Back to GetFilings.com

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 September 30, 2003
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)

101 East Grand River, Howell, Michigan 48843
(Address of principal executive offices) (Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X  No      

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes      No   X  

The number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 3,165,740 shares of the Company’s Common Stock (no par value) were outstanding as of November 5, 2003.

INDEX

2

PART I — FINANCIAL INFORMATION

Item 1.
Financial Statements
Unaudited interim consolidated financial statements follow.

3

FNBH BANCORP, INC. AND SUBSIDIARY

See notes to interim consolidated financial statements.

4

FNBH BANCORP, INC. AND SUBSIDIARY

*Based on average shares outstanding.
See notes to interim consolidated financial statements.

5

FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity and Comprehensive Income
For the Three Months Ended September 30, 2003 and 2002 (Unaudited)

See notes to interim consolidated financial statements.

6

FNBH BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity and Comprehensive Income
For the Nine Months Ended September 30, 2003 and 2002 (Unaudited)

See notes to interim consolidated financial statements.

7

FNBH BANCORP, INC. AND SUBSIDIARY

See notes to interim consolidated financial statements.

8

Notes to Interim 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 the Registrant, 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 Registrant as of September 30, 2003, and consolidated results of operations for the three months and nine months ended September 30, 2003 and 2002 and consolidated cash flows for the nine months ended September 30, 2003 and 2002.

2.     The results of operations for the three months and nine months ended September 30, 2003 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 Notes to Consolidated Financial Statements in the 2002 Annual Report contained in the Registrant’s report on Form 10-K filing.

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

5.     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 $5,830,000 at September 30, 2003, $4,501,000 at September 30, 2002, and $4,097,000 at December 31, 2002. (See Management’s Discussion and Analysis of financial condition and results of operations).

6.     Basic and dilutive earnings per share (EPS) are computed by dividing net income by the respective weighted average common shares outstanding.

9

Item 2.

Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Interim Financial Statements

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 FNBH Bancorp, Inc. (the Company) operates, prevailing interest rates, changes in government regulations and policies affecting financial service companies, credit quality and credit risk management, acquisitions and integration of acquired businesses.

The Company, 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 which owns real estate. The following is a discussion of the Company’s results of operations for the three months and nine months ended September 30, 2003 and 2002, and also provides information relating to the Company’s financial condition, focusing on its liquidity and capital resources.

Net income for the three months ended September 30, 2003 increased approximately $335,000 (21.8%) compared to the same period last year. In the third quarter of the current year net interest income increased $337,000 (7.6%), the provision for loan losses decreased $125,000 (38.5%) and non-interest income also increased $184,000 (19.9%). Slightly offsetting these favorable variances was an increase in non-interest expenses of $132,000 (4.6%) and a higher provision for federal income taxes of $180,000 (27.1%).

Net income for the first nine months of the year decreased $185,000 (3.9%) from that reported last year. Contributing to the decline in 2003 earnings was a provision for loan losses of $800,000 in 2003 compared to $325,000 in 2002 as well as an increase in non-interest expense of $865,000 (9.9%). Partially offsetting these decreases in income were increases of $707,000 (5.4%) in net interest income, increased non-interest income of $389,000 (15.1%) and a decrease of $58,000 (2.8%) in the provision for federal income tax.

10

Net Interest Income	Third Quarter			Year-to-Date
(in thousands)	2003	2002		2003	2002
Interest Income	$6,256	$6,434		$18,656	$19,350
Interest Expense	1,469	1,984		4,742	6,143
Net Interest Income	$4,787	$4,450		$13,914	$13,207

The following table illustrates some of the significant factors contributing to the increase in net interest income for the period and for the year to date.

TABLE 1
INTEREST YIELDS AND COSTS (in thousands)
September 30, 2003 and 2002

(1) Average yield in the above table have been adjusted to a tax-equivalent basis using a 34% tax rate and exclude the effect of any market value adjustments recorded under Statement of Financial Accounting Standards No. 115.
(2) For purposes of the computation above, non-accruing loans are included in the average daily loan balances.
(3) Interest on loans includes origination fees totaling $212,000 in 2003 and $165,000 in 2002.

11

INTEREST YIELDS AND COSTS (in thousands)
September 30, 2003 and 2002

(1) Average yield in the above table have been adjusted to a tax-equivalent basis using a 34% tax rate and exclude the effect of any market value adjustments recorded under Statement of Financial Accounting Standards No. 115.
(2) For purposes of the computation above, non-accruing loans are included in the average daily loan balances.
(3) Interest on loans includes origination fees totaling $542,000 in 2003 and $574,000 in 2002.

12

Interest Earning Assets/Interest Income

On a tax equivalent basis, interest income decreased approximately $185,000 in the third quarter of 2003 compared to that of 2002. The decrease was the result of a 71 basis point reduction in the yield on earning assets. This negative trend was partially offset by a $32,250,000 (9%) growth in average balances of earning assets.

Loan interest decreased approximately $65,000 due to a 67 basis point decrease in interest rates although average balances increased $29,000,000 (9%). The decline in loans rates was the result of overall lower interest rates this year compared to last year and a higher mix of variable rate loans. In particular, the prime interest rate was 4.00% throughout the third quarter of this year compared to 4.75% in the third quarter of 2002. In the third quarter, tax equivalent income on investments decreased approximately $123,000. The decrease can be attributed to a $6,000,000 decrease in average balances as well as the mix of investments. Taxable investment securities have had considerable runoff as securities with higher yields have prepaid or been called. Yields on investments decreased by 37 basis points for the three months ended September 30, 2003 compared to last year. In the third quarter of 2003, short term investments increased $9,000,000 from the comparable period in 2002, however the yield is 212 basis points lower. The increase in volume is the result of a temporary increase in deposits due to summer tax collections.

For the first nine months of the year, tax equivalent interest income decreased approximately $715,000. Loan interest income decreased approximately $191,000. The interest rate earned on loans decreased 79 basis points while average balances increased $32,000,000 (10%). Loan growth was concentrated in the commercial portfolio where balances increased $27,000,000 (11%) on average. Consumer loans had a slight increase of $1,100,000 (3%) while mortgage loans increased $4,000,000 (14%). In addition to the growth in mortgage loans retained in the portfolio, the Bank sold approximately $22,102,000 residential mortgage loans, compared to $14,700,000 in the first nine months of 2002. For the first nine months of the year, income on short and long term investments decreased $524,000 from that earned in the prior year due to a $5,000,000 decrease in average balances and a change in mix as described above, lowering the yields earned by 78 basis points.

Interest Bearing Liabilities/Interest Expense
In the third quarter of 2003, interest expense decreased $516,000 due to a decrease in the interest rate paid of 80 basis points although average balances increased $18,500,000 (6%). Savings and NOW interest expense decreased approximately $276,000. The decrease was due to the interest rate declining 83 basis points as the average balance increased $22,000,000 (15%). Interest on time deposits decreased $204,000 in the third quarter of 2003 over the prior year. The decrease was due to a decrease of 64 basis points in rates paid offset by an increase in the average balance of $1,600,000. In the third quarter of 2003 the Company had average short term borrowings of $4,946,000 compared to $10,216,000 in the third quarter of 2002. The interest rate averaged 1.37% in 2003 compared to 1.87% for the same quarter in 2002 on these borrowings. Management has reduced reliance on third-party funding sources as the maturities and paydowns of investment securities as well as deposit growth, including the issuance of brokered certificates of deposit, have been used to fund loan demand.

13

Included in the average balance for short term borrowings were Fed Funds Purchased, Federal Home Loan Bank of Indianapolis (FHLBI) short term borrowings, and repurchase agreements. Included in FHLB advances are two loans, entered into in 2000, from the FHLBI. One borrowing, originally for $3,000,000, was initiated to match the maturity of a fixed rate loan made to a local township. The other borrowing was intended to help with the Bank’s rate sensitivity position. Future loan growth may be funded with FHLBI borrowings.

In the first nine months of the year, interest expense decreased $1,401,000 from that of the previous year. Contributing to this decrease was a 74 basis point decrease in rates while average balances of interest bearing liabilities increased $15,700,000 (5%). Savings and NOW interest expense decreased approximately $526,000 because the interest rate decreased 60 basis points although average balances increased $22,000,000 (15%). Interest on time deposits decreased approximately $721,000 because the rate decreased 81 basis points although the average balance increased $2,800,000 (2%). In the first nine months of 2003, the Bank incurred $18,000 of expense to borrow short term money compared to $159,000 in 2002. The short term borrowings were necessary as loan growth outpaced deposit growth in 2002. The FHLBI advances are discussed above.

Liquidity
Liquidity is monitored by the Bank’s Asset/Liability Management Committee (ALCO) which meets at least monthly. The Board of Directors has approved a liquidity policy which requires the Bank, while it is well capitalized as defined by the Federal Financial Institutions Examination Council (FFIEC), to maintain a current ratio of no less than 1:1 (core basic surplus liquidity equal to 0), representing that the Bank’s contingency for unexpected funding outflows is being primarily met by short-term investments and unencumbered treasury and agency securities. Additional requirements of the policy are that when FHLBI available credit is added to core basic surplus liquidity, the Bank must have liquidity totaling 5% of assets and when brokered CDs and Fed Funds lines are added, the Bank must have liquidity totaling 8% of assets. Should the Bank’s capital ratios fall below the “well capitalized” level, additional liquidity totaling 5% of assets will be required. As of September 30, 2003, the Company had an $18,900,000 surplus of core basic liquidity.

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, consists principally of local depositors known to the Bank. As of September 30, 2003, the Bank had Large Certificates totaling approximately $52,000,000 compared to $44,000,000 at December 31, 2002. In the third quarter, the bank issued $5,969,000 in brokered certificates through a dealer to help fund loan growth. Included in the issuance were $2,380,000 maturing in March 2004, $1,218,000 maturing in September 2004 and $2,371,000 maturing in September 2005.

14

It is the intention of the Bank’s management to handle unexpected liquidity needs through its Federal Funds position with a correspondent bank and by Federal Home Loan Bank borrowings. The Bank has a line of credit of approximately $35,000,000 available at the FHLBI. As of September 30, 2003 approximately $5,300,000 of the line had been used and for long term advances, previously described. The Bank has pledged certain mortgage loans as collateral for this borrowing. The Bank also has a repurchase agreement in place where it can borrow from a broker who will lend money against certain securities of the Bank. Finally, management may look to “available for sale” securities in the investment portfolio to meet additional liquidity needs.

Interest Rate Risk

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

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

15

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, MMDA, and NOW are not categorized as 0-3 months, although they are variable rate products. Some of these balances are core deposits and are not considered rate sensitive. Allocations are made to time periods based on the Bank’s historical experience and management’s analysis of industry trends.

In the gap table above, the short term (one year and less) cumulative interest rate sensitivity is asset sensitive as of September 30, 2003. An asset sensitive position would normally indicate increased net interest income in a rising rate environment. Gap analysis is limited and may not provide an accurate indication of the impact of general interest rate movements on the net interest margin since repricing of various categories of assets and liabilities is subject to the Bank’s needs, competitive pressures, and the needs of the Bank’s customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within the period and at different rate indices. Additionally, simulation modeling, which measures the impact of upward and downward movements of interest rates on interest margin, provides meaningful insight into strategies management can take to help mitigate the movement of interest rates.

The Company provided a loan loss provision of $200,000 in the third quarter of 2003 having provided a provision of $325,000 in the same period last year. The provision in the third quarter of 2003 is based upon an analysis of losses inherent in the portfolio and other economic factors. Nonperforming loans did decrease from that at June 30, 2003, but continue to be $1,733,000 higher than at December 31, 2002 and $1,329,000 higher than September 30, 2002. Net charge offs for the third quarter of 2003 were $67,500 compared to $91,800 in the same period in 2002. Depressed economic market conditions have had an impact on the loan portfolio and the related allowance and charge offs. If the economy remains sluggish, it is expected to continue to impact the loan portfolio.

Year to date the provision is $800,000 compared to $325,000 last year. At September 30, 2003, the allowance for loan loss as a percent of loans was 1.73%, compared to 1.70% a year earlier and 1.77% at December 31, 2002. For the first nine months of 2003, the Bank had net charge offs of $579,000, compared to $589,000 during the first nine months of 2002. Due to events arising subsequent to September 30, 2003, the Bank took a $440,000 charge off in October 2003 on two impaired loans. As of September 30, 2003, $125,000 had been specifically reserved for these loans. These charge offs will have an impact on the determination of the provision for loan losses in the fourth quarter of 2003. Non-accrual, past due 90 days, and renegotiated loans were 1.68% and 1.41% of total loans outstanding at September 30, 2003 and 2002, respectively, and 1.25% of total loans at December 31, 2002.

16

Impaired loans, as defined by Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, totaled approximately $9,200,000 at September 30, 2003, and included non-accrual, and past due 90 days other than homogenous residential and consumer loans, and $4,500,000 of commercial loans separately identified as impaired. Impaired loans totaled $9,300,000 at December 31, 2002. A loan is considered impaired when it is probable that all or part of amounts due according to the contractual terms of the loan agreement will not be collectable on a timely basis. Nonperforming loans are reviewed regularly for collectability. Any uncollectable balances are promptly charged off.

The adequacy of the allowance for loan losses is determined by management's assessment of the composition of the loan portfolio, an evaluation of specific credits, an analysis of the value of the underlying collateral for those loans, historical loss experience, relevant economic factors, the level of nonperforming loans, loans that have been identified as impaired, and the overall credit quality of the portfolio. Management continues to refine its techniques in this analysis. Impaired loans had specific reserves calculated in accordance with SFAS No. 114 of $1,650,000 at September 30, 2003, $2,000,000 at December 31, 2002, and $1,500,000 at September 30, 2002.

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

Loans are generally placed on a nonaccrual basis when principal or interest is past due 90 days or more and when, in the opinion of management, full collection of principal and interest is unlikely. Loans categorized as ninety days past due and still accruing are well secured and in the process of collection. The following table describes nonperforming assets at September 30, 2003 compared to December 31, 2002.

17

Nonperforming Assets
(in thousands)		September 30, 2003		December 31, 2002
Non-accrual loans		$4,963		$3,288
90 days or more past due and still accruing		867		809
Total nonperforming loans		5,830		4,097
Other real estate		65		738
Total nonperforming assets		$5,895		$4,835
Nonperforming loans as a percent of total loans		1.68	%	1.25	%
Loan loss reserve as a percent of nonperforming loans		103	%	141	%

The following table sets forth loan balances and summarizes the changes in the allowance for loan losses for the first nine months of 2003 and 2002.

18

Non-interest income, which includes service charges on deposit accounts, loan fees, trust fees, other operating income, and gain (loss) on sale of assets, increased by $184,000 (19.9%) in the third quarter of 2003 compared to the same period in the previous year. Gain on the sale of loans increased $24,000 (24.8%) due to increased volume of residential mortgage sales. In the third quarter of 2003 the Company sold $8,081,000 in residential mortgage loans compared to $4,900,000 in the same period the previous year. In light of recent increases in mortgage interest rates, mortgage loan sales and the related gains are expected to significantly decrease in the fourth quarter. Trust fees increased $54,000 (117.7%) due to higher assets under management and approximately $40,000 of non-recurring fee income collected in 2003. Service charge income increased approximately $139,000 (18.5%) primarily the result of an increase volume of business and in particular higher non-sufficient funds fees.

For the year, non-interest income increased $389,000 (15.1%). Contributing to the increase was a $177,000 (8.3%) increase in service charge income primarily the result of increased business offset by the impairment charge for mortgage servicing rights recorded in second quarter of 2003. Gains on the sale of loans increased approximately $107,000 (42.6%) due to increased volume for the year to date, $22,102,000 in the current year compared to $14,700,000 in the previous. Trust fees increased $70,000 (45%) due to higher assets under management and non-recurring fees collected in 2003. Other income increased $70,000 due to gains on the sale of other real estate and the reversal of a reserve for other real estate of $45,000.

Non-interest expense increased $132,000 (4.6%) in the third quarter of 2003 compared to the same period last year. There were increases in salaries and benefits expense of $71,000 (4.5%) principally due to normal merit increases and higher benefit costs. Occupancy expense increased $11,000 (4.7%) primarily due to costs associated with higher building service expenses and property taxes. Equipment expense increased $10,000 (4.6%) due to higher equipment maintenance costs and higher depreciation expense as the result of the new operations center. Other expenses also increased $67,000 (16.3%) due primarily to increased computer service fees.

For the first nine months of the year, non-interest expense increased $865,000 (9.9%) compared to the prior year. There was a $385,000 (7.9%) increase in salaries and benefits, made up of a $347,000 (10.6%) increase in salary expense due to merit increases and additional employees to keep pace with the Bank’s growth in assets, and a $38,000 (2.4%) increase in payroll taxes and medical insurance expense also related to new employees and higher costs. Occupancy expense was $53,000 (17.9%) higher due primarily to the new branch in Genoa Township which opened in the second quarter last year and the new operations center which opened in January of 2003. Advertising increased $18,000 (8.0%) due to promotional efforts for the Brighton market. “Other” non-interest expense increased $305,000 (25.4%) primarily due to the valuation reserve for land held for sale and increases in computer service fees, postage and telephone.

19

Partially offsetting these increases was a decrease in other professional service fees of $25,000 (2.8%) due to lower outside consultant fees and lower printing and supplies costs of $30,000 (12.9%).

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

*Amounts include securities valuation adjustments recorded under Statement of Financial Accounting Standards No. 115 amounting to $404,000 at September 30, 2003 and $676,000 at December 31, 2002.

A financial institution’s capital ratio is looked upon by the regulators and the public as an indication of its soundness. Stockholders’ equity, excluding the securities valuation adjustment, increased $3,120,000 (8.5%) during the first nine months of the year. This increase was principally the result of net income earned by the company reduced by dividends paid of $1,613,000.

The Federal Reserve Board provides guidelines for the measurement of capital adequacy. The Bank’s capital, as adjusted under these guidelines, is referred to as risk-based capital. The Bank’s Tier 1 risk-based capital ratio at September 30, 2003 was 10.27%, and total risk-based capital was 11.52%. At September 30, 2002 these ratios were 9.81% and 11.07% respectively. Minimum regulatory Tier 1 risk-based and total risk-based capital ratios under the Federal Reserve Board guidelines are 4% and 8% respectively.

The capital guidelines also provide for a standard to measure risk-based capital to total assets which is called the leverage ratio. The Bank’s leverage ratio was 8.76% at September 30, 2003 and 8.53% in 2002. The minimum standard leverage ratio is 3% but financial institutions are expected to maintain a leverage ratio 1 to 2 percentage points above the 3% minimum.

In 1998 the Company exercised an option to purchase an 18 acre tract of land in northwest Brighton primarily to acquire a prime site for a new branch. The cost of the property was approximately $4,000,000. In 1999 a new branch of the Bank was built on land valued at approximately $800,000. During 2000 one parcel of the property was sold. The remaining property is held for sale.

20

The Company also owns a branch site in Hamburg which is valued at approximately $330,000. Construction has begun on the Hamburg branch and is expected to be completed in the fourth quarter of 2003. This building project is expected to be financed from internally generated funds.

Critical Accounting Policies
The Company maintains critical accounting policies for the allowance for loan losses, mortgage servicing rights and the classification and valuation of securities. Refer to notes 1c, 1d and 1e of the Notes to Consolidated Financial Statements for additional information incorporated by reference to the Annual Report to Shareholders for the year ended December 31, 2002.

Contractual Obligations
As of September 30, 2003, December 31, 2002 and September 30, 2002, the Bank had outstanding irrevocable standby letters of credit, which carry a maximum potential commitment of approximately $3,300,000, $3,100,000 and $2,800,000, respectively. These letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these letters of credit are short-term guarantees of one year or less, although some have maturities which extend as long as two years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank primarily holds real estate as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held on those commitments at September 30, 2003, December 31, 2002 and September 30, 2002, where there is collateral, is in excess of the committed amount. A letter of credit is not recorded on the balance sheet until a customer fails to perform.

Accounting Standards

21

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring). The principal difference between Statement No. 146 and Issue 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. Under Issue 94-3, the liability was recognized at the date of an entity’s commitment to an exit plan. Statement No. 146 is effective for exit or disposal activities (including restructuring) that are initiated after December 31, 2002, with early adoption encouraged. Adoption of this Statement did not have a significant impact on the Bank’s results of operations or financial condition.

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for Stock-based Compensation – Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-based Compensation. SFAS No. 148 amends the disclosure requirements in SFAS No. 123 for stock-based compensation for annual periods ending after December 15, 2002 and for interim periods beginning after December 15, 2002. These disclosure requirements apply to all companies, including those that continue to recognize stock-based compensation under APB Opinion No. 25, Accounting for Stock Issued to Employees. Effective for financial statements for fiscal years ending after December 15, 2002, SFAS No. 148 also provides three alternative transition methods for companies that choose to adopt the fair-value measurement provisions of SFAS No. 123. Earlier application of those transition methods is permitted for entities with a fiscal year ending prior to December 15, 2002, provided that financial statements for the 2002 fiscal year have not been issued as of December 31, 2002. Adoption of this Statement did not have a significant impact on the Bank’s results of operations or financial condition.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. Statement No. 149 amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to clarify the definition of a derivative and expand the nature of exemptions from Statement 133. This Statement also clarifies the application of hedge accounting when using certain instruments and the application of paragraph 13 of Statement 133 to embedded derivative instruments in which the underlying is an interest rate. Finally, the Statement modifies the cash flow presentation of derivative instruments that contain financing elements. Statement No. 149 is effective for contracts entered into or modified after June 30, 2003, with early adoption encouraged. Adoption of this Statement did not have a significant impact on the Bank’s results of operations or financial condition.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, (“SFAS 150”) which requires issuers of financial instruments to classify as liabilities certain freestanding financial instruments that embody obligations of the issuer. SFAS 150 was effective for all freestanding financial instruments entered into or modified after May 31, 2003 and was otherwise effective at the beginning of the first interim period beginning after June 15, 2003. On October 29, 2003, the FASB voted to defer for an indefinite period the application of the guidance in SFAS 150 to non-controlling interests that are classified as equity in the financial statements of a subsidiary but would be classified as a liability on the parent’s financial statements. The adoption of the sections of this Statement that have not been deferred did not have a significant impact on our financial condition or results of operations. The section noted above that has been deferred indefinitely is not expected to have a significant impact on our financial condition or results or operations.

22

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (the Interpretation), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor’s fiscal year end. The guarantor may not revise or restate its previous accounting for guarantees issued before the date of the Interpretation’s initial application to reflect the effect of the recognition and measurement provisions of the Interpretation. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. Adoption of the measurement requirements of this Interpretation did not have a significant impact on the Bank’s results of operations or financial condition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in the market risk faced by the Company since December 31, 2002 other than previously discussed.

23

PART II — OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(b)     Reports on Form 8-K:
              The company filed a report 8-K on July 20, 2003 under Item 12 regarding the Company’s Second Quarter 2003 Earnings Press Release.

24

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 September 30, 2003 to be signed on its behalf by the undersigned hereunto duly authorized.

DATE: November 7, 2003

25

EXHIBIT 31.1

CERTIFICATE OF THE
CHIEF EXECUTIVE OFFICER OF
FNBH BANCORP, INC.

        Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):

I, Barbara Draper, certify that:

EXHIBIT 31.2

CERTIFICATE OF THE

CHIEF FINANCIAL OFFICER OF

FNBH BANCORP, INC.

        Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):

I, Janice B. Trouba, certify that:

EXHIBIT 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):

        I, Barbara Draper, Chief Executive Officer of FNBH Bancorp, Inc., certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:

        (1)      The quarterly report on Form 10-Q for the quarterly period ended September 30, 2003, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;

        (2)      The information contained in this quarterly report on Form 10-Q for the quarterly period ended September 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of FNBH Bancorp, Inc.

The signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to FNBH Bancorp, Inc. and will be retained by FNBH Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 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):

        I, Janice B. Trouba, Chief Financial Officer of FNBH Bancorp, Inc., certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:

        (1)      The quarterly report on Form 10-Q for the quarterly period ended September 30, 2003, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;

        (2)      The information contained in this quarterly report on Form 10-Q for the quarterly period ended September 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of FNBH Bancorp, Inc.

The signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to FNBH Bancorp, Inc. and will be retained by FNBH Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request