. 165, Subsequent Events,which establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before the
financial statements are issued or are available to be issued. It requires the disclosure
of the date through which an entity has evaluated subsequent events and the basis for that
date. SFAS No. 165 is effective for interim or annual financial periods ending after
June 15, 2009. The adoption of this standard did not have any impact on our results
of operations or financial position.

In June 2009, the FASB issued
SFAS No. 168, The FASB Accounting Standard Codification and the Hierarchy of Generally
Accepted Accounting Principles  a replacement of FASB Statement No. 162.SFAS
No. 168 establishes the FASB Accounting Standard Codification(Codification) as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with generally accepted accounting principles in the
United States (U.S. GAAP). All guidance contained in the Codification carries
an equal level of authority. The Codification does not change current U.S. GAAP, but is
intended to simplify user access to all authoritative U.S. GAAP by providing all the
authoritative literature related to a particular topic in one place. On the effective date
of SFAS No. 168, the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature not included
in the Codification will become nonauthoritative. SFAS No. 168 is effective for financial
statements issued for interim and annual periods ending after September 15, 2009. The
implementation of SFAS No. 168 will not impact our results of operations or
financial position.

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# 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, 2008.

# 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, 2009, 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, 2009 there were no changes in the Corporations
internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# PART II  OTHER
INFORMATION

# Item 1A. Risk Factors

The Corporation may not be able to
meet federal regulatory requirements regarding the restoration of capital at the Bank.

As of June 30, 2009, the Bank is
undercapitalized by regulatory capital standards. As a result, the Bank will
be required to submit a capital restoration plan to the OCC that is intended to
demonstrate how the Bank will improve its capital position such that it meets the minimum
capital requirements imposed by the OCC. Federal regulations require such plan to be very
specific and to meet other stringent requirements. In addition, as the sole shareholder of
the Bank, the Corporation is required to guarantee the Banks compliance with such
plan until such time that the Bank has been adequately capitalized on average during each
of four consecutive calendar quarters. We anticipate that the Corporations guarantee
will need to be secured by a pledge of the Corporations assets.

The Banks ability to submit a
capital restoration plan that meets the OCCs requirements and the Banks
ability to comply with such plan will be very challenging. Although the Corporation is
actively pursuing additional investment from potential investors, the Corporation
currently does not have any commitment from any investor. As described under
Capital above, the Corporations ability to raise additional capital is
significantly restricted by several factors, and there is a meaningful possibility the
Corporation will not be successful in raising additional capital and meeting the
regulators directives. In addition, the Corporations management believes the
likelihood of a third party acquiring the Corporation or the Bank is relatively low.

If the Bank fails to submit an
acceptable capital restoration plan or if the Bank and the Corporation are unable to
comply with any plan that is accepted by the OCC, it is likely the OCC would take
increasingly severe actions against the Bank which could, in extreme circumstances, lead
to a seizure of the Banks assets and a liquidation or other closure of the Bank.

31

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The Banks capital may not be
sufficient to support the risk inherent in its loan portfolio.

The Bank maintains capital as a means of
absorbing losses resulting from the Banks operations. The recent losses incurred by
the Bank have significantly depleted the Banks capital, resulting in the Bank being
considered undercapitalized pursuant to regulatory capital standards. A
continuing decline in the collectability of the Banks loans, a continuing decline in
the value of the collateral supporting those loans, or both, will require the Bank to
increase its allowance for loan losses, which would further deplete existing capital. Due
to the economic conditions in the areas where the Bank operates, it is reasonable to
assume the Bank will continue to incur operating losses. The Banks current capital
may be insufficient to absorb future operating losses and, unless the Bank is successful
in raising additional capital or taking other steps to meaningfully reduce the risk in its
loan portfolio, this lack of capital is likely to have a material adverse effect on the
Corporations business, results of operations, and financial condition and, in
extreme circumstances, could result in the insolvency and liquidation of the Bank.

There are other consequences of
the Banks current financial condition that will present additional challenges to the
Bank and could, individually or collectively, result in material adverse effects on the
Corporations financial condition.

The amount of FDIC deposit insurance
premiums required to paid by financial institutions depends in part on the
institutions risk rating and capital position. As a result of the Banks
current capital position, the assessment rate to be paid by the Bank for FDIC deposit
insurance is likely to increase significantly. This rate increase is in addition to any
industry-wide rate increases for all insured depository institutions and is in addition to
any special assessments imposed by the FDIC. Based on current information, the Corporation
estimates the Bank will pay approximately $800,000 in the second half of 2009 for deposit
insurance, plus any special, industry-wide assessments that may be imposed by the FDIC.
These higher assessment rates charged against the Bank are likely to continue into 2010.

In addition, as a result of the
Banks failure to meet minimum capital requirements, it is prohibited from accepting,
renewing, or rolling over any brokered deposits, and the effective yield on deposits
solicited by the Bank cannot be more than 75 basis points over local market yields for
comparable size and maturity deposits. While the Bank does not currently anticipate these
restrictions presenting an additional challenge due to the Banks liquidity position
and off-balance sheet borrowing capacity, the restrictions could serve to limit the
Banks flexibility should conditions deteriorate or in the event of unexpected
problems with the Banks liquidity position.

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Finally, as a result of the
Banks current failure to meet minimum capital and other regulatory requirements, the
Corporations management expects federal regulators to take additional enforcement
actions against the Bank in the near future. These enforcement actions could include a
cease-and-desist order entered against the Bank. Such an order would likely impose
additional restrictions on the Bank and require the Bank to take additional corrective
measures. Any such additional restrictions and requirements are likely to present
additional challenges to the Bank and could limit the Banks flexibility in taking
actions necessary to restore its capital position.

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

All securities sold by the
Corporation through the Employee Stock Purchase Plan during the quarter ended
June 30, 2009 were registered under the Securities Act.

There were no purchases of common
stock by the Corporation for the six months ended June 30, 2009 and, based on the Banks current
capital situation, it is not reasonable to expect any shares will be repurchased in 2009.

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

The Corporations annual meeting
of shareholders was held on May 28, 2009.  As described in our proxy statement
dated April 16, 2009, the following matters were considered at that meeting:

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

The following three nominees for the
office of director were elected for a term expiring in 2012:

|                  | Votes for | Votes Withheld
|----------------- | --------- | --------------
|                  |           |               
|                  |           |               
|Richard F. Hopper |           |               
|Ronald L. Long    |           |               
|T. Gilbert Parker |           |               

Additionally, the following directors
continue in office:

Term expiring in 2010:Randolph
E. RudisillBarbara Draper

Term expiring in 2011:R.
Michael YostDona Scott Laskey

|(2) | The
ratification of the selection of BDO Seidman, LLP as the independent
                    auditors for 2009 was approved. Votes for: 2,118,598 Votes Against:
196,931                     Votes Abstained: 13,228
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The
amendment to the Corporation's Restated Articles of Incorporation to increase the number
                    of authorized shares of common stock from 4,200,000 shares to
7,000,000 shares                     of common stock was also approved. 
Votes for: 1,888,636 Votes Against: 428,070                     Votes Abstained: 12,048
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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 | Separation Agreement
and Release of All Claims between First National Bank in Howell and Janice B. Trouba dated
June 9, 2009.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------

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

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

34

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SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on
Form 10-Q for the quarter ended June 30, 2009 to be signed on its behalf by the
undersigned hereunto duly authorized.

| | FNBH BANCORP, INC./s/ Ronald L. Long
Ronald L. LongPresident and Chief Executive Officer | 
| | ------------------------------------------------------------------------------------------------------ | 

| | /s/ Mark J. Huber
Mark J. HuberChief Financial Officer | 
| | -------------------------------------------------------------------- | 

Date: August 14, 2009

35