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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, 2004
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 Exchange Act 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 X No___

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,177,583 shares of the Company’s Common Stock (no par value) were outstanding as of July 31, 2004.

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INDEX

PART I — FINANCIAL INFORMATION

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

FNBH BANCORP, INC. AND SUBSIDIARIES

See notes to interim consolidated financial statements.

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FNBH BANCORP, INC. AND SUBSIDIARIES

See notes to interim consolidated financial statements.

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FNBH BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For the Three Months Ended June 30, 2004 and 2003 (Unaudited)

See notes to interim consolidated financial statements.

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FNBH BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
For the Six Months Ended June 30, 2004 and 2003 (Unaudited)

See notes to interim consolidated financial statements.

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FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

See notes to interim consolidated financial statements.

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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 June 30, 2004, and consolidated results of operations for the three months and six months ended June 30, 2004 and 2003 and consolidated cash flows for the six months ended June 30, 2004 and 2003.

2.     The results of operations for three months and six months ended June 30, 2004 and 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 Consolidated Financial Statements in the 2003 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 estimated 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 $2,216,000 at June 30, 2004, $6,498,000 at June 30, 2003, and $4,293,000 at December 31, 2003. (See Management’s Discussion and Analysis of Financial Condition and Results of Operations).

6.     Basic and diluted earnings per share (EPS) are computed by dividing net income by the respective number of common shares outstanding.

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Item 2.

Management’s Discussion and Analysisof
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 six months ended June 30, 2004 and 2003, 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 June 30, 2004 decreased approximately $12,000 (.9%) compared to the same period last year. In the second quarter of the current year, the provision for loan losses decreased $75,000 (27.3%), noninterest income increased $89,000 (9.7%) and the provision for federal income taxes decreased $33,000 (5.7%). Offsetting these favorable occurrences was a decrease in net interest income of $5,000 (.1%) and an increase in noninterest expenses of $205,000 (6.1%).

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Net income for the six months ended June 30, 2004 increased approximately $126,000 (4.8%) compared to the same period last year. Contributing to the increase in 2004 earnings were higher net interest income of $176,000 (1.9%) and higher noninterest income of $330,000 (17.8%). Partially offsetting these favorable variances were an increase in the provision for loan losses of $95,000 (15.8%), higher noninterest expenses of $267,000 (4.1%) and a higher provision for federal income taxes of $19,000 (1.6%).

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

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TABLE 1
INTEREST YIELDS AND COSTS (in thousands)
June 30, 2004 and 2003

(1) Average yields in the above table have been adjusted to a tax-equivalent basis using a 34% tax rate and exclude the effect of any market value adjustments recorded under Statement of Financial Accounting Standards No. 115.
(2) For purposes of the computation above, non-accruing loans are included in the average daily loan balances.
(3) Interest on loans includes origination fees totaling $177,000 in 2004 and $172,000 in 2003.

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TABLE 2
INTEREST YIELDS AND COSTS (in thousands)
June 30, 2004 and 2003

(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 $344,000 in 2004 and $330,000 in 2003.

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Interest Earning Assets/Interest Income

On tax equivalent basis, interest income decreased approximately $205,000 (3.2%) in the second quarter of 2004 compared to the second quarter of 2003. The decrease was the result of a 60 basis point reduction in the yield on earning assets partially offset by an increase in the average balance of interest earning assets of $27,000,000 (6.9%). The reduction in yield is the result of a change in the mix of earning assets in 2004 as well as lower interest rates.

The quarterly average balance of short term investments and securities was $28,700,000 (56.2%) higher in the second quarter of 2004 as compared with the same period in 2003. Offsetting the increase in average balances was a decrease in the yield on these investments of 107 basis points due to lower market interest rates. Loans which earn a higher yield than investments, had a decrease in average balances of $1,700,000 in the second quarter of 2004 compared to the same period last year as well as a 35 basis point reduction in yield. This reduction was primarily the result of the prime rate being 25 basis points lower in the second quarter of 2004 compared to the second quarter of 2003. Loan balances at June 30, 2004 have decreased $14,000,000 from December 31, 2003, and by $8,000,000 from March 31, 2004. The decrease is attributable to soft loan demand during the first half of this year and competitive pressures in our markets. Management is focusing its efforts on reversing this trend; however, the continuation of this trend will have an unfavorable impact on net interest margin.

For the first half of the year, tax equivalent interest income decreased $317,000 (2.5%). Loan interest income decreased $514,000 (4.5%). The average rate earned on loans decreased 46 basis points while average balances increased $6,600,000 (2.0%). The slight increase in loan growth occurred across all portfolios but was most significant in the consumer loan areas. Average commercial loans increased $1,800,000 (.7%), consumer loans increased $3,000,000 (9.0%) and mortgage loans increase $1,800,000 (5.5%) from the previous year. In addition to the mortgage loans held in the Bank’s loan portfolio, the Bank also originates mortgage loans for sale in the secondary market. Loans originated for sale were $2,274,000 in the first half of 2004 compared to $14,000,000 in the first half of 2003. The decline was the result of increases in mortgage rates and lower refinancing activity. Positively affecting interest income was an increase in short term investments and securities income of $197,000 (15.8%), the result of higher average balances of $18,000,000 (31.7%).

Interest Bearing Liabilities/Interest Expense

Interest expense on deposits for the second quarter of 2004 decreased $187,000 (12.9%) from the second quarter 2003. The positive change in interest expense is the result of a lower yield paid on deposits of 35 basis points partially offset by higher average balances of $19,500,000.

Interest expense on deposits declined during the first half of 2004 compared to the first half of last year by $483,000 (14.8%) due to a decrease in the average rate paid on deposits of 42 basis points partially offset by an increase in interest bearing average deposit balances of $17,500,000 (5.7%).

Included in the average balance for short term borrowings during 2003 were federal funds purchased. Due to the increased liquidity in the first half of 2004 it has not been necessary to borrow federal funds or other short term borrowings. Included in FHLB advances are two loans entered into in 2000 from the Federal Home Loan Board of Indianapolis. 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. FHLB borrowings are available to fund future growth if needed.

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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.

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 June 30, 2004, the Bank had Large Certificates totaling approximately $57,000,000 compared to $54,000,000 at December 31, 2003. At June 30, 2004, the Bank had $3,600,000 in brokered certificates which were issued through a dealer in September 2003 to help fund loan growth. Included in the issuance were $1,200,000 maturing in September 2004 and $2,400,000 maturing in September 2005.

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 $40,000,000 available at the FHLBI. As of June 30, 2004 approximately $5,100,000 of the line had been used 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.

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

Interest Rate Sensitivity as of June 30, 2004
(dollars in thousands)