10-Q

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, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _______

Commission File Number 0-25752

FNBH BANCORP, INC.

(Exact name of registrant as specified in its charter)

MICHIGAN	38-2869722
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

101 East Grand River, Howell, Michigan 48843

(Address of principal executive offices) (Zip Code)

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

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

Indicate by 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 x 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 Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 455,115.

Shares of the Corporation’s Common Stock (no par value) were outstanding as of August 14, 2013.

TABLE OF CONTENTS

		Page
		Number
Part I  Financial Information (unaudited)
Item 1. Financial Statements:
	Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	1
	Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012	2
	Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2013 and 2012	3
	Consolidated Statements of Shareholders’ Equity for the six months ended June 30, 2013 and 2012	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012	5
	Notes to Interim Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	35
Part II. Other Information
Item 1A Risk Factors		35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	36
Signatures		37

Discussions and statements in this report that are not statements of historical fact, including, without limitation, statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “forecast,” “anticipate,” “estimate,” “project,” “intend,” “likely,” “optimistic” and “plan,” and statements about future or projected financial and operating results, plans, projections, objectives, expectations, and intentions and other statements that are not historical facts, are forward-looking statements. Forward-looking statements include, but are not limited to, statements about the likelihood, timing, and terms of our ability to raise new capital; descriptions of plans and objectives for future operations, products or services; projections of our future revenue, earnings or other measures of economic performance; forecasts of credit losses and other asset quality trends; predictions as to our subsidiary bank’s ability to achieve or maintain certain regulatory capital standards; our expectation that we will have or be able to obtain sufficient cash to meet expected obligations during 2013; and descriptions of other steps we may take to improve our capital position. These forward-looking statements express our current expectations, forecasts of future events, or long-term goals and, by their nature, are subject to assumptions, risks, and uncertainties. Although we believe that the expectations, forecasts, and goals reflected in these forward-looking statements are reasonable, actual results could differ materially for a variety of reasons, including, among others:

· our ability to successfully raise new capital and/or our ability to implement our capital restoration and recovery plan;

· our ability to continue as a going concern in light of the uncertainty regarding the extent and timing of possible future regulatory enforcement action against our subsidiary bank;

· the failure of assumptions underlying the establishment of and provisions made to our allowance for loan losses;

· our ability to comply with the various requirements imposed by the regulatory Consent Order against our bank;

· the timing and pace of an economic recovery in Michigan and the United States in general, including regional and local real estate markets;

· the ability of our bank to attain and maintain certain regulatory capital standards;

· limitations on our ability to access and rely on wholesale funding sources;

· the continued services of our management team, particularly as we work through our asset quality issues and the implementation of our capital restoration plan; and

· implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act or other new legislation, which may have significant effects on us and the financial services industry

This list provides examples of factors that could affect the results described by forward-looking statements contained in this report, but the list is not intended to be all inclusive. The risk factors disclosed in Part I – Item A of our Annual Report on Form 10-K for the year ended December 31, 2012, as updated by any new or modified risk factors disclosed in Part II – Item 1A of any subsequently filed Quarterly Report on Form 10-Q, include all known risk our management believes could materially affect the results described by forward-looking statements in this report. However, those risks may not be the only risks we face. Our results of operations, cash flows, financial position, and prospects could also be materially and adversely affected by additional factors that are not presently known to us that we currently consider to be immaterial, or that develop after the date of this report. We cannot assure you that our future results will meet expectations. While we believe the forward-looking statements in this report are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. We do not undertake, and expressly disclaim, any obligation to update or alter any statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

Part I – Financial Information

Item 1. Financial Statements

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

	June 30, 2013			December 31, 2012
	(in thousands, except share amounts)
Assets
Cash and due from banks	$	48,962		$	41,824
Short term investments		197			197
Total cash and cash equivalents		49,159			42,021
Investment securities:
Investment securities available for sale, at fair value		77,905			72,586
FHLBI and FRB stock, at cost		779			779
Total investment securities		78,684			73,365
Loans held for investment:
Commercial		141,156			152,152
Consumer		15,383			14,582
Real estate mortgage		12,809			13,457
Total loans held for investment		169,348			180,191
Less allowance for loan losses		(9,483	)		(11,769	)
Net loans held for investment		159,865			168,422
Premises and equipment, net		7,341			7,211
Other real estate owned, held for sale		2,000			3,427
Accrued interest and other assets		2,002			2,425
Total assets	$	299,051		$	296,871
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand (non-interest bearing)	$	92,017		$	95,779
NOW		30,964			29,501
Savings and money market		82,678			79,566
Time deposits		80,321			81,716
Brokered certificates of deposit		1,121			1,120
Total deposits		287,101			287,682
Other borrowings		163			148
Accrued interest, taxes, and other liabilities		2,352			1,672
Total liabilities		289,616			289,502
Shareholders' Equity
Preferred stock, no par value. Authorized 30,000 shares; no shares issued and outstanding		-			-
Common stock, no par value. Authorized 11,000,000 shares at June 30, 2013 and December 31, 2012; 455,115 shares issued and outstanding at June 30, 2013 and 454,327 shares issued and outstanding at December 31, 2012.		7,321			7,202
Retained earnings (deficit)		2,209			(496	)
Deferred directors' compensation		342			461
Accumulated other comprehensive income (loss)		(437	)		202
Total shareholders' equity		9,435			7,369
Total liabilities and shareholders' equity	$	299,051		$	296,871

See accompanying notes to interim consolidated financial statements (unaudited).

1

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Three and Six Months Ended June 30, 2013 and 2012

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
	(in thousands, except per share amounts)
Interest and dividend income:
Interest and fees on loans	$	2,301		$	2,504		$	4,767		$	5,191
Interest and dividends on investment securities:
Agency securities and CMOs		253			281			515			488
Obligations of states and political subdivisions		12			12			23			26
Other securities		8			6			14			12
Interest on short term investments		-			1			1			1
Total interst and dividend income		2,574			2,804			5,320			5,718
Interest expense		231			276			466			584
Net interest income		2,343			2,528			4,854			5,134
Provision for loan losses		-			450			(2,250	)		900
Net interest income after provison for loan losses		2,343			2,078			7,104			4,234
Noninterest income:
Service charges and other fee income		556			689			1,211			1,382
Trust income		37			46			79			91
Other		56			(3	)		119			(3	)
Total noninterest income		649			732			1,409			1,470
Noninterest expense:
Salaries and employee benefits		1,154			1,233			2,630			2,475
Net occupancy expense		213			172			463			403
Equipment expense		87			82			167			175
Professional and service fees		436			456			831			846
Loan collection and foreclosed property expenses		82			168			165			287
Computer service fees		111			112			225			225
Computer software amortization expense		10			5			18			62
FDIC assessment fees		253			252			509			503
Insurance		130			148			261			294
Printing and supplies		43			57			86			92
Director fees		-			20			-			40
Net (gain) loss on sale/writedown of OREO and repossessions		(90	)		13			(46	)		19
Other		202			181			395			326
Total noninterest expense		2,631			2,899			5,704			5,747
Income (loss) before federal income taxes		361			(89	)		2,809			(43	)
Federal income tax expense		146			-			104			-
Net income (loss)	$	215		$	(89	)	$	2,705		$	(43	)
Per share statistics:
Basic and diluted EPS	$	0.47		$	(0.19	)	$	5.91		$	(0.09	)
Basic and diluted average shares outstanding		457,435			457,413			457,435			457,408

See accompanying notes to interim consolidated financial statements (unaudited).

2

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

Three and Six Months Ended June 30, 2013 and 2012

	Three months ended June 30,			Three months ended June 30,			Six months ended June 30,			Six months ended June 30,
	2013			2012			2013			2012
	(in thousands)
Net income (loss)	$	215		$	(89	)	$	2,705		$	(43	)
Other comprehensive income (loss):
Unrealized gains (losses):
Net change in unrealized gains (losses) on securities available for sale		(721	)		107			(639	)		71
Less: reclassification adjustment for gain (loss) recognized in earnings		-			(3	)		-			(3	)
Other comprehensive income (loss)		(721	)		104			(639	)		68
Comprehensive income (loss)	$	(506	)	$	15		$	2,066		$	25

See accompanying notes to interim consolidated financial statements (unaudited).

3

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity

Six Months Ended June 30, 2013 and 2012

(Unaudited)

	Common Stock		Retained Earnings (Deficit)			Deferred Directors' Compensation			Accumulated Other Comprehensive Income (Loss)			Total
	(in thousands)
Balances at January 1, 2012	$	7,082	$	(825	)	$	577		$	(224	)	$	6,610
Earned portion of long term incentive plan		2											2
Issued 774 shares for deferred directors' fees		116					(116	)					-
Net loss				(43	)								(43	)
Other comprehensive income										68			68
Balances at June 30, 2012		7,200		(868	)		461			(156	)		6,637
Balances at January 1, 2013		7,202		(496	)		461			202			7,369
Issued 788 shares for deferred directors' fees		119					(119	)					-
Net income				2,705									2,705
Other comprehensive loss										(639	)		(639	)
Balances at June 30, 2013	$	7,321	$	2,209		$	342		$	(437	)	$	9,435

See accompanying notes to interim consolidated financial statements (unaudited).

4

FNBH BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2013			2012
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	2,705		$	(43	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		(2,250	)		900
Depreciation and amortization		213			258
Deferred income tax expense		104			-
Net amortization on investment securities		627			326
Loss on sale of available for sale securities		-			3
Earned portion of long term incentive plan		-			2
Net (gain) loss on sale/writedown of OREO and repossessions		(46	)		19
Decrease in accrued interest income and other assets		439			(12	)
Decrease in accrued interest, taxes, and other liabilities		680			109
Net cash provided by operating activities		2,472			1,562
Cash flows from investing activities
Purchases of available for sale securities		(20,684	)		(50,733	)
Proceeds from the sales of available for sale securities		-			247
Proceeds from maturities and calls of available for sale securities		3,000			6,990
Proceeds from mortgage-backed securities paydowns - available for sale		10,995			4,591
Proceeds from sale of OREO and repossessions		1,559			295
Net decrease in loans		10,721			14,318
Capital expenditures		(359	)		(125	)
Net cash used in investing activities		5,232			(24,417	)
Cash flows from financing activites:
Net decrease in deposits		(581	)		(718	)
Proceeds from other borrowings		15			65
Net cash used in financing activities		(566	)		(653	)
Net change in cash and cash equivalents		7,138			(23,508	)
Cash and cash equivalents at beginning of year		42,021			50,217
Cash and cash equivalents at end of period	$	49,159		$	26,709
Supplemental disclosures:
Interest paid	$	472		$	609
Loans transferred to other real estate owned		86			619
Loans charged off		383			2,365

See accompanying notes to interim consolidated financial statements (unaudited).

5

Notes to Consolidated Financial Statements

1. Basis of Presentation

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, these financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management of FNBH Bancorp, Inc. (the Corporation), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the three and six month period ended June 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013. For further information, refer to the consolidated financial statements and footnotes thereto included in the 2012 Annual Report contained in the Corporation’s report on Form 10-K filing. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

The consolidated financial statements included in this Form 10-Q have been prepared assuming our wholly-owned subsidiary bank, First National Bank in Howell (the Bank), continues to operate in the normal course of business for the foreseeable future, and do not include any adjustments to recorded assets or liabilities should we be unable to continue as a going concern.

2. Financial Condition and Management’s Plan

In light of the Bank’s significant losses since 2008, insufficient capital position at June 30, 2013 and noncompliance with a regulatory capital directive stipulated under a Consent Order (as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), management believes it is reasonable that further regulatory enforcement action may occur if the capital raise described below is not completed or the Corporation is unable to effect another recapitalization within the relatively near future. Until such time as the Consent Order is either modified or lifted, management continues to pursue initiatives identified in its recovery plan to achieve full compliance with all requirements of the Consent Order in order to mitigate the impact of the regulatory challenges. In addition, execution of the recovery plan includes implementation of measures necessary to position the Bank to overcome current economic challenges. Management’s recovery plan is detailed in Note 2 of the consolidated financial statements included in the 2012 Annual Report within the Corporation’s Form 10-K filing.

Although management’s recovery plan is intended to restore the Bank’s regulatory standing and return the Bank to core profitability, there is uncertainty as to the plan’s ultimate effectiveness, the Bank’s ability to meet existing regulatory requirements, the ability of management to achieve the objectives of the recovery plan and the potential impact of future regulatory action against the Bank, which raises substantial doubt about the Corporation’s ability to continue as a going concern. The ability of the Corporation to continue as a going concern is dependent upon many factors, including regulatory action, the ability to complete the pending capital raise or some other recapitalization of the Corporation and the Bank, and the ability of management to achieve the other objectives in its recovery plan. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As part of the recovery plan that was initiated in late 2008, management and the Board of Directors have been aggressively pursuing all available alternatives to improve the Bank’s capital ratios, including raising capital, reducing non-performing assets, and cutting expenses. The recovery plan was designed to improve the Bank’s financial health by completing a significant recapitalization, aggressively reducing credit risk exposure in the loan portfolio and improving the efficiency and effectiveness of core business processes. The most important objective of the recovery plan is to restore the Bank’s capital to a level sufficient to comply with the capital directive in the Consent Order and provide sufficient capital resources and liquidity to meet commitments and business needs. To date, the Bank has not raised the capital necessary to satisfy requirements of the Consent Order.

As disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 2013, the Corporation terminated certain subscription agreements related to a proposed capital raise by the Corporation due to lack of regulatory approval. However, in a continued effort to raise additional capital necessary to improve the capital position of its subsidiary bank, the Corporation initiated a second private placement offering to certain accredited investors. Unlike the previous transaction, the new offering does not involve the issuance of any debt by the Corporation.

In a Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2013, the Corporation disclosed its acceptance of new subscription agreements pursuant to which the Corporation has agreed to sell shares of a new series of mandatorily convertible preferred stock of the Corporation (the “Preferred Stock”) in exchange for approximately $17.1 million in cash from investors, subject to satisfaction of certain closing conditions. As structured, the Preferred Stock will be convertible into shares of the Corporation’s common stock at a rate reflecting a price per share of common stock of $0.70, subject to certain anti-dilution adjustments. The conversion into common stock will take place automatically upon the approval by the Corporation’s shareholders of additional shares of authorized common stock. Until converted into common stock, the Preferred Stock will have terms that will be substantially identical to the terms applicable to the outstanding common stock with respect to dividends, distributions, voting, and other matters. For matters submitted to a vote of the holders of the Corporation’s common stock, including the proposal to authorize additional shares of common stock, the Preferred Stock will vote with the common stock, as a single class, as if the Preferred Stock was already converted into common stock.

The closing of this new private placement offering (“Capital Raise”) is subject to material conditions, including a requirement to obtain the approval of the Federal Reserve and compliance by one or more investors with federal law applicable to the acquisition of "control" of a bank holding company.  The satisfaction of these conditions is largely out of the control of the Corporation.  If the conditions to the closing of the Capital Raise are not satisfied, the closing will not occur. 

The Corporation is hopeful that its ongoing efforts to complete a recapitalization of the Corporation in the near future will be successful.  However, the Corporation cannot give any assurances that it will be successful in closing the Capital Raise or, if it is unable to close the Capital Raise, that it will be successful in completing some other recapitalization of the Corporation on a timely basis, or at all. Therefore, a reader of this Quarterly Report should not make a decision regarding whether to invest in the Corporation based on an assumption that the Capital Raise or some other recapitalization of the Corporation will close. 

6

Even if the Corporation is successful in closing the Capital Raise, the net proceeds from the Capital Raise are not expected to be sufficient to enable the Bank to meet the minimum capital ratios required by the Consent Order. In addition, even if the Bank is able to meet the minimum capital ratios following the closing of a recapitalization of the Corporation, it is possible that further losses at the Bank could cause its capital to once again fall below such minimum ratios.  In any event, even if the Corporation closes a recapitalization of sufficient size to bring the Bank into compliance with the minimum capital ratios of the Consent Order, the Corporation currently expects that the Bank will continue to be subject to the Consent Order or some other regulatory enforcement action for some period following the closing of a recapitalization while the Bank works to comply with the provisions of the Consent Order and demonstrate a period of performance within the requirements of the Consent Order.

There can be no assurance that the efforts of the Corporation to raise new capital, management's recovery plan, or related efforts will improve the Bank's financial condition; further deterioration of the Bank's capital position is possible.  The current economic environment in southeast Michigan and local real estate market conditions, while improving, will continue to present challenges to the Bank's financial performance.  Any further declines in the Bank’s capital levels may likely result in more regulatory oversight or enforcement action by either the Office of the Comptroller of the Currency (the “OCC”), as the Bank’s primary regulator, or the Federal Deposit Insurance Corporation (the “FDIC”), which insures the Bank’s deposits. See also the “Capital” section within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-Q.

3. Securities

Securities available for sale consist of the following:

			Unrealized
	Amortized Cost		Gains		Losses			Fair Value
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	1,797	$	17	$	(2	)	$	1,812
Mortgage-backed/CMO		76,496		99		(912	)		75,683
Preferred stock(1)		49		361		-			410
Total available for sale	$	78,342	$	477	$	(914	)	$	77,905
December 31, 2012
Obligations of state and political subdivisions	$	1,534	$	46	$	-		$	1,580
U.S. agency		3,000		7		-			3,007
Mortgage-backed/CMO		67,697		349		(184	)		67,862
Preferred stock(1)		49		88		-			137
Total available for sale	$	72,280	$	490	$	(184	)	$	72,586

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

Securities are reviewed quarterly for possible other-than-temporary impairment (OTTI) based on guidance included in ASC Topic 320, Investments–Debt and Equity Instruments. This guidance requires an entity to assess whether it intends to sell, or whether it is more likely than not that it will be required to sell, a security in an unrealized loss position before the recovery of the security’s amortized cost basis. If either of these criteria is met, the entire difference between the amortized cost and fair value is recognized in earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income.

Management’s review of the securities portfolio for the existence of OTTI considers 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.

At June 30, 2013, the Corporation had two mortgage-backed securities which have been impaired for more than twelve months. At December 31, 2012, there was one non-agency mortgage-backed security which has been impaired for more than twelve months.

A summary of the par value, book value, carrying value (fair value) and unrealized loss for the non-agency mortgage-backed security is presented below:

	June 30, 2013					December 31, 2012
	Amount		% of Par			Amount		% of Par
	(dollars in thousands)
Par value	$	2,065		100.00	%	$	2,387		100.00	%
Book value		1,775		85.96	%		2,097		87.82	%
Carrying value		1,758		85.13	%		2,018		84.51	%
Unrealized loss		17		0.82	%		79		3.31	%

7

The Corporation makes a quarterly assessment of OTTI on its non-agency mortgage-backed security primarily based on a quarterly cash flow analysis performed by an independent third-party specialist. The evaluation includes a comparison of the present value of the expected cash flows to previous estimates to determine whether adverse changes in cash flows resulted during the period. The analysis considers attributes of the security, such as its super tranche position, and specific loan level collateral underlying the security. Certain key attributes of the underlying loans supporting the security included the following:

	June 30, 2013			December 31, 2012
Weighted average remaining credit score (based on original FICO)		738			738
Primary location of underlying loans:
California		73	%		72	%
Florida		3	%		4	%
Other		24	%		24	%
Delinquency status of underlying loans:
Past due 30-59 days		3.57	%		2.70	%
Past due 60-89 days		1.44	%		2.62	%
Past due 90 days or more		7.57	%		8.03	%
In process of foreclosure		4.62	%		3.58	%
Held as other real estate owned		0.61	%		0.75	%

The specialist calculates an estimate of the fair value of the security's cash flows using an INTEX valuation model, subject to certain assumptions regarding collateral related cash flows such as expected prepayment rates, default rates, loss severity estimates, and discount rates as key valuation inputs. Certain key attributes of the underlying loans supporting the security included the following:

	June 30, 2013			December 31, 2012
Voluntary repayment rate (CRR)		12.50	%		10.14	%
Default rates:
Within next 24 months		7.33	%		6.87	%
Decreasing to (by month 37)		3.88	%		3.15	%
Decreasing to (by month 215)		0.00	%		0.00	%
Loss severity rates:
Initial loss upon default (Year 1)		48.16	%		50.70	%
Per annum decrease in loss rate (Years 2 - 11)		3.00	%		2.50	%
Floor (Year 12)		23.00	%		23.00	%
Discount rate (1):		6.50	%		7.00	%
Remaining credit support provided by other collateral
pools of underlying loans within the security:		0.02	%		0.02	%

⁽¹⁾ Intended to reflect estimated uncertainty and liquidity premiums, after adjustment for estimated credit loss cash flows.

The prepayment assumptions used within the model consider borrowers’ incentive to prepay based on market interest rates and borrowers’ ability to prepay based on underlying assumptions for borrowers’ ability to qualify for a new loan based on their credit and appraised property value, by location. As such, prepayment speeds decrease as credit quality and home prices deteriorate, reflecting a diminished ability to refinance.

In addition, collateral cash flow assumptions utilize a valuation technique under a “Liquidation Scenario” whereby loans are evaluated by delinquency and are assigned probability of default and loss factors deemed appropriate in the current economic environment. The liquidation scenarios assume that all loans 60 or more days past due migrate to default, are liquidated, and losses are realized over a period of between six and twenty four months based in part upon initial loan to value ratios and estimated changes in both historical and future property values since origination as obtained from financial data sources.

At June 30, 2013, based on a present value at a prospective yield of future cash flows for the investment as provided by the specialist and after management’s evaluation of the reasonableness of the specialist's underlying assumptions regarding Level 2 and Level 3 inputs, the Corporation concluded that the security’s expected cash flows continued to support the amortized cost of the security and no additional other-than-temporary impairment had been incurred.

At June 30, 2013 and December 31, 2012, the unrealized (non-credit) loss on the security was determined to be approximately $17,000 and $79,000, respectively, using the valuation methodology and applicable inputs and assumptions described above.

8

The following is a summary of the gross unrealized losses and fair value of securities by length of time that individual securities have been in a continuous loss position:

	Less than 12 months					12 months or more					Total
	Unrealized losses			Fair Value		Unrealized losses			Fair Value		Unrealized losses			Fair Value
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	(2	)	$	762	$	-		$	-	$	(2	)		762
Mortgage-backed/CMO		(842	)		58,511		(70	)		3,358		(912	)		61,869
Total	$	(844	)	$	59,273	$	(70	)	$	3,358	$	(914	)	$	62,631
December 31, 2012
Mortgage-backed/CMO	$	(105	)	$	13,448	$	(79	)	$	2,018	$	(184	)	$	15,466

The amortized cost and fair value of securities available for sale, by contractual maturity, follow. 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, 2013				December 31, 2012
	Amortized Cost		Approximate Fair Value		Amortized Cost		Approximate Fair Value
	(in thousands)
Maturing within one year	$	-	$	-	$	-	$	-
Maturing after one year but within five years		764		762		500		501
Maturing after five years but within ten years		305		309		3,305		3,323
Maturing after ten years		777		1,151		778		900
	$	1,846	$	2,222	$	4,583	$	4,724
Mortgage-backed/CMO securities		76,496		75,683		67,697		67,862
Totals	$	78,342	$	77,905	$	72,280	$	72,586

Proceeds from at-par calls on securities totaled $3.0 million and $7.0 million for the six months ended June 30, 2013 and 2012, respectively.

At June 30, 2013 and December 31, 2012, the Corporation did not own any investment securities issued by states and political subdivisions in which the amortized cost and fair value of such securities individually exceeded 10% of shareholders’ equity.

Investment securities, with an amortized cost of approximately $73.9 million at June 30, 2013 were pledged to secure public deposits and for other purposes required or permitted by law, including approximately $29.9 million of securities pledged as collateral at the Federal Home Loan Bank of Indianapolis (FHLBI) to support potential liquidity needs of the Bank. At December 31, 2012, the amortized cost of pledged investment securities totaled $69.1 million of which $25.4 million of securities was pledged as collateral at the FHLBI for contingent liquidity needs of the Bank.

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 $735,000 at June 30, 2013 and December 31, 2012. The Bank’s investment in FRB stock, which totaled $44,000 at June 30, 2013 and December 31, 2012, 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.

4. Loans

The recorded investment in portfolio loans consists of the following:

	June 30, 2012			December 31, 2012
	(in thousands)
Commercial	$	12,845		$	16,112
Commercial real estate:
Construction, land development, and other land		6,971			8,741
Owner occupied		52,604			51,202
Nonowner occupied		62,000			69,415
Consumer real estate:
Commercial purpose		6,915			6,911
Mortgage - Residential		13,712			14,604
Home equity and home equity lines of credit		8,678			8,307
Consumer and Other		5,823			5,103
Subtotal		169,548			180,395
Unearned income		(200	)		(204	)
Total Loans	$	169,348		$	180,191

9

Included in the consumer real estate loans above are residential first mortgages reported as “real estate mortgages” on the consolidated balance sheets. In addition, a portion of these consumer real estate loans include commercial purpose loans where the borrower has pledged a 1-4 family residential property as collateral. Loans also include the reclassification of demand deposit overdrafts, which amounted to $78,000 at June 30, 2013 and $116,000 at December 31, 2012, respectively.

Loans serviced for others, including commercial participations sold, are not reported as assets of the Bank and approximated $4.0 million at June 30, 2012 and $4.3 million at December 31, 2012.

5. Allowance for Loan Losses and Credit Quality of Loans 

The Corporation separates its loan portfolio into segments to perform the calculation and analysis of the allowance for loan losses. The four segments analyzed are Commercial, Commercial Real Estate, Consumer Real Estate, and Consumer and Other. The Commercial segment includes loans to finance commercial and industrial businesses that are not secured by real estate. The Commercial Real Estate segment includes: i) construction real estate loans to finance construction and land development and/or loans secured by vacant land and ii) commercial real estate loans secured by non-farm, non-residential real estate which are further classified as either owner occupied or non-owner occupied based on the underlying collateral type. The Consumer Real Estate segment includes (commercial and non-commercial purpose) loans that are secured by 1 – 4 family residential real estate properties, including first mortgages on residential properties and home equity loans and lines of credit that are secured by first or second liens on residential properties. The Consumer and Other segment include all loans not included in any other segment. These are primarily loans to consumers for household, family, and other personal expenditures, such as autos, boats, and recreational vehicles.

Activity in the allowance for loan losses by portfolio segment for the three months ended:

	Commercial			Commercial Real Estate			Consumer Real Estate			Consumer and Other			Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Beginning balance	$	892		$	6,866		$	1,647		$	148		$	9,553
Charge offs		(164	)		(63	)		(56	)		(25	)		(308	)
Recoveries		38			7			156			37			238
Provision		4			(7	)		(14	)		17			-
Ending balance	$	770		$	6,803		$	1,733		$	177		$	9,483
June 30, 2012
Allowance for loan losses:
Beginning balance	$	565		$	8,560		$	2,645		$	232		$	12,002
Charge offs		(24	)		(590	)		(145	)		(38	)		(797	)
Recoveries		85			314			92			16			507
Provision		48			1,042			(521	)		(119	)		450
Ending balance	$	674		$	9,326		$	2,071		$	91		$	12,162

Activity in the allowance for loan losses by portfolio segment for the six months ended:

	Commercial			Commercial Real Estate			Consumer Real Estate			Consumer and Other			Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Beginning balance	$	908		$	8,682		$	2,036		$	143		$	11,769
Charge offs		(164	)		(88	)		(62	)		(69	)		(383	)
Recoveries		55			12			219			61			347
Provision		(29	)		(1,803	)		(460	)		42			(2,250	)
Ending balance	$	770		$	6,803		$	1,733		$	177		$	9,483
June 30, 2012
Allowance for loan losses:
Beginning balance	$	636		$	9,113		$	2,680		$	261		$	12,690
Charge offs		(241	)		(1,695	)		(362	)		(67	)		(2,365	)
Recoveries		113			680			103			41			937
Provision		166			1,228			(350	)		(144	)		900
Ending balance	$	674		$	9,326		$	2,071		$	91		$	12,162

10

The following presents the balance in allowance for loan losses and loan balances by portfolio segment based on impairment method:

	Commercial		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Individually evaluated for impairment	$	23	$	1,236	$	219	$	-	$	1,478
Collectively evaluated for impairment		747		5,567		1,514		177		8,005
Total allowance for loan losses	$	770	$	6,803	$	1,733	$	177	$	9,483
Recorded investment in loans:
Individually evaluated for impairment	$	457	$	20,093	$	2,555	$	-	$	23,105
Collectively evaluated for impairment		12,388		101,482		26,750		5,823		146,443
Total recorded investment in loans	$	12,845	$	121,575	$	29,305	$	5,823	$	169,548
December 31, 2012
Allowance for loan losses:
Individually evaluated for impairment	$	49	$	1,245	$	377	$	-	$	1,671
Collectively evaluated for impairment		859		7,437		1,659		143		10,098
Total allowance for loan losses	$	908	$	8,682	$	2,036	$	143	$	11,769
Recorded investment in loans:
Individually evaluated for impairment	$	710	$	19,853	$	2,380	$	-	$	22,943
Collectively evaluated for impairment		15,402		109,505		27,442		5,103		157,452
Total recorded investment in loans	$	16,112	$	129,358	$	29,822	$	5,103	$	180,395

Management’s on-going monitoring of the credit quality of the portfolio relies on an extensive credit risk monitoring process that considers several factors including: current economic conditions affecting the Bank’s customers, the payment performance of individual loans and pools of homogenous loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific relationships.

Our internal loan grading system assigns a risk grade to all commercial loans. This grading system is similar to those employed by banking regulators. Grades 1 through 5 are considered “pass” credits and grade 6 are considered “watch” credits and are subject to greater scrutiny. Those loans graded 7 and higher are considered substandard and are individually evaluated for impairment if reported as nonaccrual and are greater than $100,000 or part of an aggregate relationship exceeding $100,000. All commercial loans are graded at inception and reviewed, and if appropriate, re-graded at various intervals thereafter. Additionally, our commercial loan portfolio and assigned risk grades are periodically subjected to review by external loan reviewers and banking regulators. Certain of the key factors considered in assigning loan grades include: cash flows, operating performance, financial condition, collateral, industry condition, management, and the strength, liquidity and willingness of guarantors’ support.

A description of the general characteristics of each risk grade follows:

· RATING 1 (Satisfactory – Minimal Risk) - Loans in this category are to persons or entities of unquestioned financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin.

· RATING 2 (Satisfactory – Modest Risk) – These loans to persons or entities with strong financial condition and above-average liquidity who have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally-generated cash flow covers current maturities of long-term debt more than adequately.

· RATING 3 (Satisfactory - Average) – These are loans with average cash flow and ratios compared to peers. Usually RMA comparisons show where companies fall in the performance spectrum. Companies have consistent performance for 3 or more years.

· RATING 4 (Satisfactory – Acceptable Risk) – Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Overall, these loans are basically sound.

11

· RATING 5 (Satisfactory - Acceptable – Monitor) - These loans are characterized by borrowers who have marginal, but adequate cash flow, marginal profitability, but currently have been meeting the obligations of their loan structure. However, adverse changes in the borrower’s circumstances and/ or current economic conditions are more likely to impair their capacity for repayment. The borrower has in the past satisfactorily handled debts with the Bank, but may be experiencing some minor delinquency in making payments, or other signs of temporary cash flow issues. Borrower may be experiencing declining margins or other negative financial trends, despite the borrower’s continued satisfactory condition and positive cash flow. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement, or declining but positive repayment capacity. This classification includes loans to new or established borrowers with satisfactory loan structure, but where near term economic or business issues appears to remain stable and the near term projections would limit the ability for an improvement in the financial trends of the borrower.

· RATING 6 (Special Mention - OAEM) - Loans in this class have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These potential weaknesses may result in a deterioration of the repayment of the loan and increase the credit risk. Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Special mention credits may include a borrower that pays the Bank on a timely basis (occasional 30 day delinquent) and may be experiencing temporary cash flow deficiencies.

· RATING 7 (Substandard) – A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans. Substandard credits may include a borrower that pays consistently past due, has significant cash flow shortages and may have a collateral shortfall that requires a specific reserve.

· RATING 8 (Doubtful) - This risk rating class has all of the weaknesses inherent in the substandard rating but with the added characteristic that the weaknesses make collection in full or liquidation, on the basis of currently known existing facts, condition, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full within a reasonable period of time; in fact, there is permanent impairment in the collateral securing the Bank’s loan. These loans are in a work-out status, must be non-accrual status and have a defined work-out strategy.

This is a transitional risk rating class while collateral value and other factors are assessed. Loans will remain in this class for the assessment period, but in no event for more than 1 year. If there is no improvement in the Bank’s position during that time, a charge-off will be taken to best reflect known asset collateral value. If the loan goes into a “Deeds in Redemption” status before 1 year, any shortfall will be recognized immediately.

The assessment of compensating factors may result in a rating plus or minus one grade from those listed above. These factors include, but are not limited to collateral, guarantors, environmental conditions, history, plan/projection reasonableness, quality of information, and payment delinquency.

The internal loan grading system is applied to the residential real estate portion of our consumer loan portfolio upon certain triggering events (e.g., delinquency, bankruptcy, restructuring, etc.). However, large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment and they are not separately identified for impairment disclosures. The primary risk element for the residential real estate portion of consumer loans is the timeliness of borrowers’ scheduled payments. We rely primarily on our internal reporting system to monitor past due loans and have internal policies and procedures to pursue collection and protect our collateral interests in order to mitigate losses.

Our monitoring of credit quality is further denoted by classification of loans as nonperforming, which reflects loans where the accrual of interest has been discontinued and loans that are past due 90 days or more and still accruing interest. In addition, nonperforming loans include troubled debt restructured loans (as discussed below) that are on nonaccrual status or past due 90 days or more. Troubled debt restructured loans that are accruing interest and not past due 90 days or more are excluded from nonperforming loans.

The following presents the recorded investment in loans by risk grade and a summary of nonperforming loans, by class of loan:

12

		Not Rated		1		2		3		4		5		6		7		Total		Nonperforming
		(in thousands)
June 30, 2013
Commercial	$	78	$	401	$	29	$	1,676	$	5,334	$	4,184	$	899	$	244	$	12,845	$	57
Commercial Real Estate:
Construction, land development, and other land		-		-		-		-		1,292		3,070		-		2,609		6,971		2,286
Owner occupied		37		-		821		3,071		19,280		21,591		3,409		4,395		52,604		2,878
Nonowner occupied		3		-		423		1,388		20,571		27,751		6,634		5,230		62,000		2,328
Consumer real estate:
Commercial Purpose		-		-		-		164		936		3,835		747		1,233		6,915		795
Mortgage - Residential		10,530		-		-		-		-		12		-		3,170		13,712		1,456
Home equity and home equity lines of credit		8,121		-		-		-		-		72		-		485		8,678		426
Consumer and Other		5,655		-		-		-		5		51		-		112		5,823		112
Total	$	24,424	$	401	$	1,273	$	6,299	$	47,418	$	60,566	$	11,689	$	17,478	$	169,548	$	10,338
December 31, 2012
Commercial	$	391	$	430	$	-	$	2,356	$	5,881	$	5,360	$	1,000	$	694	$	16,112	$	264
Commercial Real Estate:
Construction, land development, and other land		-		-		-		-		1,431		4,006		136		3,168		8,741		2,391
Owner occupied		42		-		-		1,671		18,963		21,619		3,594		5,313		51,202		3,040
Nonowner occupied		-		-		451		1,404		17,057		30,847		11,307		8,349		69,415		3,632
Consumer real estate:
Commercial Purpose		-		-		-		297		948		3,594		758		1,314		6,911		1,158
Mortgage - Residential		11,232		-		-		-		-		-		-		3,372		14,604		2,019
Home equity and home equity lines of credit		7,760		-		-		-		-		-		-		547		8,307		411
Consumer and Other		4,948		-		-		-		6		5		-		144		5,103		125
Total	$	24,373	$	430	$	451	$	5,728	$	44,286	$	65,431	$	16,795	$	22,901	$	180,395	$	13,040

13

Loans are considered past due when contractually required principal or interest has not been received. The amount classified as past due is the entire principal balance outstanding of the loan, not just the amount of payments that are past due.

An aging analysis of the recorded investment in past due loans, segregated by class of loans follows:

													90+ Days
	Loans Past Due												Past Due
	30-59 Days		60-89 Days		90+ Days		Total		Current		Total		and Accruing
	(in thousands)
June 30, 2013
Commercial	$	-	$	-	$	41	$	41	$	12,804	$	12,845	$	-
Commercial real estate:
Construction, land development, and other land		119		129		20		268		6,703		6,971		-
Owner occupied		31		572		893		1,496		51,108		52,604		-
Nonowner occupied		-		203		75		278		61,722		62,000		-
Consumer real estate:
Commercial purpose		231		14		178		423		6,492		6,915		-
Mortgage - Residential		626		83		97		806		12,906		13,712		-
Home equity and home equity lines of credit		60		-		79		139		8,539		8,678		-
Consumer and Other		47		32		-		79		5,744		5,823		-
Total	$	1,114	$	1,033	$	1,383	$	3,530	$	166,018	$	169,548	$	-
December 31, 2012
Commercial	$	136	$	6	$	51	$	193	$	15,919	$	16,112	$	-
Commercial real estate:
Construction, land development, and other land		1,609		-		30		1,639		7,102		8,741		-
Owner occupied		142		32		1,837		2,011		49,191		51,202		-
Nonowner occupied		-		-		558		558		68,857		69,415		-
Consumer real estate:
Commercial purpose		133		-		558		691		6,220		6,911		201
Mortgage - Residential		1,109		753		21		1,883		12,721		14,604		-
Home equity and home equity lines of credit		302		76		-		378		7,929		8,307		-
Consumer and Other		71		24		32		127		4,976		5,103		-
Total	$	3,502	$	891	$	3,087	$	7,480	$	172,915	$	180,395	$	201

Loans are placed on nonaccrual when, in the opinion of management, the collection of additional interest is doubtful. Loans are generally placed on nonaccrual upon becoming ninety days past due. However, loans may be placed on nonaccrual regardless of whether or not they are past due. All cash received on nonaccrual loans is applied to the principal balance. Loans are considered for return to accrual status on an individual basis when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following is a summary of the recorded investment in nonaccrual loans, by class of loan:

	June 30, 2013		December 31, 2012
	(in thousands)
Commercial	$	57	$	264
Commercial real estate:
Construction, land development, and other land		2,286		2,391
Owner occupied		2,878		3,040
Nonowner occupied		2,328		3,632
Consumer real estate:
Commercial purpose		795		957
Mortgage - Residential		1,456		2,019
Home equity and home equity lines of credit		426		411
Consumer and Other		112		125
Total	$	10,338	$	12,839

14

The following presents information pertaining to impaired loans and related valuation allowance allocations by class of loan:

	June 30, 2013						December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Valuation Allowance		Recorded Investment		Unpaid Principal Balance		Valuation Allowance
	(in thousands)
With an allowance recorded:
Commercial	$	381	$	412	$	23	$	463	$	543	$	49
Commercial real estate:
Construction, land development, and other land		912		1,069		186		1,211		1,396		166
Owner occupied		4,218		4,714		204		5,473		6,045		498
Nonowner occupied		7,590		7,816		846		5,764		6,962		581
Consumer real estate:
Commercial purpose		1,769		1,935		220		1,698		2,018		377
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		14,870		15,946		1,479		14,609		16,964		1,671
With no related allowance recorded:
Commercial		76		543		-		246		724		-
Commercial real estate:
Construction, land development, and other land		2,211		4,544		-		2,391		4,730		-
Owner occupied		2,933		4,111		-		2,084		3,914		-
Nonowner occupied		2,229		3,012		-		2,930		3,616		-
Consumer real estate:
Commercial purpose		786		1,427		-		683		1,150		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		8,235		13,637		-		8,334		14,134		-
Total:
Commercial		457		955		23		710		1,267		49
Commercial real estate:
Construction, land development, and other land		3,123		5,613		186		3,602		6,126		166
Owner occupied		7,151		8,825		204		7,557		9,959		498
Nonowner occupied		9,819		10,828		846		8,694		10,578		581
Consumer real estate:
Commercial purpose		2,555		3,362		220		2,380		3,168		377
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total Impaired Loans	$	23,105	$	29,583	$	1,479	$	22,943	$	31,098	$	1,671

15

The following presents information pertaining to the recorded investment in impaired loans for the three and six months ended as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
	(in thousands)
Average of impaired loans during the period
Commercial	$	470	$	712	$	473	$	728
Commercial real estate:
Construction, land development, and other land		3,160		6,562		3,163		6,170
Owner occupied		7,352		8,029		7,341		7,171
Nonowner occupied		9,949		12,092		8,390		10,725
Consumer real estate:
Commercial purpose		2,617		3,051		2,645		2,972
Mortgage - Residential		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-
Consumer and Other		-		-		-		-
Total	$	23,548	$	30,446	$	22,012	$	27,766
Interest income recognized during impairment
Commercial	$	5	$	7	$	9	$	13
Commercial real estate:
Construction, land development, and other land		12		16		32		21
Owner occupied		60		63		140		84
Nonowner occupied		83		70		161		103
Consumer real estate:
Commercial purpose		26		13		49		15
Mortgage - Residential		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-
Consumer and Other		-		-		-		-
Total	$	186	$	169	$	391	$	236

For loans where impairment is measured based on the present value of expected future cash flows, subsequent changes in present value and related allowance adjustments resulting from the passage of time are accounted within the provision for loan losses rather than interest income.

Troubled Debt Restructurings

The Corporation may agree to modify the terms of a loan to improve its ability to collect amounts due. The modified terms are intended to enable customers to mitigate the risk of foreclosure by creating a payment structure that provides for continued loan payment requirements based on their current cash flow ability. Modifications, including renewals, where concessions are made by the Bank and result from the debtor’s financial difficulties are considered troubled debt restructurings (TDRs).

Loan modifications are considered TDRs when the modification includes terms outside of normal lending practices (i.e., concessions) to a borrower who is experiencing financial difficulties.

Typical concessions granted include, but are not limited to:

1. Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics

2. Extending the amortization period beyond typical lending guidelines for debt with similar risk characteristics

3. Forbearance of principal

4. Forbearance of accrued interest

To determine if a borrower is experiencing financial difficulties, the Corporation considers if:

1. The borrower is currently in default on any other of their debt

2. It is likely that the borrower would default on any of their debt if the concession was not granted

3. The borrower’s cash flow was sufficient to service all of their debt if the concession was not granted

4. The borrower has declared, or is in the process of declaring bankruptcy

5. The borrower is a going concern (if the entity is a business)

16

The following summarizes troubled debt restructurings:

	June 30, 2013						December 31, 2012
	Outstanding Recorded Investment						Outstanding Recorded Investment
	Accruing		Nonaccrual		Total		Accruing		Nonaccrual		Total
	(in thousands)
Commercial	$	374	$	57	$	431	$	446	$	264	$	710
Commercial real estate:
Construction, land development, and other land		837		2,136		2,973		1,211		2,271		3,482
Owner occupied		4,950		2,487		6,582		4,335		2,029		6,364
Nonowner occupied		7,491		2,253		9,744		5,063		3,447		8,510
Consumer real estate:
Commercial purpose		1,760		664		2,424		1,424		596		2,020
Mortgage - Residential		1,109		800		1,909		738		1,232		1,970
Home equity and home equity lines of credit		60		267		327		62		284		346
Consumer and Other		7		86		93		9		96		105
Total	$	16,588	$	8,750	$	24,483	$	13,288	$	10,219	$	23,507

Troubled debt restructured loans may qualify for return to accrual status if the borrower complies with the revised terms and conditions and has demonstrated sustained payment performance consistent with the modified terms for a minimum of six consecutive payment cycles after the restructuring date. In addition, the collection of future payments must be reasonably assured.

The following presents information regarding existing loans that were restructured, resulting in the loan being classified as a troubled debt restructuring:

	Loans Restructured in the Three Months						Loans Restructured in the Six Months
	Ended June 30, 2013						Ended June 30, 2013
			Pre- Modification		Post-Modification				Pre- Modification		Post-Modification
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of Loans		Investment		Investment		of Loans		Investment		Investment
	(dollars in thousands)
Commercial		-	$	-	$	-		-	$	-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		1		390		390
Nonowner occupied		1		105		105		2		1,470		1,470
Consumer real estate:
Commercial purpose		-		-		-		1		114		114
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		1	$	105	$	105		4	$	1,974	$	1,974

During the three and six months ended June 30, 2013, the Corporation had three TDR loans with a recorded investment of $124,000 that defaulted within 12 months of restructuring. A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

	Loans Restructured in the Three Months						Loans Restructured in the Six Months
	Ended June 30, 2012						Ended June 30, 2012
			Pre- Modification		Post-Modification				Pre- Modification		Post-Modification
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of Loans		Investment		Investment		of Loans		Investment		Investment
	(dollars in thousands)
Commercial		-	$	-	$	-		-	$	-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		1		262		262		3		873		873
Consumer real estate:
Commercial purpose		2		431		431		2		431		431
Mortgage - Residential		-		-		-		1		207		207
Home equity and home equity lines of credit		-		-		-		1		53		53
Consumer and Other		-		-		-		-		-		-
Total		3	$	693	$	693		7	$	1,564	$	1,564

During the three and six months ended June 30, 2012, the Corporation had five TDR loans with a recorded investment of $917,000 that defaulted within 12 months of restructuring. A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

17

The following summarizes the nature of concessions granted by the Corporation to borrowers experiencing financial difficulties which resulted in troubled debt restructurings:

									Non-Market Interest Rate
					Extension of				and Extension of
	Non-Market Interest Rate				Amortization Period				Amortization Period
			Pre-Modification				Pre-Modification				Pre-Modification
	Number		Recorded		Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment		of Loans		Investment
	(dollars in thousands)
Three months ended June 30, 2013
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		-		-		1		105		-		-
Consumer real estate:
Commercial purpose		-		-		-		-		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		-	$	-		1	$	105		-	$	-
Six months ended June 30, 2013
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		1		390
Nonowner occupied		-		-		2		1,470		-		-
Consumer real estate:
Commercial purpose		-		-		1		114		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		-	$	-		3	$	1,584		1	$	390

During the three and six months ended June 30, 2013, there were no non-market interest rate restructurings of substandard performing loans that were renewed at their existing contractual rates or non-market rates. Renewals of substandard performing loans at non-market interest rates are considered troubled debt restructurings.

									Non-Market Interest Rate
					Extension of				and Extension of
	Non-Market Interest Rate				Amortization Period				Amortization Period
			Pre-Modification				Pre-Modification				Pre-Modification
	Number		Recorded		Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment		of Loans		Investment
	(dollars in thousands)
Three months ended June 30, 2012
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		1		262		-		-		-		-
Consumer real estate:
Commercial purpose		2		431		-		-		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		3	$	693		-	$	-		-	$	-
Six months ended June 30, 2012
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		2		405		-		-		1		468
Consumer real estate:
Commercial purpose		2		431		-		-		-		-
Mortgage - Residential		1		207		-		-		-		-
Home equity and home equity lines of credit		1		53		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		6	$	1,096		-	$	-		1	$	468

18

During the three and six months ended June 30, 2012, non-market interest rate restructurings included pre-modification recorded investments of $692,000 and $888,000, respectively, related to performing loans that were renewed at either their existing contractual rates or non-market interest rates.

Because these performing loans were graded substandard and the modified rates were not market rates for similar loans, these renewals are considered troubled debt restructurings.

6. Fair Value Measurements

ASC Topic 820 defines fair value and establishes a consistent framework for measuring fair value and expands disclosure requirements for fair value measurements. Fair values represent the estimated price that would be received from selling an asset or paid to transfer a liability, otherwise known as an “exit price”. The three levels of inputs that may be used to measure fair value are 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.

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 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 (Level 1). If quoted prices are not available, fair values are measured using independent pricing models such as matrix pricing models (Level 2). Matrix pricing is a mathematical technique widely used in the financial industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. 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. The fair value measurement of our only Level 3 security, a non-investment grade CMO, and details regarding significant inputs and assumptions used in estimating its fair value, is detailed in Note 3, Securities.

Fair value of assets measured on a recurring basis:

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	1,812	$	-	$	1,812	$	-
Mortgage-backed/CMO		75,683		-		73,925		1,758
Preferred stock		410		-		410		-
Total investment securities available for sale	$	77,905	$	-	$	76,147	$	1,758
December 31, 2012
Obligations of state and political subdivisions	$	1,580	$	-	$	1,580	$	-
U.S. agency		3,007		-		3,007		-
Mortgage-backed/CMO		67,862		-		65,844		2,018
Preferred stock		137		-		137		-
Total investment securities available for sale	$	72,586	$	-	$	70,568	$	2,018

The reconciliation of the beginning and ending balances of the asset classified by the Corporation within Level 3 of the valuation hierarchy for the six months ended June 30, 2013 is as follows:

	Fair Value Measurement
	Using Significant
	Unobservable Inputs
	(Level 3)
Fair value of non-agency mortgage-backed security, beginning of year(1)	$	2,018
Total gains (losses) realized/unrealized:
Included in earnings(2)		-
Included in other comprehensive income (2)		62
Purchases, issuances, and other settlements		(322	)
Transfers into Level 3		-
Fair value of non-agency mortgage-backed security, June 30, 2013	$	1,758
Total amount of losses for the year included in earnings attributable to the
change in unrealized in unrealized losses relating to assets still held at June 30, 2013	$	-

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

⁽²⁾ Realized gains (losses), including unrealized losses deemed other-than-temporary, are reported in noninterest income. Unrealized gains (losses) are reported in accumulated other comprehensive income (loss).

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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 non-recurring basis:

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 or deed-in-lieu 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, less cost to sell. A valuation based on a current appraisal or by a broker’s opinion is considered a Level 2 fair value. If management determines the fair value of the property is further impaired below the appraised value and there is no observable market price, the Corporation records the property as nonrecurring Level 3.

Fair value of assets on a non-recurring basis:

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Impaired loans (1)	$	21,626	$	-	$	-	$	21,626
Other real estate owned	$	2,000	$	-	$	-	$	2,000
December 31, 2012
Impaired loans (1)	$	21,272	$	-	$	-	$	21,272
Other real estate owned	$	3,427	$	-	$	-	$	3,427

⁽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.

7. Fair Value of Financial Instruments

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.

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 carrying amount of other borrowings is a reasonable estimate of fair value.

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.

20

	Level in Fair	June 30, 2013				December 31, 2012
	Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)
Financial assets:
Cash and cash equivalents	Level 1	$	48,962	$	48,962	$	41,824	$	41,824
Short term investments	Level 2		197		197		197		197
Investment and mortgage-backed securities	Level 2		76,147		76,147		70,568		70,568
Non-agency mortgage-backed security	Level 3		1,758		1,758		2,018		2,018
FHLBI and FRB stock	Level 2		779		779		779		779
Loans, net	Level 3		159,865		161,258		168,422		169,365
Accrued interest income	Level 2		665		665		705		705
Financial liabilities:
Deposits	Level 2	$	287,101	$	283,595	$	287,682	$	287,749
Other borrowings	Level 2		163		163		148		148
Accrued interest expense	Level 2		87		87		93		93

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. Net Income per Common Share

Basic earnings per common 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. On January 1, 2009, the Corporation adopted new guidance impacting ASC Topic 260, Earnings Per Share, related to determining whether instruments granted in a share-based payment transaction are participating securities. This guidance 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 (see Note 9) is considered a participating security. As of December 31, 2012, all restricted shares granted under the LTIP had vested. 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, 2012 the unvested restricted shares are not included in determining both basic and diluted earnings per share for the respective periods. The following presents basic and diluted net income per share:

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
	(dollars in thousands, except per share amounts)
Weighted average  basic and diluted shares outstanding		457,435		457,413			457,435		457,408
Net income (loss) available to common shareholders	$	215	$	(89	)	$	2,705	$	(43	)
Basic and diluted net income (loss) per share	$	0.47	$	(0.19	)	$	5.91	$	(0.09	)

9. Long Term Incentive Plan

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

As of December 31, 2012, all restricted shares granted under the LTIP had vested and there was no unrecognized compensation cost related to nonvested stock awards. During the three and six months ended June 30, 2012, the total value of the awards which vested approximated $1,000 and $2,000, respectively.

10. Income Taxes

In the second quarter of 2013, the Corporation recorded $146,000 of federal income tax expense to increase its deferred tax valuation allowance due to the impact of additional unrealized net loss in the available for sale investment portfolio. Conversely, in the first quarter of 2013, the Corporation recorded $42,000 of federal income tax benefit to reduce its deferred tax valuation allowance related to the impact of additional unrealized gain in the available for sale investment portfolio.

No income tax expense was recognized on the Corporation’s pre-tax income for the three and six months ended June 30, 2013 due to the Corporation’s tax loss carryforward position. For the three and six months ended June 30, 2012, the Corporation recorded a deferred tax valuation allowance on the tax benefit related to the loss recognized during each respective period due to the uncertainty of future taxable income necessary to fully realize the recorded net deferred tax asset.

21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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., Inc. a subsidiary. The following is a discussion of the Corporation’s regulatory condition, results of operations for the three and six month periods ended June 30, 2013 and 2012, and the Corporation’s financial condition, focusing on its liquidity and capital resources.

On September 24, 2009, the Bank consented to the issuance of a Consent Order (the “Consent Order”) with the OCC. Pursuant to the Consent Order, the Bank was required to achieve and maintain total capital equal to 11% of risk weighted assets and Tier 1 capital equal to at least 8.5% of adjusted total assets by January 22, 2010. At June 30, 2013 and through the current date, the Bank’s capital ratios are and continue to be significantly below the minimum requirements imposed by the OCC. In light of the Bank’s significant losses since 2008 and deficient capital position at June 30, 2013, it is reasonable to anticipate further regulatory enforcement action by either the OCC or FDIC, particularly if the Corporation is unsuccessful in completing a recapitalization of the Corporation, as discussed in Note 2 to the Consolidated Financial Statements included within this Quarterly Report. See also the “Capital” and “Regulatory Enforcement Action” sections of this Management’s Discussion and Analysis for further details.

The success of the Corporation depends to a great extent upon the economic conditions in Livingston County and the surrounding area. The Corporation has in general experienced a slowing economy in Michigan since 2001. In particular, Michigan’s current unemployment rate of approximately 8.7%, although improved from highs near 14% during 2009, remains among the worst for all states. Unlike larger banks that are more geographically diversified, we provide banking services to customers primarily in Livingston County. Our loan portfolio, the ability of the borrowers to repay these loans, and the value of the collateral securing these loans is impacted by local economic conditions. The continued economic difficulties in Michigan have had and may continue to have many adverse consequences as described below in “Loans”.

Dramatic declines in the housing market in recent years, with falling home prices and elevated levels of foreclosures and unemployment, have resulted in and may continue to result in significant write-downs of asset values by us and other financial institutions. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Additionally, capital and credit markets have experienced elevated levels of volatility and disruption in recent years. This market turmoil and tightening of credit have led to a lack of general consumer confidence and reduction in business activity. Although we have seen some stabilization and improvements in economic conditions, these factors continue to present a challenge to our recovery and profitability.

Due to the conditions and events discussed above and elsewhere in this Form 10-Q, there is significant uncertainty regarding the impact of potential future regulatory action against the Bank. The extent of such regulatory action may threaten the ability of the Bank to continue operating as a going concern. Even if we do not become subject to more stringent regulatory requirements or restrictions, our current capital deficiencies and elevated levels of nonperforming assets may make it very difficult to continue as a going concern. Although improved from March 31, 2013, our nonperforming assets remain elevated and comprise approximately 64% of our capital plus allowance for loan losses at June 30, 2013. As described elsewhere in this Form 10-Q, we have established our allowance for loan losses at a level we currently believe, based on the data available to us, is sufficient to absorb expected losses in our loan portfolio. However, this process involves a very significant degree of judgment, is based on numerous different assumptions that are difficult to make and, by its nature, is inherently uncertain. Moreover, the performance of our existing loan portfolio is, in many respects, dependent on external factors such as our borrowers' ability to repay their loan obligations and the value of collateral securing those obligations, which in turn depend on macro and micro economic conditions including the pace of economic recovery in Southeast Michigan. If our loan portfolio performs worse than we currently expect, we may not have sufficient capital to absorb all of the losses, which could render us insolvent. Notwithstanding the above, the consolidated financial statements included in this Form 10-Q have been prepared assuming the Bank continues to operate in the normal course of business for the foreseeable future, and do not include any adjustments to recorded assets or liabilities should we be unable to continue as a going concern.

As fully described in Note 2, “Regulatory Matters and Going Concern”, of the consolidated financial statements included in the 2012 Annual Report within the Corporation’s Form 10-K filing, management has undertaken various initiatives identified in its recovery plan to address the current challenges facing the Bank. The successful implementation of the various actions being undertaken by management will be difficult in the current economic environment. Even if such actions are successfully implemented, such strategy may not be sufficient to increase the Bank's capital levels to satisfactory levels, return the Bank to consistent profitability, or otherwise avoid further regulatory oversight or enforcement action. Any further declines in the Bank’s capital levels may result in more severe regulatory oversight or enforcement action by either the OCC or FDIC, including the possibility of regulatory receivership.

Consequently, there can be no assurance these efforts will improve the Bank’s financial condition. Further deterioration of the Bank’s capital position is possible. The current economic environment in southeast Michigan and local real estate market conditions will continue to impose challenges on the Bank and are expected to adversely impact financial results.

It is against this backdrop that we discuss our financial condition and results of operations for the three and six months ended June 30, 2013 compared to the same periods in 2012.

Earnings	Three months ended June 30,					Six months ended June 30,
	2013		2012			2013		2012
	(dollars in thousands, except per share amounts)
Net income (loss)	$	215	$	(89	)	$	2,705	$	(43	)
Basic and diluted net income per share	$	0.47	$	(0.19	)	$	5.91	$	(0.09	)

22

Net income for the three months ended June 30, 2013, increased $304,000 compared to the same period last year. In the second quarter of 2013, the Bank recorded no provision for loan losses compared to $450,000 recorded in the same period last year, and noninterest expense decreased by $268,000. These positive variances were partially offset by a decrease in net interest income of $185,000 and a decrease in noninterest income of $83,000.

Net income for the six months ended June 30, 2013, increased $2.7 million compared to the same period last year. For the six months ended June 30, 2013, the provision for loan losses decreased $3.2 million and noninterest expense decreased by $43,000. These positive variances were partially offset by a decrease in net interest income of $280,000 and a decrease in noninterest income of $61,000.

Net Interest Income	Three months ended  June 30,				Six months ended June 30,
	2013		2012		2013		2012
	(dollars in thousands)
Interest and dividend income	$	2,574	$	2,804	$	5,320	$	5,718
Interest expense		231		276		466		584
Net Interest Income	$	2,343	$	2,528	$	4,854	$	5,134

Interest Yields and Costs

The following shows the daily average balances for major categories of interest earning assets and interest bearing liabilities, interest earned (on a taxable equivalent basis) or paid, and the effective rate or yield as follows:

	Three months ended June 30,
	2013								2012
	Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate
	(in thousands)
Assets:
Interest earning assets:
Short term investments	$	197		$	0.1		0.23	%	$	197		$	0.1		0.23	%
Securities:  Taxable		81,243			262.3		1.29	%		62,520			287.5		1.84	%
Tax-exempt (1)		1,033			15.4		5.97	%		1,215			18.9		6.20	%
Commercial loans (2)(3)		142,777			2,022.2		5.60	%		170,242			2,203.0		5.12	%
Consumer loans (2)(3)		15,002			176.3		4.71	%		14,152			177.6		5.05	%
Mortgage loans (2)(3)		12,891			108.5		3.37	%		14,125			131.2		3.71	%
Total earning assets and total interest income		253,143		$	2,584.8		4.05	%		262,451		$	2,818.3		4.26	%
Cash and due from banks		39,032								24,170
All other assets		11,896								12,410
Allowance for loan losses		(9,620	)							(12,059	)
Total assets	$	294,451							$	286,972
Liabilities and Shareholders' Equity:
Interest bearing deposits:
NOW	$	30,927		$	1.6		0.02	%	$	29,036		$	1.3		0.02	%
Savings		43,069			2.2		0.02	%		42,355			2.4		0.02	%
MMDA		39,115			40.4		0.41	%		35,586			40.0		0.45	%
Time deposits		81,165			186.8		0.92	%		89,538			232.3		1.04	%
Total interest bearing liabilities and total interest expense		194,276			231.0		0.48	%		196,515			276.0		0.57	%
Noninterest bearing deposits		87,483								81,582
All other liabilities		2,487								2,021
Shareholders' equity		10,205								6,854
Total liabilities and shareholders' equity	$	294,451							$	286,972
Interest spread							3.57	%							3.69	%
Net interest income-FTE				$	2,353.8							$	2,542.3
Net interest margin							3.68	%							3.84	%

⁽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 unrealized market value adjustments included in other comprehensive income recorded under ASC Topic 320, Investments – Debt and Equity Securities.

⁽²⁾ For purposes of the computation above, average non-accruing loans of $10.2 million and $21.7 million for the three months ended June 30, 2013 and 2012 are included in the average daily balance.

⁽³⁾ Interest on loans includes origination fees totaling $36,000 and $18,000 for the three months ended June 30, 2013 and 2012.

23

	Six months ended June 30,
	2013								2012
	Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate
	(in thousands)
Assets:
Interest earning assets:
Short term investments	$	197		$	0.2		0.23	%	$	197		$	0.2		0.23	%
Securities:  Taxable		82,599			531.9		1.28	%		50,887			500.2		1.97	%
Tax-exempt (1)		1,033			30.9		5.97	%		1,250			39.0		6.24	%
Commercial loans (2)(3)		145,707			4,206.9		5.74	%		174,499			4,571.5		5.18	%
Consumer loans (2)(3)		14,722			351.4		4.81	%		14,290			360.5		5.07	%
Mortgage loans (2)(3)		13,102			220.6		3.37	%		14,388			274.5		3.81	%
Total earning assets and total interest income		257,360		$	5,341.9		4.13	%		255,511		$	5,745.9		4.46	%
Cash and due from banks		35,998								32,320
All other assets		12,314								12,326
Allowance for loan losses		(10,663	)							(12,460	)
Total assets	$	295,009							$	287,697
Liabilities and Shareholders' Equity:
Interest bearing deposits:
NOW	$	30,749		$	3.3		0.02	%	$	28,608		$	3.0		0.02	%
Savings		42,196			4.3		0.02	%		41,550			4.9		0.02	%
MMDA		39,826			84.2		0.43	%		36,006			88.7		0.50	%
Time deposits		81,506			374.1		0.93	%		91,055			487.4		1.08	%
Total interest bearing liabilities and total interest expense		194,277			465.9		0.48	%		197,219			584.0		0.60	%
Noninterest bearing deposits		89,487								81,705
All other liabilities		2,282								1,998
Shareholders' equity		8,963								6,775
Total liabilities and shareholders' equity	$	295,009							$	287,697
Interest spread							3.65	%							3.86	%
Net interest income-FTE				$	4,876.0							$	5,161.9
Net interest margin							3.77	%							4.00	%

⁽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 unrealized market value adjustments included in other comprehensive income recorded under ASC Topic 320, Investments – Debt and Equity Securities.

⁽²⁾ For purposes of the computation above, average non-accruing loans of $11.0 million and $22.4 million for the six months ended June 30, 2013 and 2012 are included in the average daily balance.

⁽³⁾ Interest on loans includes origination fees totaling $58,000 and $32,000 for the six months ended June 30, 2013 and 2012.

Interest Earning Asset/Interest Income

On a tax equivalent basis, interest income decreased $234,000 (8.3%) in the second quarter of 2013 compared to the second quarter of 2012. The decrease was due to a decrease in the yield on average earning assets of 21 basis points combined with a decrease in average earning assets of $9.3 million (3.5%).

The average balance of securities increased $18.5 million (29.1%) in the second quarter of 2013 compared to the same period in 2012. The increase was due to $31.5 million of investment security purchases made from July 2012 through June 2013 funded by excess liquidity from run-off in the existing investment and loan portfolios. The yield on average security balances decreased 57 basis points in the second quarter of 2013 compared to the second quarter of 2012 due to comparatively lower yields on new securities acquired.

Loan average balances decreased $27.8 million (14.0%) in the second quarter of 2013 compared to the same period last year and the average yield increased 35 basis points. The largest decline in terms of average balances was commercial loans, the majority of our portfolio, which decreased $27.5 million (16.1%) in the second quarter of 2013 compared to 2012 while the yield increased 48 basis points. Compared to the same prior year period, the increase in commercial loan yield was attributable to a $138,000 increase in interest income recognized on the payoff of nonaccrual loans and/or loans that were previously on nonaccrual status. Commercial loan yield also increased due to additional interest income recognized under the effective yield method for certain accruing loans that were previously on nonaccrual status. Commercial loans have continued to decrease due to receipt of scheduled payments, pay-offs received from borrowers, pay-offs from borrowers’ refinancing with other financial institutions and limited new loan originations. It is possible that continued efforts to manage the Bank’s regulatory capital levels (i.e., shrinking the Bank’s size) may further decrease both average loan balances and net interest income in future periods. In addition, the renewal of maturing loans in the current lower rate environment will continue to exert downward pressure on average loan portfolio yields.

For the first six months of the year, tax equivalent interest income decreased $404,000 (7.0%) compared to the same period of 2012. This was due to a decrease in yield on average earning assets 33 basis points partially offset by an increase in the average earning assets of $1.8 million (0.7%).

24

The average balance of securities increased $31.5 million (60.4%) for the first six months of 2013 compared to 2012. As noted above, this increase was due to the gradual investment of a portion of the Corporation’s excess on-balance sheet liquidity into earning assets. The yield on average security balances decreased 72 basis points for the first six months of 2013 compared to 2012 due to the recent purchases of lower yielding securities in the current rate environment.

Loan average balances decreased $29.6 million (14.6%) in the first six months of 2013 compared to 2012 and the average yield increased 40 basis points. The largest decline in terms of average balances was in commercial loans, which decreased $28.8 million (16.5%) combined with an increase in yield of 56 basis points in the first six months of 2013 compared to 2012. Average balances decreased primarily due to receipt of scheduled payments, pay-offs, and limited new loan originations.

Interest Bearing Liabilities/Interest Expense

Interest expense on deposits for the second quarter of 2013 decreased $45,000 (16.3%) compared to the second quarter of 2012. This was the result of lower interest rates paid on deposits of 9 basis points combined with lower average deposit balances of $2.2 million (1.1%).

Interest expense on deposits for the first six months of 2013 decreased $118,000 (20.2%) compared to 2012. This was the result of lower interest rates paid on deposits of 12 basis points combined with lower average deposit balances of $2.9 million (1.5%).

Liquidity and Funds Management

Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. Liquidity risk is the risk of the Corporation being unable to meet current and future financial obligations in a timely manner. To manage liquidity risk the Corporation relies primarily on a large, stable core deposit base, excess on-balance sheet cash positions and a readily marketable available for sale investment portfolio. Additionally, the Corporation has access to certain wholesale funding sources (as discussed below) to manage unexpected liquidity needs.

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 a systemic financial market crisis or different levels of 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 $127.1 million at June 30, 2013 or about 42.5% of total assets. This compares to $114.6 million or about 38.6% of total assets at December 31, 2012. 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.

The core deposit base is the primary source of the Corporation’s liquidity. 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 make-up 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. The Bank had Large Certificates totaling approximately $30.1 million at June 30, 2013 and $30.7 million at December 31, 2012. The Bank had limited (non-core) brokered deposits of approximately $1.1 million at June 30, 2013 and December 31, 2012, respectively. Due to the Bank’s capital classification as “significantly undercapitalized” at June 30, 2013, these brokered deposits may not be renewed or additional brokered deposits issued without prior approval of the FDIC. See the “Capital” section of this Management’s Discussion and Analysis for further details.

Of the Corporation’s available liquidity at June 30, 2013 noted above, investment securities with a fair value of approximately $73.2 million were pledged primarily for borrowing availability on a line of credit from the Federal Home Loan Bank of Indianapolis and to secure public deposits, or for other purposes as required or permitted by law.

The Corporation also has available unused wholesale sources of liquidity, including borrowing availability from the Federal Home Loan Bank of Indianapolis (FHLBI) and through the discount window of the Federal Reserve Bank of Chicago. In the past, the Corporation has also issued certificates of deposit through brokers.

The Corporation’s liquidity could be adversely affected by both direct and indirect circumstances. An example of a direct event would be restrictions imposed by regulators due to factors such as deterioration in asset quality, a large charge to earnings, a decline in profitability or other financial measures. Examples of indirect events unrelated to the Corporation that could have an effect on the Corporation’s access to liquidity would be terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation or rumors about the Corporation or the banking industry in general may adversely affect the cost and availability of normal funding sources.

The Corporation maintains a liquidity contingency plan that outlines the process for addressing a potential liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for effectively managing liquidity though a problem period.

It is Bank management’s intention to handle unexpected liquidity needs through its cash and cash equivalents, FHLBI borrowings, or Federal Reserve discount borrowings. At June 30, 2013, the Bank had a $30.0 million line of credit available at the FHLBI for which the Bank has pledged investment securities and certain commercial and consumer loans secured by residential real estate as collateral. The Bank also had an $8.4 million line of credit available at the Federal Reserve for which the Bank has pledged certain commercial loans as collateral. At June 30, 2013, the Bank had no borrowings outstanding against these lines of credit. In addition, during 2013, the Bank had no short-term borrowings on these lines of credit, or from other sources, for liquidity needs or other purposes.

Although the Bank has established these lines of credit, because of its significantly undercapitalized status, any borrowing requests are subject to review (i.e., for purpose and repayment ability) and approval by the FHLBI and Federal Reserve, respectively. Consequently, full borrowing availability under these existing lines may be restricted at the respective lender’s discretion and terms may be limited or restricted. However, in the event the Bank would need additional funding and be unable to access either line of credit facility, management could act to remove the pledge of investment securities presently securing a portion of the FHLBI line of credit, thereby allowing such securities to be liquidated to provide further liquidity. If necessary, the Bank could also satisfy unexpected liquidity needs through liquidation of unpledged securities.

25

Quantitative and Qualitative Disclosures about Market Risk

The current economic outlook and its potential impact on the Bank and current interest rate forecasts are reviewed monthly to determine the potential impact on the Corporation’s performance. 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 monitored including capital ratios and liquidity. Also, the quality of the loan portfolio is reviewed in light of the current allowance for loan losses, and the Bank’s exposure to market risk is reviewed.

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 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.

Below shows the scheduled maturity and repricing of the Corporation’s interest sensitive term assets and liabilities as well as the expected retention terms of non-maturity deposit accounts as of June 30, 2013:

	0-3		4-12		1-5			5+
	Months		Months		Years			Years		Total
	(in thousands)
Assets:
Loans	$	62,431	$	52,621	$	53,790		$	506	$	169,348
Securities		501		2,862		19,017			56,304		78,684
Short term investments		197		-		-			-		197
Total assets	$	63,129	$	55,483	$	72,807		$	56,810	$	248,229
Liabilities:
NOW, savings, and MMDA	$	-	$	-	$	82,678		$	30,964	$	113,642
Time deposits		15,706		39,023		26,684			29		81,442
Total liabilities	$	15,706	$	39,023	$	109,362		$	30,993	$	195,084
Rate sensitivity GAP:
GAP for period	$	47,423	$	16,460	$	(36,555	)	$	25,817
Cumulative GAP		47,423		63,883		27,328			53,145
June 30, 2013 cumulative sensitive ratio		4.02		2.17		1.17			1.27
December 31, 2012 cumulative sensitive ratio		1.52		1.71		1.94			1.32

Core non-maturity deposits such as NOW, savings and MMDA are an important stable source of funding and represent significant value to the Corporation. Although these deposits may re-price earlier than what is shown in the preceding table, they are generally less rate sensitive than other non-core funding sources. Allocations for our core non-maturity deposits are made to time periods based on a core deposit study which was performed by a third-party specialist based on the Corporation's historical experience.

In the GAP table above, the short term (one year and less) cumulative interest rate sensitivity is 217% asset sensitive at June 30, 2013.

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 measures the impact of upward and downward movements of interest rates on interest margin and indicates that a 100 basis point decrease in interest rates would reduce net interest income by approximately 2.0% in the first year, while a 200 basis point increase in interest rates would increase net interest income by approximately 8.9% in the first year. This is influenced by the assumptions regarding how quickly and to what extent liabilities will reprice with a change in interest rates.

Loans

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013			2012
	(in thousands)
Provision for loan losses	$	-	$	450	$	(2,250	)	$	900

26

In the second quarter of 2013 no provision for loan loss was recorded compared to $450,000 of provision expense recognized in the same prior year period. For the six months ended June 30, 2012, the Bank recognized negative provision expense of $2.3 million compared to $900,000 during the same period in 2012. In general, the reduced 2013 provision expense reflects decreasing trends in the levels of existing and newly identified nonperforming loans, gradual stabilization in real estate values for certain problem credits, and continued shrinkage in the overall loan portfolio relative to conditions faced by the Bank one year ago. In addition, consistent with the improved portfolio trends, continued improvement in our rolling 12 quarter loss history correlates with the current overall level of allowance and related provision expense relative to the prior comparative periods. Absent unforeseen further deterioration in the economy and based on the present trends in the loan portfolio and the anticipated continued improvement in our loss history as significant prior year charge offs exit the rolling 12 quarter look back period, it is reasonably likely that future negative provision expense will be necessary to maintain the directional consistency of the overall level of the allowance with the actual performance of the loan portfolio.

Loan charge offs for the six months ended June 30, 2013 totaled $383,000 compared to $2.4 million recognized during the same prior year period. The 2012 charge offs included approximately $539,000 of protective advances paid by the Bank to protect its interest in collateral scheduled for tax sale. The remaining 2012 charge offs related primarily to collateral liquidation shortfalls on then existing impaired loans and management’s determination of certain borrowers’ inability to support future cash flow projections. Based on remediation plans for our remaining problem loans at June 30, 2013, including those previously charged-down for collateral deficiencies, and an assessment of current risks impacting the overall portfolio, management believes that the general rate of decline in real estate values has slowed and may portend a continued decrease in future charge offs.

Management considered these factors in conjunction with its quarterly analysis of the loan portfolio to identify and quantify the level of credit risk to estimate losses in its determination that no provision expense was required for the three months ended June 30, 2013 and determination of the adequacy of the $9.5 million allowance for loan losses at June 30, 2013.

Loan and Asset Quality

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 a 1 – 4 family residential property 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:

	June 30, 2013						December 31, 2012
	Balances			Percent			Balances			Percent
	(dollars in thousands)
Secured by real estate:
Residential first mortgage	$	19,219			11.3	%	$	19,782			11.0	%
Residential home equity/other junior liens		10,086			5.9	%		10,040			5.6	%
Construction, land development and other land		6,971			4.1	%		8,741			4.8	%
Commercial (nonfarm, nonresidential)		114,604			67.6	%		120,617			66.9	%
Commercial		12,845			7.6	%		16,112			8.9	%
Consumer and Other		5,823			3.4	%		5,103			2.8	%
Total gross loans		169,548			100.0	%		180,395			100.0	%
Net unearned fees		(200	)					(204	)
Total Loans	$	169,348					$	180,191

The loan portfolio decreased $10.8 million (6.0%) in the six months ended June 30, 2013. The decrease was experienced predominately within the commercial real estate portfolio (i.e. owner occupied and nonowner occupied) which decreased $6.0 million primarily due to two borrower relationships aggregating to approximately $5.1 million being refinanced with other financial institutions in the first quarter of 2013. Other decreases in this portfolio segment resulted from customer pay-downs and pay-offs and the receipt of scheduled payments. Further decreases in the loan portfolio included declines in commercial loans of $3.3 million (20.3%), loans secured by consumer real estate of $517,000 (1.7%), and construction, land development, and other land loans of $1.8 million (20.2%). These additional decreases were primarily attributable to receipt of scheduled payments from borrowers coupled with limited loan growth experienced to date in 2013 resulting from limited loan demand and limited lending opportunities to qualified, credit worthy borrowers.

Loans secured by residential first mortgages decreased $563,000 (2.9%) as the residential mortgage loan portfolio experienced runoff from scheduled payments and payoffs. Despite continued relatively attractive mortgage rates in 2013, residential loan originations were limited due to the Bank’s lack of an in-house residential lending program and reliance on a third-party for residential mortgage origination services. In addition, the impact of weakened real estate values in the residential housing market continues to suppress residential lending activity.

The future size of the loan portfolio is dependent upon a number of economic, competitive and regulatory factors faced by the Bank. In light of the economic and regulatory challenges currently impacting the Bank, we anticipate the possibility of continued and managed shrinkage of the loan portfolio in 2013. Further declines in loans, restrictions on the Bank’s ability to make new loans or competition that leads to lower relative pricing on new loans could adversely impact our future operating results.

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 through foreclosure and is actively managed through the time of disposition to minimize loss. Nonperforming loans include troubled debt restructured loans that are on nonaccrual status or past due 90 days or more. At June 30, 2013, December 31, 2012 and June 30, 2012, there were $8.7 million, $10.2 million and $12.2 million of troubled debt restructurings included in nonperforming loans. Troubled debt restructured loans (“TDRs”) that are not past due 90 days or more are excluded from nonperforming loan totals.

27

The aggregate amount of nonperforming loans and other nonperforming assets are presented below:

Nonperforming Loans and Assets:	June 30, 2013			December 31, 2012			June 30, 2012
	(dollars in thousands)
Nonaccrual loans	$	10,338		$	12,839		$	21,027
Loans past due 90 days and still accruing		-			201			86
Total nonperforming loans		10,338			13,040			21,113
Other real estate		2,000			3,427			3,331
Total nonperforming assets	$	12,338		$	16,467		$	24,444
Nonperforming loans as a percent of total loans		6.10	%		7.24	%		10.97	%
Allowance for loan losses as a percent of nonperforming loans		91.73	%		90.25	%		57.61	%
Nonperforming assets as a percent of total loans and other real estate		7.20	%		8.97	%		12.48	%

Nonaccrual loans at June 30, 2013 decreased $2.5 million (19.5%) from December 31, 2012 and $10.7 million (50.8%) from June 30, 2012. The net decrease from December 31, 2012 resulted from the combination of approximately $2.5 million of loans upgraded to accrual status based on demonstration of both improved cash flows and established payment history following the culmination of successful work-outs and/or restructurings, approximately $1.2 million of continued payments and/or payoffs, approximately $1.5 million of newly identified nonperforming loans, chargeoffs of $167,000 and transfer of one loan for $86,000 to other real estate owned. Management continues to focus on reducing the level of nonperforming assets and making improvements in asset quality.

As of June 30, 2013, approximately $6.7 million (64.54%) of nonperforming loans are making scheduled payments. Management closely monitors each of these loans to identify opportunities where workout efforts or restructuring may improve borrowers’ credit risk profiles to facilitate a return to accrual status for credits with sustained repayment histories. Loans categorized as 90 days past due and still accruing are well secured and in the process of collection. All nonperforming loans are reviewed regularly for collectibility and uncollectible balances are promptly charged off.

Management regularly evaluates the condition of problem credits and when reduced cash flows coupled with collateral shortfalls are evident, the loans are placed on nonaccrual. In addition, loans are generally placed on nonaccrual 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, we may elect to place the loan on nonaccrual even if the borrower is current. Based on the reduced velocity of newly identified problem loans and remediation plans for existing problem loans, we anticipate other real estate owned to trend lower as the Bank manages through the remaining problem loan portfolio.

Other real estate owned (“OREO”) is comprised primarily of commercial real estate properties and totaled $2.0 million at June 30, 2013 compared to $3.4 million at December 31, 2012. Through the second quarter of 2013, proceeds of $1.6 million were received on disposition of OREO properties resulting in net gain of $120,000. In addition, four valuation write-downs totaling $74,000 were recognized to reflect fair value adjustments based on current appraisals and/or management’s determination of further impairment based on market conditions. There was one new property transferred into OREO during the second quarter of 2013. Nonperforming loans may move into OREO when the foreclosure process is initiated (i.e., as “in substance foreclosure”) through the time in which the foreclosure process is completed and any redemption period expires or from the receipt of deeds in lieu of foreclosure.

Since 2007, the decline in real estate sales and valuations in southeast Michigan has significantly and adversely impacted the quality of the Corporation’s portfolio of loans secured by real estate. In addition, during this time the local economies served by the Corporation have been adversely impacted by the restructuring of the automotive market and related industries which in turn, has caused our borrowers to experience declining revenues, diminished cash flows, and reduced collateral values in their businesses. Due to these factors and the prolonged troubled economy, real estate values in general have remained distressed. Although there has been some recent stabilization in values and increased sales activity for certain real estate, because the Corporation continues to carry a relatively high concentration of loans that are secured by real estate, the Corporation continues to experience elevated levels of nonperforming loans and impaired loans relative to historical levels prior to 2007.

Although management has specific, aggressive remediation plans for a majority of the Bank’s remaining significant classified and criticized loans, execution of such plans will take some time and is, in many respects, dependent on external factors such as the borrowers’ ability to repay their obligations and/or to meet performance criteria and the value of collateral securing those obligations, which in turn depend on macro and micro economic conditions including the pace of an economic recovery in Southeast Michigan. Given the extent of the problem loans secured by real estate, these factors may delay remediation efforts and result in the Bank maintaining higher than anticipated balances of nonperforming loans that may adversely impact the level of provision for loan losses in the near future. Management continues to make oversight of these loans a priority.

At June 30, 2013, impaired loans totaled approximately $23.1 million, of which $14.9 million were assigned a specific reserve of $1.5 million. Impaired loans without specific reserve allocations totaled $8.2 million. A loan is considered impaired when it is probable that all or part of the amounts due according to 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 TDR. Impairment is measured by comparing the Bank’s recorded investment in the loan to the present value of expected future cash flows at the loan’s effective interest rate, the fair value of the collateral less costs to sell, or the loan’s observable market price.

Of the impaired loans reported at June 30, 2013, $8.3 million were on nonaccrual status, based on management’s assessment using criteria discussed above and $15.6 million are commercial and commercial real estate loans identified as TDRs. All cash received on nonaccrual loans is applied to principal balance. Loans are considered for return to accrual status on an individual basis when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Interest income is recognized on TDRs pursuant to the criteria noted below.

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A key component of our asset quality improvement initiative includes procedures intended to improve asset quality levels within the loan portfolio. Management develops specific workout strategies on all significant impaired loans to attempt to mitigate the extent of potential future loss by the Bank and to remediate nonperforming assets, where possible. Loan work out strategies may include the Bank’s willingness to modify the terms of a loan to improve our ability to collect amounts due. The modified terms are intended to enable customers to mitigate the risk of foreclosure by creating payment schedules that provide for continued loan payment requirements based on their current cash flow ability. Common modifications utilized by the Bank may include one of more of the following: interest rate reductions, extension of amortization periods, and forbearance of interest and/or principal payments. Management may extend concessions (modifications) to troubled borrowers in exchange for the pledge of additional collateral and/or guarantors. Loan modifications are considered TDRs when the modification includes terms outside of normal lending practices (i.e., concessions) to a borrower who is experiencing financial difficulties.

The following table summarizes the troubled debt restructuring component of impaired loans at:

	June 30, 2013						December 31, 2012
	Accruing Interest		Nonaccrual		Total		Accruing Interest		Nonaccrual		Total
	(in thousands)
Current	$	15,733	$	6,956	$	22,689	$	13,087	$	8,338	$	21,425
Past due 30-89 days		-		929		929		-		163		163
Past due 90 days or more		-		865		865		201		1,718		1,919
Total troubled debt restructurings	$	15,733	$	8,750	$	24,483	$	13,288	$	10,219	$	23,507

Troubled debt restructured loans accrue interest if the borrower complies with the revised terms and conditions and has demonstrated sustained payment performance consistent with the modified terms for a minimum of six consecutive payment cycles after the restructuring date and if collection of future payments is reasonably assured.

If the economy weakens further and/or real estate values decline further, the provision for loan losses may continue to be impacted by the Bank’s concentration in real estate secured loans. While we have carefully considered these factors when determining the level of reserves, it is difficult to accurately predict future economic events, especially in the current environment.

The loan portfolio is periodically reviewed by internal and external parties and the results of these reviews are reported to the Bank’s Board of Directors. The purpose of these reviews is to verify proper loan documentation, to provide for the early identification of potential problem loans, to challenge and validate internal risk grades assigned by management, to monitor collateral values and to assist the Bank in evaluating the adequacy of the allowance for loan losses.

Allowance for Loan Losses

The allowance for loan losses at June 30, 2013 was $9.5 million compared to $11.8 million at December 31, 2012, a decrease of $2.3 million. The allowance for loan losses represented 5.60% and 6.53% of gross loans at June 30, 2013 and December 31, 2012 and provided a coverage ratio to nonperforming loans of 91.73% and 90.25% at each respective period-end.

Management estimates the required allowance balance based on 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. Relative to conditions faced by the Bank as recently as one-year ago, combined with the successive decreasing quarterly trends experienced in the levels of existing and newly identified nonperforming loans, the gradual stabilization of real estate values securing certain problem credits, the continued shrinkage in the overall loan portfolio, and continued improvement in our rolling 12 quarter loss history, the allowance for loan loss calculation and analysis at June 30, 2013 supported our determination of the overall level of allowance and related provision expense relative to prior quarters. Management believes that it is reasonably likely that future negative provision expense may be required to reduce the overall level of the allowance based on the continuation of existing portfolio trends and the anticipated improvement in the rolling 12 quarter loss history as significant prior year charge offs exit the calculation.

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 what it believes is an adequate allowance for loan losses. When all of these factors were considered, management determined that the $2.3 million negative provision for loan losses in the first six months of 2013 and resulting $9.5 million allowance as of June 30, 2013 were appropriate.

Given the significant portion of our loans that are secured by real estate, our portfolio continues to be sensitive to the weakened economic conditions in Southeast Michigan and the Bank’s market area, and is especially impacted by depressed real estate values. In response, each quarter our portfolio management practices continue to analyze and quantify risk within all segments of our portfolio to ensure effective problem loan identification procedures. Our practice is to obtain updated appraisals on criticized loans secured by real estate and apply appropriate discounting practices based on perceived declines in market value.

Although updated appraisals received during more recent quarters indicated that property values for collateral on our impaired loans continue to be depressed, the appraisals did not reflect the extent of value erosion relative to that experienced in prior quarters. However, at present, the weak Michigan economy and elevated unemployment levels continue to dampen signs of economic recovery in our market area. Consequently, we have continued to allocate reserves for these risk and uncertainties, resulting in reserves above normal levels.

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If the economy weakens further and/or real estate values decline further, nonperforming loans may increase in subsequent quarters. Due to the uncertainty of future economic conditions and the decline in real estate values, the provision for loan losses for 2013 may continue to be impacted by the Bank’s concentration in real estate secured loans. While we have considered these factors when determining the level of reserves, it is difficult to accurately predict the future economic events, especially in the current environment.

The allowance consists of specific and general components. The specific component relates to loans that are classified as nonaccrual or renegotiated. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience, adjusted for qualitative factors used to reflect changes in the portfolio’s collectability not captured by historical loss data.

The methodology for measuring the appropriate level of allowance and related provision for loan losses relies on several key elements, which include specific allowances for loans considered impaired, general allowances for non-impaired commercial loans based on our internal loan grading system, and general allocations based on historical trends for homogeneous loan groups with similar risk characteristics.

The general allowance allocated to non-impaired commercial loans was based on the internal risk grade of such loans and their assigned portfolio segment, as primarily determined based on underlying collateral; and, if real estate secured, the type of real estate. Each risk grade within a portfolio is assigned a loss allocation factor. The higher a risk grade, the greater the assigned loss allocation percentage. Accordingly, changes in the risk grades of loans affect the amount of the allowance allocation.

Our loss factors are determined based on our actual loss history by portfolio segment and loan grade and are adjusted for significant qualitative factors that, in management’s judgment, affect the collectability of the portfolio at the analysis date. We use a rolling 12 quarter net loss history as the base for our computation which is weighted to give emphasis to more recent quarters.

Groups of homogeneous noncommercial loans, such as residential real estate loans, home equity and home equity lines of credit, and consumer loans receive allowance allocations based on the loan type, primarily determined based on historical loss experience rather than by risk grade. These allocations are adjusted for consideration of general economic and business conditions, credit quality and delinquency trends, collateral values, and recent loss experience for these similar pools of loans.

Although management evaluates the adequacy of the allowance for loan losses based on information known at a given point in time, as facts and circumstances change, the provision and resulting allowance may also change. While we believe that our allowance for loan loss analysis has identified all probable losses inherent in the portfolio at June 30, 2013, there can be no assurance that all losses have been identified or that the amount of the allowance is sufficient.

Noninterest Income

Noninterest income for the three and six months ended June 30, 2013 decreased $83,000 (11.3%) and $61,000 (4.1%), respectively, compared to the same periods in 2012. The components of noninterest income are shown in the table below:

	Three months ended June 30,					Six months ended June 30,
	2013		2012			2013		2012
	(in thousands)
Service charges and fees on deposits	$	244	$	378		$	611	$	753
Other fees		312		311			600		629
Trust income		37		46			79		91
Other		56		(3	)		119		(3	)
Total	$	649	$	732		$	1,409	$	1,470

For the three months ended June 30, 2013, service charges on deposits and other fee income decreased $133,000 compared to the same period last year. The decrease in service charges and fees on deposit accounts primarily resulted from no longer recognizing overdraft and NSF fee income on customers with nonaccrual and/or previously charged off loan relationships. Other fees decreased due to lower check printing fees, residential mortgage late fees, safe deposit fees and merchant discount fees. Trust income decreased $9,000 due to continued run-off in the number of customer accounts and lower average customer account balances coupled with limited new business opportunities. Other income represents rental income from tenants in two commercial OREO properties that were transferred into OREO at December 31, 2012.

For the six months ended June 30, 2013, service charges on deposits and other fee income decreased $171,000 compared to the same period last year. Service charges and fees on deposit accounts decreased for the reason noted above. Other fees decreased due to lower ATM network income and check printing fees partially offset by higher commercial and consumer loan fees. Trust income decreased due to continued run-off as noted above. Other income increased as noted above.

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Noninterest Expense

Noninterest expense for the three and six months ended June 30, 2013 decreased $268,000 (9.2%) and $43,000 (0.7%) compared to the same periods in 2012. The components of noninterest expense are shown in the table below:

	Three months ended June 30,					Six months ended June 30,
	2013			2012		2013			2012
	(in thousands)
Salaries and employee benefits	$	1,154		$	1,233	$	2,630		$	2,475
Occupancy expense		213			172		463			403
Equipment expense		87			82		167			175
Professional and service fees		436			456		831			846
Loan collection and foreclosed property expense		82			168		165			287
Computer service fees		111			112		225			225
Computer software amortization expense		10			5		18			62
FDIC assessment fees		253			252		509			503
Insurance expense		130			148		261			294
Printing and supplies		43			57		86			92
Director fees		-			20		-			40
Net loss on sale/writedown of OREO and repossessions		(90	)		13		(46	)		19
Other		202			181		395			326
Total	$	2,631		$	2,899	$	5,704		$	5,747

The most significant component of our noninterest expense is salaries and employee benefits. In the first half of 2013, the increase in salaries and employee benefits resulted primarily from additional staffing in our loan and credit departments. These hires were made to ensure the Bank has appropriate personnel with sufficient experience, training and authority to execute safe and sound banking practices with respect to asset quality. Partially offsetting these salary increases, the Bank incurred minimal contract payroll expense in 2013 relative to 2012.

Occupancy expense increased primarily due to the colder weather, additional snow removal costs and higher property taxes experienced in 2013 compared to 2012. Equipment expense decreased in 2013 due to reduced equipment and vehicle maintenance costs.

To date in 2013, professional and service fees decreased from 2012 levels primarily due to capitalization of certain legal fees related to the Corporation’s capital raise and reduced audit and accounting fees. These were partially offset by higher online bill pay expense as a result of more customers utilizing our online web banking product to pay their bills than in the prior year.

Loan collection and foreclosed property expense include collection costs related to nonperforming and delinquent loans, including costs incurred to protect the Bank’s interest in collateral securing problem loans prior to taking title to the property, appraisal expenses and carrying costs related to other real estate. Other real estate expense was elevated in 2012 due to the Bank’s possession and management (via court appointed receivership) of two hotel properties, both of which were sold by late 2012. In addition, the Bank has experienced reduced appraisal fee expense in 2013 due to fewer problem loans and OREO properties relative to the same periods in 2012.

FDIC assessments, while comparable to prior year expense, remain elevated due to the Bank’s continued troubled financial and regulatory condition.

Insurance expense is lower in 2013 compared to 2012 due to lower premiums negotiated with policy renewals in late 2012.

During the six months ended June 30, 2013, the Bank sold five OREO properties for a net gain of $120,000 and recorded valuation write downs/reserves on four OREO properties totaling $74,000.

Other expenses increased in the first six months of 2013 primarily due to community contributions exceeding prior year levels for the Bank’s support of community activities/initiatives and business development efforts. Advertising expense increased due to new initiatives intended to increase the Bank’s visibility in the local market. Postage, education, NSF checks and other losses and telephone expenses were also higher compared to the same prior year period. These were partially offset by a decrease in back office losses as (debit and ATM) fraud losses declined from the same prior year period.

Federal Income Tax Expense

We recorded no federal income tax expense on the Corporation’s pre-tax income for the three and six months ended June 30, 2013 due to the Corporation’s tax loss carry forward position. Due to the uncertainty of generating future taxable income necessary to realize the recorded net deferred tax asset, the Corporation has recorded a valuation allowance against the tax benefit related to its cumulative pre-tax losses.

In the three and six months ended June 30, 2013, the Corporation recorded federal income tax expense to increase its deferred tax valuation allowance established on previously recorded net deferred tax assets. The increase in the deferred tax valuation allowance was necessary to offset the deferred tax impact of the available for sale investment portfolio moving from a net unrealized gain to a net unrealized loss position.

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Capital

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct, material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s and the Bank’s capital classification are also subject to qualitative judgments by regulators with regard to components, risk weightings, and other factors.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required that the federal regulatory agencies adopt regulations defining five capital tiers for banks:

	Total	Tier 1
	Risk-Based	Risk-Based
	Capital Ratio	Capital Ratio	Leverage Ratio
Well capitalized	10% or above	6% or above	5% or above
Adequately capitalized	8% or above	4% or above	4% or above
Undercapitalized	Less than 8%	Less than 4%	Less than 4%
Significantly undercapitalized	Less than 6%	Less than 3%	Less than 3%
Critically undercapitalized	-	-	A ratio of tangible equity to
			total assets of 2% or less

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). The Corporation’s and the Bank’s actual capital amounts and ratios are presented in the following table:

						Minimum for					To be Well Capitalized
						Capital Adequacy					Under Prompt Corrective
	Actual					Purposes					Action Provision
June 30, 2013	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
Total Capital (to risk weighted assets)
Bank	$	12,826		6.50	%	$	15,791		8.00	%	$	19,738		10.00	%
FNBH Bancorp		12,452		6.25	%		15,928		8.00	%		N/A		N/A
Tier 1 Capital (to risk weighted assets)
Bank		10,268		5.20	%		7,895		4.00	%		11,843		6.00	%
FNBH Bancorp		9,872		4.96	%		7,964		4.00	%		N/A		N/A
Tier 1 Capital (to average assets)
Bank		10,268		3.49	%		11,776		4.00	%		14,719		5.00	%
FNBH Bancorp		9,872		3.35	%		11,778		4.00	%		N/A		N/A
December 31, 2012	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to risk weighted assets)
Bank	$	10,195		5.02	%	$	16,240		8.00	%	$	20,300		10.00	%
FNBH Bancorp		9,822		4.84	%		16,240		8.00	%		N/A		N/A
Tier 1 Capital (to risk weighted assets)
Bank		7,540		3.71	%		8,120		4.00	%		12,180		6.00	%
FNBH Bancorp		7,167		3.53	%		8,120		4.00	%		N/A		N/A
Tier 1 Capital (to average assets)
Bank		7,540		2.58	%		11,686		4.00	%		14,608		5.00	%
FNBH Bancorp		7,167		2.45	%		11,686		4.00	%		N/A		N/A

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 shareholders’ 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.

On September 24, 2009, the Bank consented to the issuance of a Consent Order (the “Consent Order”) with the OCC. Pursuant to the Consent Order, the Bank was required to achieve and maintain total capital equal to 11% of risk weighted assets and Tier 1 capital equal to at least 8.5% of adjusted total assets by January 22, 2010. At June 30, 2013 and through the current date, the Bank’s capital ratios are and continue to be significantly below the increased minimum requirements imposed by the OCC. In light of the Bank’s deficient capital position at June 30, 2013, it is reasonable to anticipate further regulatory enforcement action by either the OCC or FDIC, particularly if the Corporation is unsuccessful in raising additional capital. In addition and as a result of noncompliance with certain terms of the Consent Order, the Bank is categorized as “significantly undercapitalized” for Prompt Corrective Action purposes, as described in Note 2 of the 2012 Annual Report contained in the Corporation’s report on Form 10-K filing. The Prompt Corrective Action provisions impose certain restrictions on institutions that are undercapitalized. The restrictions become increasingly more severe as an institution’s capital category declines from undercapitalized to significantly undercapitalized to critically undercapitalized.

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Please see Note 2 to the Consolidated Financial Statements included within this Quarterly Report for information on the Corporation's ongoing efforts to complete a recapitalization of the Corporation in order to restore the Bank's capital. As described in that Note 2, the ability of the Corporation to complete a recapitalization is uncertain.

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 does not anticipate the Bank providing any dividends to the Corporation through at least 2013. The Corporation suspended, indefinitely, the payment of dividends to its shareholders 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.  The Corporation does not anticipate resuming dividend payments to its shareholders in the near future.

Pursuant to the results of recent examinations of the Corporation by the Federal Reserve, the Corporation is considered a troubled institution due to the critically deficient condition of its subsidiary Bank. As such, the Federal Reserve has required the Corporation to take action to support the Bank, which principally involves a capital infusion sufficient to satisfy minimum capital ratios imposed on the Bank. In addition, the Corporation must receive prior approval from the Federal Reserve before the payment of dividends, issuance of debt, or redemption of stock.  Additional restrictions imposed on the Corporation by the Federal Reserve relate to changes in the composition of board members, the employment of senior executive officers or changes in the responsibilities of senior executive officers, and limitations on indemnification and severance payments.

As a result of the Bank's current inability to pay dividends to the Corporation, the Corporation has an insufficient level of resources and cash flows to meet operational liquidity needs. The Bank is prohibited from paying expenses on behalf of the Corporation. To resolve the Corporation's illiquidity and the deficient capital levels at the Corporation and the Bank, the Corporation's board of directors has provided certain interim funding to the Corporation in the form of loans to the Corporation. Depending on the extent of the future cash needs of the holding company, the timing and successful completion of the pending capital raise, and the directors' willingness and ability to continue funding holding company expenses (through loans), the Corporation may be required to attempt to borrow funds from other sources to pay its expenses. Even if available, such additional borrowings may be at a price and on terms that are unfavorable to the Corporation. The holding company incurred pre-tax expenses totaling approximately $22,000 and $71,000 for the six month periods ended June 30, 2013 and 2012, respectively.

Regulatory Enforcement Action

As discussed above, the Bank is subject to a Consent Order issued by the OCC on September 24, 2009 that requires the Bank to raise capital in order to achieve certain minimum capital ratios. See "Capital" above for more information regarding these capital requirements and the Bank's current failure to meet the capital requirements of the Consent Order.

In addition to the minimum capital ratios, the Consent Order imposes several other requirements on the Bank. The Bank has taken a number of actions to address such other requirements (many of which were underway well before the Consent Order was issued), including:

· the Board of Directors of the Bank appointed a Compliance Committee to ensure the Bank's compliance with the Consent Order and periodically report on such compliance efforts to the OCC;

· the Bank adopted a written strategic plan that included, among other things, the specific requirements set forth in Consent Order, and the Bank has taken ongoing actions to monitor the Bank's performance relative to the strategic plan;

· the Bank enhanced its liquidity risk management program via improved procedures for cash flow forecasting, monitoring and reporting, development of a contingency funding plan and increased its borrowing availability under lines of credit secured by certain pledged loans and investments;

· the Bank has implemented numerous policies and procedures intended to improve asset quality levels within the loan portfolio, including: identifying, monitoring, and reporting of problem loans via application of a comprehensive risk grade assessment system; development of specific workout strategies on all significant impaired loans; attempted restructuring of certain problem credits to mitigate the extent of potential future loss by the Bank; and, overall improvements to underwriting policies and credit structuring practices;

· the Bank engaged an independent third-party loan review specialist to assess the Bank's ability to effectively assign appropriate risk grades and identify problem loans;

· the Bank engaged an independent third-party to validate the Bank's allowance for loan loss methodology to ensure it conforms with regulatory guidance and accounting principles generally accepted in the United States of America, including an evaluation of the key assumptions used in the loan loss analysis;

· the Bank enhanced its policies and procedures for obtaining and reviewing appraisals on property securing loans made by the Bank;

· the Bank implemented a practice of developing a written action plan for each parcel of other real estate owned;

· the Bank has taken ongoing actions in an effort to reduce the Bank's concentration in commercial real estate (CRE) loans and construction and development (C&D) loans;

· the Bank has taken ongoing actions to improve many aspects of its credit and loan policies and programs; and

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· the Bank enhanced its program designed to maintain an adequate allowance for loan and lease losses (ALLL).

While the Bank believes it has made significant progress in its efforts to comply with all requirements of the Consent Order other than the minimum capital requirements, the OCC continues to cite deficiencies and noncompliance with respect to each of the requirements of the Consent Order. As such, additional, ongoing actions by the Bank are required in order to be in full compliance with the Consent Order as ultimately determined by the OCC. While the OCC could take further and immediate regulatory enforcement action against the Bank if the OCC believes the Bank is not in compliance with any requirement of the Consent Order, the Bank currently believes its failure to meet the minimum capital requirements established by the Consent Order is the primary risk factor in determining the likelihood and extent of any further, more severe regulatory enforcement action (such as receivership of the Bank).

In addition to the requirements of the Consent Order, the OCC issued a letter to the Bank in 2012 that requires the Bank to obtain the approval of the OCC prior to undertaking certain investments and other transactions that exceed $500,000. This additional requirement may result in the Bank being unable to pursue transactions it otherwise believes will be profitable or in the best interests of the Bank. Even if the Bank is not prohibited from pursuing a particular transaction, this additional requirement will increase the time and cost necessary for the Bank to complete the transaction.

Critical Accounting Policies

Our accounting and reporting policies are in accordance with accounting principles generally accepted within the United States of America and conform to general practices within the banking industry. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Material estimates that are particularly susceptible to significant change in the near term relate to the valuation of investment securities, determination of the allowance for loan losses and accounting for income taxes, and actual results could differ from those estimates. Management has reviewed these critical accounting policies with the Audit Committee of our Board of Directors.

Contractual Obligations

The Bank had outstanding irrevocable standby letters of credit, which carry a maximum potential commitment of approximately $10,000 at June 30, 2013 and December 31, 2012, respectively. These letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The majority of these letters of credit are short-term guarantees of one year or less, although some have maturities which extend as long as two years. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Bank primarily holds real estate as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held on those commitments at June 30, 2013 and December 31, 2012, 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.

New Accounting Standards

The FASB has issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU is intended to improve the reporting of reclassifications out of accumulated other comprehensive income. The ASU requires an entity to report, either on the face of the statement where net income is presented or in the notes to the financial statements, the effect of significant reclassification out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in their entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments in the ASU apply to all entities that issue financial statements that are presented in conformity with U.S. GAAP and that report items of other comprehensive income. For public entities, the amendments in the ASU are effective prospectively for reporting periods beginning after December 15, 2012. Based on the nature and amount of the Corporation’s reported comprehensive income for the three and six months periods ended June 30, 2013 and 2012, respectively, the impact of adoption of the ASU by the Corporation was not material.

Recent Legislative Developments

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.  Uncertainty remains as to the ultimate impact of this law, which could have a material adverse impact either on the financial services industry as a whole or on the Corporation’s and Bank’s business, results of operations and financial condition. This federal law contains a number of provisions that could affect the Corporation and the Bank. For example, the law:

· Makes national banks (such as the Bank) and their subsidiaries subject to a number of state laws that were previously preempted by federal laws;

· Imposes additional restrictions on how mortgage brokers and loan originators may be compensated;

· Establishes a federal consumer protection agency that will have broad authority to develop and implement rules regarding most consumer financial products;

· Creates additional rules affecting corporate governance and executive compensation at all publicly traded companies (such as the Corporation);

· Broadens the base for FDIC insurance assessments and makes other changes to federal deposit insurance, including permanently increasing FDIC deposit insurance coverage to $250,000; and

· Allows depository institutions to pay interest on business checking accounts

Many of these provisions are not yet effective and are subject to implementation by various regulatory agencies. As a result, the actual impact this federal law will have on the Bank's business is not yet known. However, this law and any other changes to laws applicable to the financial industry may impact the profitability of the Bank's business activities or change certain of its business practices and may expose the Corporation and the Bank to additional costs, including increased compliance costs, and require the investment of significant management attention and resources. As a result, this law may negatively affect the business and future financial performance of the Corporation and the Bank.

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On April 5, 2012, the Jumpstart Our Business Startups Act (JOBS Act) was signed into law. The JOBS Act is intended to stimulate economic growth by helping smaller and emerging growth companies access the U.S. capital markets. It amends various provisions of, and adds new sections to, the Securities Act of 1933 and the Securities Exchange Act of 1934, as well as provisions of the Sarbanes-Oxley Act of 2002. The SEC has been directed to issue rules implementing certain JOBS Act amendments. For bank holding companies, the JOBS Act increases the statutory threshold for deregistration under the Securities Exchange Act of 1934 from 300 shareholders to 1,200 shareholders of record.

In December 2010, the Basel Committee on Banking Supervision, an international forum for cooperation on banking supervisory matters, announced the “Basel III” capital rules, which set new capital requirements for banking organizations. In July 2013, the Federal Reserve and the OCC each approved final rules that establish an integrated regulatory capital framework implementing the Basel III regulatory capital reforms in the U.S. These new rules impose higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place. The new capital requirements will be phased in over time. The U.S. implementation of these standards could have an adverse impact on our financial position and future earnings due to, among other things, the increased minimum Tier 1 capital ratio requirements that will be implemented. However, the ultimate impact of these new rules on the Corporation and the Bank is still being reviewed.

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, 2012. For information regarding our risk factors, refer to the FNBH Bancorp, Inc. Form 10-K for the year ended December 31, 2012.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Corporation evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” as defined in Rule 13a - 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Disclosure Controls”). The Disclosure Controls are designed to allow the Corporation to reach a reasonable level of assurance that information required to be disclosed by the Corporation in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including its principal executive and financial officers to allow timely decisions regarding required disclosure. The evaluation of the Disclosure Controls ("Controls Evaluation") was conducted under the supervision and with the participation of the Corporation’s management, including the chief executive officer and the chief financial officer. Based upon the Controls Evaluation and subsequent discussions, the chief executive officer and chief financial officer have concluded that as of June 30, 2013, the Corporation’s Disclosure Controls were effective at a reasonable assurance level.

(b) Changes in Internal Control Over Financial Reporting.

During the quarter ended June 30, 2013 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.

Limitations on the Effectiveness of Controls

The Corporation’s management, including the chief executive officer and chief financial officer, does not expect that its Disclosure Controls and/or its internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Corporation have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in Item 1A. Risk Factors of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2012.

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

There were no sales or repurchases of stock by the Corporation for the three months ended June 30, 2013, except as may have been previously disclosed by the Corporation in a Current Report on Form 8-K.

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	Securities Purchase Agreement, dated June 12, 2013, by and between the Corporation and Stanley B. Dickson, Jr.
10.2	Form of Subscription Agreement entered into by the Corporation and various accredited investors, effective August 7, 2013.
31.1	Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certificate of the Chief Executive Officer of FNBH Bancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2	Certificate of the Chief Financial Officer of FNBH Bancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 to be signed on its behalf by the undersigned hereunto duly authorized.

FNBH BANCORP, INC.

/s/Ronald L. Long

Ronald L. Long

President and Chief Executive Officer

/s/Mark J. Huber

Mark J. Huber

Chief Financial Officer

Date: August 14, 2013

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EX-10.1

EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this "Agreement"), dated as of June 12, 2013 (the "Effective Date"), is entered into by and between FNBH Bancorp, Inc., a Michigan corporation (the "Company"), and Stanley B. Dickson, Jr. (the "Lead Investor").

Background

A. The Company intends to conduct a capital raise consisting of two transactions to raise aggregate gross proceeds of approximately Eighteen Million Dollars ($18,000,000). In the first transaction, the Company intends to issue shares of the Company's Convertible Preferred Stock (defined below) in a private placement to accredited investors (the "Private Placement"), at a subscription price of One Thousand Dollars ($1,000) per share (the "Subscription Price"). In the second transaction, which is intended to take place as soon as practicable after completion of the Private Placement, the Company intends to conduct a registered offering (the "Registered Offering") of shares of the Company's common stock (the "Common Stock") to its shareholders and other potential investors at a price of Seventy Cents ($0.70) per share.

B. The Convertible Preferred Stock is automatically convertible into shares of the Company's Common Stock at an initial conversion price of Seventy Cents ($0.70) per share of Common Stock upon the Company's receipt of the Shareholder Approval (as defined below).

C. Subject to the terms and conditions of this Agreement, the Lead Investor is agreeing (i) to purchase a number of shares of Convertible Preferred Stock in the Private Placement with an aggregate purchase price of Seven Million Five Hundred Thousand Dollars ($7,500,000), and (ii) at the request of the Company, following completion of the Registered Offering, to purchase up to that number of shares of Common Stock with an aggregate purchase price of One Million Five Hundred Thousand Dollars ($1,500,000), with the total number of shares of Common Stock designated by the Company. As a result, the Lead Investor's total investment commitment pursuant to this Agreement is Nine Million Dollars ($9,000,000).

D. In connection with the Lead Investor's agreement to purchase the Securities and satisfy his other obligations as set forth in this Agreement, the Company has agreed to pay the Lead Investor a cash payment (the "Commitment Payment") equal to six percent (6%) of the aggregate purchase price of the Securities actually acquired by the Lead Investor, payable at the closing and issuance of such Securities to the Lead Investor, but subject to the receipt of the prior approval of the Federal Reserve.

E. Following the closing of the Private Placement, the Company intends to promptly call a meeting of shareholders (the "Shareholder Meeting") for the purpose of approving the Charter Amendment (as defined below) (the "Shareholder Approval").

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Agreement

NOW THEREFORE, in consideration of the foregoing, the mutual covenants contained in this Agreement, and other good and valuable consideration, the receipt of which is acknowledged by both parties, the parties agree as follows:

1. Certain Other Definitions.   When used in this Agreement, the following terms shall have the meanings set forth below:

"Affiliate" shall mean an affiliate (as defined in Rule 12b-2 under the Exchange Act).

"Agreement" shall have the meaning set forth in the opening paragraph of this Agreement.

"Board" shall mean the board of directors of the Company.

"CBCA" shall have the meaning set forth in Section 5(p).

"CBCA Notice" shall have the meaning set forth in Section 5(p).

"Charter Amendment" shall mean the amendment to the Company's Articles of Incorporation set forth in Schedule 1.

"Commission" shall mean the United States Securities and Exchange Commission, or any successor agency.

"Commitment Payment" shall have the meaning set forth in Background paragraph D above.

"Common Stock" shall have the meaning set forth in Background paragraph A above.

"Company" shall have the meaning set forth in the opening paragraph of this Agreement.

"Convertible Preferred Stock" means the Company's Series B Mandatorily Convertible Non-Cumulative Junior Participating Preferred Stock, with terms and conditions substantially similar to those set forth on the attached Schedule 2, with such changes as may be mutually acceptable to the Company and the Lead Investor.

"Effective Date" shall have the meaning set forth in the opening paragraph of this Agreement.

"Escrow Agent" shall have the meaning set forth in Section 3.

"Escrow Fund" shall have the meaning set forth in Section 3.

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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission pursuant to such statute.

"Federal Reserve" shall mean the Board of Governors of the Federal Reserve System.

"Governmental Consent" shall mean any notice to, registration, declaration or filing with, exemption or review by, or authorization, order, consent or approval of, any Governmental Entity.

"Governmental Entity" shall mean any court, administrative agency or commission, or other governmental authority or instrumentality, whether federal, state, or local, and any applicable industry self-regulatory organization.

"Law" shall mean any applicable federal, state, or local law, statute, ordinance, license, rule, regulation, policy, or guideline, order, demand, writ, injunction, decree, or judgment of any Governmental Entity.

"Lead Investor" shall have the meaning set forth in the opening paragraph of this Agreement.

"Nominees" shall have the meaning set forth in Section 7(d).

"Person" shall mean an individual, corporation, partnership, association, joint stock company, limited liability company, joint venture, trust, governmental entity, unincorporated organization, or other legal entity.

"Private Placement" shall have the meaning set forth in Background paragraph A above.

"Proxy Statement" shall have the meaning set forth in Section 7(c).

"Registered Offering" shall have the meaning set forth in Background paragraph A above.

"Securities" means all shares of Convertible Preferred Stock and Common Stock purchased by the Lead Investor pursuant to the commitments set forth in this Agreement.

"Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder.

"Shareholder Approval" shall have the meaning set forth in Background paragraph E above.

"Shareholder Meeting" shall have the meaning set forth in Background paragraph E above.

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"Subscription Price" shall have the meaning set forth in Background paragraph A above.

2. Purchase Commitments.

(a) Private Placement. At the closing of the Private Placement, subject to the satisfaction or waiver of the conditions set forth in Section 8, the Lead Investor shall purchase from the Company, and the Company shall sell to the Lead Investor, at a price per share equal to the Subscription Price, Seven Thousand Five Hundred (7,500) shares of Convertible Preferred Stock. Payment for the Convertible Preferred Stock purchased pursuant to this subsection shall be made to the Company in accordance with Section 3 below against delivery by the Company of such Securities on the closing date for the Private Placement.

(b) Standby Purchase. As soon as practicable after completion of the Registered Offering, subject to the satisfaction or waiver of the conditions set forth in Section 8, at the option of and upon the written request of the Company, the Lead Investor shall purchase from the Company a number of shares of Common Stock with an aggregate purchase price of up to One Million Five Hundred Thousand Dollars ($1,500,000) at a price per share of Common Stock equal to Seventy Cents ($0.70), with the final number of shares of Common Stock (if any) determined by the Company; provided that the maximum number of shares of Common Stock to be purchased by the Lead Investor pursuant to this subsection shall be that number of shares that causes aggregate gross proceeds to the Company from the sale of stock in the Private Placement, the Registered Offering, and pursuant to this subsection to equal Eighteen Million Dollars ($18,000,000). The determination of whether the Company will exercise its right to require the Lead Investor to purchase shares of Common Stock pursuant to this subsection shall be made by the Board, excluding the vote of the Lead Investor and any other Nominee, in the exercise of its good faith discretion; provided that nothing in this Agreement shall impose any requirement on the Company to accept, in whole or in part, any subscription to purchase shares of Convertible Preferred Stock from any particular investor in the Private Placement or any subscription to purchase shares of Common Stock from any particular investor in the Registered Offering. Payment for any Common Stock purchased pursuant to this subsection shall be made to the Company against delivery by the Company of such Securities on the closing date for such purchase.

3. Escrow. Within five (5) business days of receiving notice from the Company that the Company is ready to conduct the closing of the Private Placement, the Lead Investor shall deposit into escrow with Fifth Third Bank (the "Escrow Agent") by wire transfer of immediately available funds, an amount equal to Seven Million Five Hundred Thousand Dollars ($7,500,000) (the "Escrow Fund"). At the closing of the Private Placement, the parties shall cause the Escrow Agent to release the Escrow Fund to the Company against delivery by the Company of the Securities purchased by the Lead Investor at the closing of the Private Placement. If the closing of the Private Placement fails to occur within ten (10) business days of the Company sending the notice pursuant to this Section, then upon the Lead Investor's request, the parties shall cause the Escrow Agent to return the Escrow Fund to the Lead Investor; provided that the Company may thereafter require the Lead Investor to again deposit the Escrow Fund with the Escrow Agent by providing a subsequent notice to the Lead Investor pursuant to this Section that the Company is ready to conduct the closing of the Private Placement.

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4. Representations and Warranties of the Company. The Company represents and warrants to the Lead Investor as follows:

(a) Organization. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Michigan and has all the requisite power and authority to conduct its business and own and operate its properties and to enter into and execute this Agreement and to carry out the transactions contemplated by this Agreement.

(b) Authority. The Company has the power to execute, deliver, and perform the terms and provisions of this Agreement and has taken all necessary action to authorize the execution and delivery of this Agreement and, subject to the Company's filing of the Certificate of Designation to create the series of Convertible Preferred Stock, to authorize the issuance and sale of the shares of Convertible Preferred Stock contemplated by this Agreement, and the representatives of the Company executing this Agreement are duly authorized to do so.

(c) Capitalization. The authorized capital stock of the Company consists of 11,000,000 shares of Common Stock, of which 455,115 shares were outstanding as of May 15, 2013, and 30,000 shares of preferred stock, of which no shares were outstanding as of May 15, 2013.

(d) Binding Obligation. Assuming the due execution and delivery of this Agreement by the Lead Investor, this Agreement is a legal, valid, and binding obligation of the Company, enforceable in accordance with its terms except (a) as its obligations may be affected by bankruptcy, insolvency, reorganization, moratorium, or similar laws, or by equitable principles relating to or limiting creditors' rights generally, and (b) that the remedies of specific performance, injunction, and other forms of equitable relief are subject to certain tests of equity jurisdiction, equitable defenses, and the discretion of the court before which any proceeding for such remedy may be brought.

(e) No Conflicts. The execution, delivery, and performance of this Agreement and the fulfillment of or compliance with the terms and provisions of this Agreement, including the issuance and sale of the Securities contemplated by this Agreement, are not in contravention of or in conflict with any material contract to which the Company is a party or by which the Company or any of its properties may be bound or affected.

(f) Validly Issued. Upon receipt by the Company of payment for the Securities as contemplated by this Agreement and upon issuance of the Securities in accordance with this Agreement, the Securities will be validly issued and outstanding, fully paid, and non-assessable.

5. Representations and Warranties of the Lead Investor.  The Lead Investor represents and warrants to the Company as follows:

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(a) Advisors. The Lead Investor acknowledges that, in connection with the preparation and negotiation of this Agreement, Varnum LLP is representing the Company and is not representing the Lead Investor. The Lead Investor further acknowledges he has been advised to consult with his own attorney regarding legal matters concerning the Company and the Securities and to consult with his tax advisor regarding the tax consequences of acquiring the Securities.

(b) Access to Information. The Lead Investor acknowledges he has had full access to the Company's public filings made pursuant to the Exchange Act. The Lead Investor has had sufficient opportunity to request from the Company any information regarding the Company or an investment in the Securities as deemed necessary or desirable by the Lead Investor, all of such information has been provided, and the Lead Investor has had sufficient opportunity to review all of such information.

(c) Securities Not Registered. The Lead Investor understands that the Securities to be purchased by the Lead Investor pursuant to this Agreement have not been registered under the Securities Act or any other securities laws, but are being offered and sold to the Lead Investor in reliance upon specific exemptions from the registration requirements of federal and state securities laws, and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments, and understandings of the Lead Investor set forth in this Agreement in order to determine the applicability of such exemptions.

(d) Investment Experience. The Lead Investor is a sophisticated and experienced investor with regard to high-risk investments and is willing and able to bear the economic risk of an investment in the Securities in an amount equal to the Lead Investor's total investment commitment pursuant to this Agreement. The Lead Investor has the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an investment in the Securities. The Lead Investor has adequate means of providing for current needs and personal contingencies, has no need for liquidity in the investment, and is able to bear the economic risk of an investment in an amount equal to the Lead Investor's total investment commitment pursuant to this Agreement. In making this statement, the Lead Investor considered whether the Lead Investor could afford to hold the Securities for an indefinite period and whether, at this time, the Lead Investor could afford a complete loss of an investment in the Securities.

(e) Accredited Investor Status. The Lead Investor certifies that he is an "accredited investor," as that term is defined under Rule 501(a) of the Securities Act. The Lead Investor is aware that the sale of the Securities is being made in reliance on Rule 506 of Regulation D under the Securities Act, which is an exemption for non-public offerings under Section 4(2) of the Securities Act.

(f) Purchase for Own Account. The Lead Investor's purchase of the Securities will be solely for the Lead Investor's own account and not for the account of any other Person.

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(g) Investment Purpose. The Securities are being acquired by the Lead Investor in good faith for investment and not with a view to distributing such Securities to others or otherwise reselling any of the Securities. The Lead Investor understands the substance of the above representations is (i) that the Lead Investor does not presently intend to sell or otherwise dispose of all or any part of the Securities; (ii) that the Lead Investor does not now have in mind the sale or other disposition of all or any part of the Securities on the occurrence or nonoccurrence of any predetermined event; and (iii) that the Company is relying upon the truth and accuracy of the representations.

(h) Investment Risks. The Lead Investor understands that the purchase of the Securities is subject to significant risks, including those risk factors disclosed in the Company's filings with the Commission or as otherwise may be applicable to similar investments, and such purchase may result in a total loss of the Lead Investor's investment in the Securities. The Lead Investor acknowledges that he has had an opportunity to review, and upon review, fully understands all of such risks.

(i) Due Diligence. The Lead Investor has relied solely upon this Agreement and the independent investigations made by the Lead Investor with respect to the Securities subscribed, and no oral or written representations beyond the Company's filings with the Commission have been made to or been relied upon by the Lead Investor in making this investment decision.

(j) Representations Complete. The Lead Investor's representations in this Agreement are complete and accurate, and the Company may rely upon them. The Lead Investor will notify the Company immediately if any material change occurs in any of this information before the closing of the sale of any Securities pursuant to Section 2(b) above.

(k) Transfer Restrictions and Resale. None of the Securities have been registered with the Commission. The Securities may be sold or transferred only in compliance with the applicable securities laws and regulations, including the Securities Act. The Lead Investor understands and agrees that the Securities will be "restricted securities" for purposes of Rule 144 under the Securities Act.

(l) Legend. The Lead Investor understands and agrees that stop transfer instructions relating to the Securities being purchased by the Lead Investor pursuant to this Agreement and relating to all shares of Common Stock into which such shares of Convertible Preferred Stock may be converted will be placed in the Company's stock transfer ledger, and that any and all certificates evidencing such securities will bear a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE ISSUER."

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(m) Binding Obligation. Assuming the due execution and delivery of this Agreement by the Company, this Agreement is a legal, valid, and binding obligation of the Lead Investor, enforceable in accordance with its terms except (a) as its obligations may be affected by bankruptcy, insolvency, reorganization, moratorium, or similar laws, or by equitable principles relating to or limiting creditors' rights generally, and (b) that the remedies of specific performance, injunction, and other forms of equitable relief are subject to certain tests of equity jurisdiction, equitable defenses, and the discretion of the court before which any proceeding for any such remedy may be brought.

(n) No General Solicitation. The Securities were not offered to the Lead Investor by way of general solicitation or general advertising and at no time was the Lead Investor presented with or solicited by means of any leaflet, public promotional meeting, circular, newspaper or magazine article, or radio or televisions advertisement.

(o) Future Issuances. The Company may in the future issue additional preferred stock, senior debt, subordinated debt, and/or Common Stock and/or options, warrants, or other rights to acquire preferred stock, senior debt, subordinated debt, and/or Common Stock.

(p) Governmental Consents.  Assuming the correctness of the representations and warranties of the Company, no Governmental Consents are necessary to be obtained by the Lead Investor for the consummation of the transactions contemplated by this Agreement, other than a statement by the Federal Reserve that it has no objection to the investment by the Lead Investor as such investment is described by the Lead Investor in the notice (the "CBCA Notice") filed by the Lead Investor under the Change in Bank Control Act of 1978, as amended (the "CBCA").

6. Deliveries at Closings.  

(a) Private Placement. At the closing of the Private Placement, subject to the satisfaction or waiver of the conditions set forth in Section 8: (i) the Company shall deliver to the Lead Investor a certificate or certificates representing the shares of Convertible Preferred Stock issued to the Lead Investor pursuant to Section 2(a), or at the Company's option, the Company may cause such shares to be issued to the Lead Investor in book-entry form; (ii) subject to the receipt of approval of the Federal Reserve, the Company shall pay the Commitment Payment with respect to such shares of Convertible Preferred Stock to the Lead Investor, by wire transfer of immediately available funds; and (iii) the Escrow Agent shall deliver to the Company the Escrow Fund by wire transfer of immediately available funds.

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(b) Standby Purchase. If the Company is requiring a purchase of Securities pursuant to Section 2(b) above, then subject to the satisfaction or waiver of the conditions set forth in Section 8, at the closing of the purchase of such Securities: (i) the Company shall deliver to the Lead Investor a certificate or certificates representing the shares of Common Stock issued to the Lead Investor pursuant to Section 2(b), or at the Company's option, the Company may cause such shares to be issued to the Lead Investor in book-entry form; (ii) subject to the receipt of approval of the Federal Reserve, the Company shall pay the Commitment Payment with respect to such shares of Common Stock to the Lead Investor, by wire transfer of immediately available funds; and (iii) the Lead Investor shall pay to the Company the aggregate purchase price for such shares of Common Stock by wire transfer of immediately available funds.

7. Covenants.

(a) Public Announcements.  Each of the parties will cooperate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement and any of the transactions contemplated by this Agreement, including any communications to the employees and customers of the Company and its Affiliates.  Without limiting the foregoing, except as otherwise permitted in the next sentence, neither party will make (and each party will use its reasonable efforts to ensure that its Affiliates, representatives and agents, including its directors, officers, and employees, do not make) any such news release or public disclosure without first consulting with the other party and, in each case, also receiving the other party's consent, which shall not be unreasonably withheld, conditioned or delayed.  In the event a party is advised by its legal counsel that a particular disclosure is required by Law, such party shall be permitted to make such disclosure but shall be obligated to use its reasonable efforts to consult with the other party, to the extent legally permissible, and take his or its comments into account with respect to the content of such disclosure before issuing such disclosure.  Notwithstanding the foregoing, in connection with the Shareholder Meeting, the Company shall have the authority to prepare, file with the Commission, and disseminate the Proxy Statement and any related soliciting material.

(b) Regulatory Filing.  If either party determines a filing is or may be required under applicable Law in connection with the transactions contemplated by this Agreement, the parties shall cooperate and use reasonable efforts to promptly prepare, file, and pursue all necessary documentation, applications, and/or filings that are necessary or advisable under applicable Law with respect to the transactions contemplated by this Agreement. Without limitation to the foregoing, the Lead Investor shall promptly prepare, file, and pursue the CBCA Notice.

(c) Shareholder Meeting. The Company shall call the Shareholder Meeting as promptly as practical following the closing of the Private Placement to vote on the Charter Amendment. The Board shall recommend to the Company's shareholders that such shareholders approve the Charter Amendment and shall take all other actions necessary to adopt such Charter Amendment if approved by the shareholders of the Company. In connection with the Shareholder Meeting, the Company shall use its reasonable efforts to solicit proxies for approval of the Charter Amendment and to cause a definitive proxy statement related to such Shareholder Meeting (such proxy statement, as amended or supplemented, the "Proxy Statement") to be mailed to the Company's shareholders as promptly as practicable after the closing of the Private Placement. The Lead Investor agrees to attend the Shareholder Meeting in person or by proxy for purposes of obtaining a quorum and shall vote, or cause to be voted, all shares of Convertible Preferred Stock and all shares of Common Stock beneficially owned or controlled by him or his Affiliates in favor of the Charter Amendment at the Shareholder Meeting in person or by proxy. Upon approval and adoption of the proposal to approve the Charter Amendment, the Company shall promptly file the Charter Amendment with the Michigan Department of Licensing and Regulatory Affairs.

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(d) Board Rights. If the closing of the Private Placement occurs, from and after such closing and for as long as the Lead Investor is the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act or any successor provision) of at least fifteen percent (15%) of the issued and outstanding Common Stock, then (i) upon the Lead Investor's request, the Company will use reasonable efforts to nominate, recommend a vote for, and otherwise cause two nominees designated by the Lead Investor (inclusive of the Lead Investor's current position on the Board), which nominees must be reasonably acceptable to the Company (the "Nominees"), to be appointed to the Board and to the Board of Directors of First National Bank in Howell, subject in all respects to applicable Laws and provided that these rights shall not be interpreted to require the Company to defend or engage in any proxy contest initiated by any holder of Common Stock; and (ii) the Company shall not increase the size of the Board of Directors to a number greater than nine directors without the prior consent of the Lead Investor. In addition, if the closing of the Private Placement occurs, from and after such closing and for as long as the Lead Investor is the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act or any successor provision) of at least thirty percent (30%) of the issued and outstanding Common Stock, then upon the Lead Investor's request, the Company will use reasonable efforts to nominate, recommend a vote for, and otherwise cause a third Nominee designated by the Lead Investor to be appointed to the Board and to the Board of Directors of First National Bank in Howell, subject in all respects to applicable Laws and provided that this rights shall not be interpreted to require the Company to defend or engage in any proxy contest initiated by any holder of Common Stock.

(e) Lock-Up. The Lead Investor agrees not to sell, transfer, or otherwise dispose of any shares of Convertible Preferred Stock or any shares of Common Stock for a period beginning on the Effective Date and ending 180 days after the date on which the shares of Convertible Preferred Stock are issued to the Lead Investor at the closing of the Private Placement.

(f) Waiver of Rights in Registered Offering. To the extent the Lead Investor is granted or acquires any rights to acquire shares of Common Stock in the Registered Offering, the Lead Investor waives and agrees not to exercise any such right to acquire shares of Common Stock in the Registered Offering; provided that this subsection shall have no effect on any obligation of the Lead Investor to purchase shares of Common Stock pursuant to Section 2(b) above.

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8. Conditions to Closings.

(a) Conditions to Obligations of the Lead Investor. The obligation of the Lead Investor to purchase any Securities from the Company is subject to the satisfaction or written waiver by the Lead Investor of the following conditions prior to the closing of the issuance of such Securities:

(i) the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects on and as of the Effective Date and on and as of the applicable closing date as though made on and as of such closing date, except where the failure to be true and correct, individually or in the aggregate, would not be reasonably likely to have a material adverse effect with respect to the Company (and except that representations and warranties made as of a specified date shall be true and correct as of such date);

(ii) the Company shall have performed and complied, in all material respects, with all agreements, covenants, and conditions required by this Agreement to be performed by it on or prior to the applicable closing date;

(iii) the Federal Reserve shall have approved the Lead Investor's acquisition of the Securities to be acquired under this Agreement at such closing and such other terms and conditions related to the Lead Investor's acquisition and ownership of such Securities as required under applicable Law; and

(iv) no provision of any Law and no judgment, injunction, order or decree shall prohibit the closing or shall prohibit the Lead Investor from acquiring or owning any Securities to be purchased pursuant to this Agreement at such closing.

(b) Conditions to Obligations of Company. The obligation of the Company to sell and issue any Securities to the Lead Investor is subject to the satisfaction or written waiver by the Company of the following conditions prior to the closing of the issuance of such Securities:

(i) the representations and warranties of the Lead Investor set forth in this Agreement shall be true and correct in all material respects on and as of the Effective Date and on and as of the applicable closing date as though made on and as of such closing date except where the failure to be true and correct would not reasonably be likely to materially adversely affect the ability of the Lead Investor to perform his obligations pursuant to this Agreement;

(ii) the Lead Investor shall have performed and complied, in all material respects, with all agreements, covenants and conditions required by this Agreement to be performed by him on or prior to the applicable closing date;

11

(iii) the Federal Reserve shall have approved the Lead Investor's acquisition of the Securities under this Agreement and such other terms and conditions related to the Lead Investor's acquisition and ownership of the Securities as required under applicable Law; and

(iv) no provision of any Law and no judgment, injunction, order or decree shall prohibit the closing or shall prohibit the Lead Investor from acquiring or owning any Securities to be purchased pursuant to this Agreement.

  9. Termination. This Agreement may be terminated:

(a) By mutual written agreement of the Company and the Lead Investor;

(b) By either party, upon written notice to the other party, in the event that the closing of the Private Placement does not occur on or before September 30, 2013;

(c) At any time prior to the closing of the Private Placement, if there is a material breach of this Agreement by the other party that is not cured within fifteen (15) days after the non-breaching party has delivered written notice to the other party of such breach;

(d) By the Company, at any time prior to the closing of the Private Placement, if the Company determines, in its sole discretion, that it is not in the best interests of the Company and its shareholders to proceed with the Private Placement; or

(e) By either party, upon written notice to the other party, in the event that any Governmental Entity shall have issued any order, decree, or injunction or taken any other action restraining, enjoining, or prohibiting any of the transactions contemplated by this Agreement.

10. Effect of Termination. Upon any termination of this Agreement prior to the closing of the Private Placement, the parties shall direct the Escrow Agent to return the Escrow Fund to the Lead Investor; provided that this shall not be deemed a waiver of any rights or remedies of the Company if it terminated the Agreement pursuant to Section 9(c) above. Notwithstanding anything to the contrary in this Agreement, the Company shall have no obligation to pay any Commitment Payment or other amount to the Lead Investor if this Agreement is terminated, for any reason, without the closing of the Private Placement having occurred.

11. Survival. The representations and warranties of the Company and the Lead Investor contained in this Agreement shall survive each closing and the purchase and delivery of any Securities pursuant to this Agreement.

12. Notices.  All notices, communications and deliveries required or permitted by this Agreement shall be made in writing signed by the party making the same and shall be deemed given or made (a) on the date delivered if delivered in person, (b) on the third business day after it is mailed if mailed by registered or certified mail (return receipt requested) (with postage and other fees prepaid), (c) on the day after it is delivered, prepaid, to an overnight express delivery service that confirms to the sender delivery on such day, or (d) when sent by email, if during the recipient's regular business hours on a business day and, otherwise, on the next succeeding business day, but only if either the recipient confirms receipt or if a copy of the notice, demand, or other communication is also delivered to the recipient by one of the other methods described in this Section. Such notices shall be sent to the following addresses:

12

If to the Company:

Ronald Long, President & CEO

FNBH Bancorp, Inc.

101 East Grand River Ave.

Howell, Michigan 48843

Email: rlong@fnbh.com

If to the Lead Investor:

Stanley Dickson

15621 Windmill Pointe

Grosse Pointe Park, Michigan 48230

Email: sdickson@trowbridgehouse.com

13. Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties in respect of its subject matter.  There are no restrictions, promises, warranties, or undertakings, other than those set forth or referred to in this Agreement, with respect to the purchase commitments of the Lead Investor or with respect to the Securities.  This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter of this Agreement. Without limiting the foregoing, this Agreement replaces, in their entirety, any and all other subscription agreements between the Company, on one hand, and the Lead Investor on the other hand, entered into prior to the date of this Agreement for the sale of securities that have not already been issued to the Lead Investor as of the Effective Date.

14. Amendment; Waivers; Assignments.  No amendment or waiver of any provision of this Agreement will be effective against either party unless it is in writing signed by such party that makes express reference to the provision or provisions subject to such amendment or waiver. This Agreement may not be assigned or transferred by either of the parties without the prior consent of the other party.

15 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the Laws of the State of Michigan, excluding those provisions related to the conflict of laws of different jurisdictions if the effect of the application of those provisions will be to require the application of the Laws of a jurisdiction other than Michigan. Each party consents to the jurisdiction of the federal courts located in either Kent or Livingston County, Michigan, which will be the sole venue for resolution of all disputes related to this Agreement. THE PARTIES WAIVE THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.

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16. Severability.  If any provision of this Agreement or the application of such provision to any Person or circumstances is determined by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions of this Agreement, or the application of such provision to Persons or circumstances other than those as to which it has been held invalid, void, or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired, or invalidated, so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner adverse to either party.  Upon such determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.

17. Counterparts. For the convenience of the parties, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile or other electronic transmission and such facsimiles or other electronic transmissions will be deemed as sufficient as if actual signature pages had been delivered.

[Signatures appear on the following page.]

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INTENDING TO BE LEGALLY BOUND, the parties have caused this Securities Purchase Agreement to be duly executed and delivered as of the Effective Date.

COMPANY:	LEAD INVESTOR:
FNBH Bancorp, Inc.
/s/ Ronald L. Long	/s/ Stanley B. Dickson, Jr.
By:     Ronald L. Long	Stanley B. Dickson, Jr.
Its:     President & CEO

15

SCHEDULE 1

Amendment to Articles of Incorporation

The first paragraph of Article III of the Company's Articles of Incorporation shall be amended and restated in its entirety as follows:

"The total number of shares of all classes of capital stock which the corporation shall have authority to issue is forty million thirty thousand (40,030,000) shares, of which forty million (40,000,000) shares shall be common stock, without par value, and thirty thousand (30,000) shares shall be series preferred stock, without par value."

Schedule 1 - 1

SCHEDULE 2

CERTIFICATE OF DESIGNATION

OF

MANDATORILY CONVERTIBLE NON-CUMULATIVE

JUNIOR PARTICIPATING PREFERRED STOCK, SERIES B

OF

FNBH BANCORP, INC.

FNBH Bancorp, Inc., a corporation organized and existing under the laws of the State of Michigan (the "Company"), in accordance with the provisions of Section 302 of the Michigan Business Corporation Act, certifies:

A. The present name of the Company is FNBH Bancorp, Inc.

B. The Corporation Identification Number (CID) assigned by the Department of Licensing and Regulatory Affairs is 432207.

C. The location of the registered office of the Company is 101 East Grand River Avenue, Howell, Michigan 48843.

D. The following is a true and correct copy of a resolution designating and prescribing the relative rights, preferences, and limitations of the Company's Series B Mandatorily Convertible Non-Cumulative Junior Participating Preferred Stock, which was duly adopted by the Company's Board of Directors on , 2013.

RESOLVED, that pursuant to the authority vested in the Board of Directors of this Company in accordance with the provisions of its Articles of Incorporation, a series of preferred stock of the Company be and is created and the designation, amount, qualifications, limitations, and other rights and restrictions of the shares of such Series B Preferred Stock are as follows:

Section 1. Designation and Amount.

The series of preferred shares shall be designated as the Company's "Mandatorily Convertible Non-Cumulative Junior Participating Preferred Stock, Series B," no par value per share (the "Series B Preferred Stock"), and the number of shares constituting the Series B Preferred Stock shall be 20,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series B Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights, or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series B Preferred Stock. Each share of Series B Preferred Stock shall be identical in all respects to every other share of Series B Preferred Stock.

Schedule 2 - 2

Section 2. Definitions

"Automatic Conversion Date" has the meaning set forth in Section 7(b).

"Common Stock" means the Company's common stock, no par value per share.

"Company" means FNBH Bancorp, Inc., a Michigan corporation.

"Conversion Date" has the meaning set forth in Section 7(a).

"Conversion Price" means $0.70, subject to adjustment pursuant to Section 8.

"Distribution" means the transfer from the Company to its shareholders of cash, securities, or other assets or property, including, without limitation, evidences of indebtedness, shares of capital stock, or other securities, including, without limitation, any dividend or distribution of rights or warrants to purchase shares of Common Stock (other than rights issued pursuant to a shareholders' rights plan, a dividend reinvestment plan, or other similar plans), without consideration, whether by way of dividend or otherwise.

"Exchange Property" has the meaning set forth in Section 9.

"Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company, or trust.

"Series B Parity Securities" has the meaning set forth in Section 3.

"Series B Preferred Stock" has the meaning set forth in Section 1.

"Subsidiary" means any entity in which the Company, directly or indirectly, owns sufficient capital stock or holds a sufficient equity or similar interest such that it is consolidated with the Company in the financial statements of the Company or has the power to elect a majority of the board of directors or other persons performing similar functions.

Section 3. Ranking.

The Series B Preferred Stock will, with respect to dividend rights and rights on liquidation, winding up, and dissolution, rank (i) on a parity with (A) the Common Stock, and (B) each other class or series of equity securities of the Company the terms of which do not expressly provide that such class or series will rank senior or junior to the Series B Preferred Stock as to dividend rights and/or rights on liquidation, winding up, and dissolution of the Company (collectively with the Common Stock, referred to as "Series B Parity Securities"), and (ii) junior to each other class or series of equity securities of the Company the terms of which expressly provide that such class or series will rank senior to the Series B Preferred Stock as to dividend rights and/or rights on liquidation, winding up, and dissolution of the Company. The Company has the power to authorize and/or issue additional shares or classes or series of equity securities without the consent of any holder of shares of Series B Preferred Stock. The definition of "Series B Parity Securities" shall include any options, warrants, and any other rights exercisable for or convertible into Series B Parity Securities.

Schedule 2 - 3

Section 4. Dividends and Distributions.

As long as any shares of Series B Preferred Stock are outstanding, the Company shall not declare, pay, or set apart for payment any dividend or make any Distribution on any Common Stock, unless at the time of such dividend or Distribution the Company simultaneously pays a non-cumulative dividend or makes a Distribution, which non-cumulative dividend or Distribution shall be payable in cash or the same securities or other assets or other property as is paid to holders of Common Stock, on each outstanding share of Series B Preferred Stock in an amount equal to the product of (A) any per share dividend or Distribution paid on the Common Stock multiplied by (B) a fraction, (i) the numerator of which is $1,000 and (ii) the denominator of which is the then-applicable Conversion Price. Each dividend payable pursuant to this Section 4 will be payable to holders of record of the Series B Preferred Stock as they appear in the records of the Company on the applicable record date for such dividend or Distribution.

Section 5. Liquidation, Dissolution, or Winding Up.

Upon any liquidation, dissolution, or winding up of the Company, the holders of outstanding shares of Series B Preferred Stock shall be entitled to receive liquidating distributions in such amounts as such holders would be entitled to receive if all of the Series B Preferred Stock held by such holder were converted solely and directly into Common Stock immediately before such liquidation, dissolution, or winding up. For purposes of this Section 5, the Company's consolidation or merger with or into any other entity, the consolidation or merger of any other entity with or into the Company, or the sale of all or substantially all of the Company's assets, property, or business will not constitute its liquidation, dissolution, or winding up.

Section 6. Maturity.

The Series B Preferred Stock shall be perpetual until converted in accordance with this Certificate of Designation.

Section 7. Conversion Into Common Stock.

(a) At any time the Company has shares of Common Stock authorized and available for issuance, the Company may require any holder of any outstanding shares of Series B Preferred Stock to convert all or a portion of such holder's shares of Series B Preferred Stock into a number of shares of Common Stock determined by dividing (i) $1,000 by (ii) the then-applicable Conversion Price. The Company may exercise such right by providing written notice of such conversion to such holder(s). Such notice shall specify the "Conversion Date," which shall be at least five (5) days after the date such notice is given.

(b) Without limiting the generality of Section 7(a) above, upon any amendment to the Company's Articles of Incorporation that becomes effective after the date this Certificate of Designation is filed by the State of Michigan that increases the number of shares of Common Stock the Company is authorized to issue to a number of shares at least as great as the number of shares of Common Stock issuable upon conversion of all then outstanding shares of Series B Preferred Stock into Common Stock (the date the Articles of Incorporation are amended to reflect such increase is referred to as the "Automatic Conversion Date"), each issued and outstanding share of Series B Preferred Stock shall be automatically converted into a number of shares of Common Stock determined by dividing (i) $1,000 by (ii) the then-applicable Conversion Price, without further action by either the Company or any holder of a share of Series B Preferred Stock.

Schedule 2 - 4

(c) Effective as of the close of business on the Automatic Conversion Date or any Conversion Date, any certificate representing any shares of Series B Preferred Stock shall evidence only the right to receive the shares of Common Stock in which such shares of Series B Preferred Stock have been converted. As soon as practicable after the Automatic Conversion Date or any Conversion Date, the Company shall take such action as is necessary to exchange any certificate representing shares of Series B Preferred Stock for one or more certificates representing the Common Stock into which such Series B Preferred Stock was converted or to otherwise reflect issuance of such shares of Common Stock in book entry form.

Section 8. Anti-Dilution Adjustments.

(a) At any time after the date on which this Certificate of Designation is filed by the State of Michigan, if the number of shares of Common Stock of the Company outstanding at any time is increased or decreased by a subdivision or combination of the outstanding shares, or if additional shares are issued by the Company in connection with any stock split or dividend, then the Conversion Price shall be appropriately adjusted so that the number of shares of Common Stock issuable on conversion of a share of Series B Preferred Stock shall be increased or decreased, as the case may be, in proportion to such increase or decrease in outstanding shares of Common Stock. All adjustments to the Conversion Price shall be calculated to the nearest one-tenth (1/10) of a cent. No adjustment in the Conversion Price shall be required if such adjustment would be less than $0.01; provided that any adjustments which by reason of this sentence are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided, further, that on any Automatic Conversion Date, adjustments to the Conversion Price will be made with respect to any such adjustment carried forward that has not been taken into account before such date. No adjustment to the Conversion Price shall be made if the holders of the Series B Preferred Stock may participate in the transaction that would otherwise give rise to an adjustment as a result of holding the Series B Preferred Stock (including, without limitation, pursuant to Section 4 above), without having to convert the Series B Preferred Stock, as if they held the full number of shares of Common Stock into which a share of the Series B Preferred Stock may then be converted.

(b) The Conversion Price shall not be adjusted: (i) upon the issuance of any shares of Common Stock or rights or warrants to purchase those shares pursuant to any present or future employee, director, or consultant benefit plan or program of or assumed by the Company or any of its Subsidiaries; or (ii) upon the issuance of any shares of Common Stock pursuant to any option, warrant, right, or exercisable, exchangeable, or convertible security outstanding as of the date shares of the Series B Preferred Stock were first issued and not substantially amended thereafter.

(c) As soon as practicable following the occurrence of an event that requires an adjustment to the Conversion Price pursuant to Section 8(a), the Company shall provide, or cause to be provided, a written notice to the holders of the Series B Preferred Stock of the occurrence of such event and the adjusted Conversion Price.

Schedule 2 - 5

Section 9. Reorganization Events.

As long as any shares of Series B Preferred Stock remain outstanding, if there occurs, in one transaction or a series of related transactions: (i) any reorganization, merger, share exchange, consolidation, or similar transaction (other than a transaction pursuant to which the Company is the surviving entity and pursuant to which the shares of Common Stock outstanding immediately prior to the transaction are not exchanged for cash, securities, or other property of the Company or another Person); (ii) any transaction resulting in the sale, transfer, lease, or conveyance to another Person of all or substantially all of the assets of the Company, in each case pursuant to which the Common Stock will be converted into cash, securities, or other property of the Company or another Person; or (iii) any statutory exchange of the outstanding shares of Common Stock for securities of another Person (other than in connection with a merger or acquisition) (any such event specified in this Section 9, a "Reorganization Event"), then each share of Series B Preferred Stock outstanding immediately prior to such Reorganization Event shall be deemed, solely for purposes of this Section 9, to have converted, effective immediately prior to the effective time of the Reorganization Event, into the number of shares of Common Stock into which one share of Series B Preferred Stock would then be convertible; provided that, notwithstanding the foregoing and for the avoidance of doubt, the shares of Series B Preferred Stock shall not convert into shares of Common Stock upon the occurrence of a Reorganization Event. Any agreement setting forth the terms and conditions of, or otherwise relating to, a Reorganization Event shall provide that the holders of the Series B Preferred Stock will be entitled to receive the type and amount of securities, cash, and other property receivable in such Reorganization Event (such securities, cash, and other property, the "Exchange Property") by the holder of the number of shares of Common Stock into which one share of Series B Preferred Stock held by such holder, plus all accrued and unpaid dividends, up to but excluding the date of consummation of such Reorganization Event, would then be convertible. If the holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the holders of the Series B Preferred Stock shall likewise be entitled to make such an election. The above provisions of this Section 9 shall similarly apply to successive Reorganization Events and the provisions of Section 8 shall apply to any shares of capital stock of the Company (or any successor) received by the holders of the Common Stock in any such Reorganization Event. The Company (or any successor) shall, within seven days of the consummation of any Reorganization Event, provide written notice to the Holders of such consummation of such event and of the kind and amount of the cash, securities, or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 9. The Company shall not enter into any agreement for a transaction constituting a Reorganization Event unless such agreement provides for or does not interfere with or prevent (as applicable) a transaction that is consistent with and gives effect to this Section 9.

Section 10. Voting Rights.

In addition to any other voting rights required by law, the holders of shares of Series B Preferred Stock shall have the following voting rights:

Schedule 2 - 6

(a) Each share of Series B Preferred Stock shall entitle the holder of such share to a number of votes, on all matters submitted to a vote of the shareholders of the Company, equal to the number of shares of Common Stock into which such share of Series B Preferred Stock is convertible as of the record date for such vote.

(b) Except as otherwise set forth in this Certificate of Designation, in any other Certificate of Designation creating a series of preferred stock or any similar stock, bylaw, or as otherwise provided by law, (i) the holders of shares of Series B Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Company, and (ii) holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required for taking any corporate action (except to the extent they are entitled to vote with holders of Common Stock as set forth in this Certificate of Designation).

Section 11. Fractional Shares.

No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series B Preferred Stock. In lieu of any fractional share of Common Stock otherwise issuable in respect of any conversion of Series B Preferred Stock, the Company shall pay an amount in cash (computed to the nearest cent) equal to the same fraction of the closing price of the Common Stock determined as of the second trading day immediately preceding the applicable conversion date. If more than one share of the Series B Preferred Stock is surrendered for conversion at one time by or for the same holder, the number of full shares of Common Stock issuable upon conversion shall be computed on the basis of the aggregate number of shares of the Series B Preferred Stock so surrendered.

Section 12. Reacquired Shares.

Any shares of Series B Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after their acquisition. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock and may be reissued as part of a new series of the preferred stock subject to the conditions and restrictions on issuance set forth in this Certificate of Designation, in the Articles, or in any other certificate of designation creating a series of preferred stock or any similar stock or as otherwise required by law. The Company may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Series B Preferred Stock; provided, that the Company shall not take any such action if such action would reduce the authorized number of shares of Series B Preferred Stock below the number of shares of Series B Preferred Stock then outstanding.

Section 13. No Redemption.

The shares of Series B Preferred Stock shall not be redeemable.

Schedule 2 - 7

Section 14. Miscellaneous

(a) All notices referred to in this Certificate of Designation shall be in writing, and, unless otherwise specified, all notices shall be deemed to have been given upon the earlier of receipt or three business days after the mailing of such notice if sent by registered or certified mail with postage prepaid, addressed: (i) if to the Company, to its office at 101 East Grand River, Howell, Michigan 48843, Attention: Chief Executive Officer, (ii) if to any holder of Series B Preferred Stock, to such holder at the address of such holder as listed in the stock record books of the Company, or (iii) to such other address as the Company or any such holder, as the case may be, shall have designated by notice similarly given.

(b) The shares of Series B Preferred Stock shall not have any voting powers, preferences, or relative, participating, optional, or other special rights, or qualifications, limitations, or restrictions on any of the foregoing, other than as set forth in this Certificate of Designation, in the Articles of Incorporation, or as provided by applicable law.

(c) The Articles shall not be amended in any manner which would materially alter or change the powers, preferences, or special rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least a majority of the outstanding shares of Series B Preferred Stock, voting together as a single class.

Schedule 2 - 8

EX-10.2

EXHIBIT 10.2

SUBSCRIPTION AGREEMENT

Shares of Series B Mandatorily Convertible Non-Cumulative Junior Participating Preferred Stock

FNBH Bancorp, Inc.

To:	FNBH Bancorp, Inc.
	Attn: Chief Financial Officer
	101 East Grand River Avenue
	Howell, MI 48843

Re: Shares of Series B Mandatorily Convertible Non-Cumulative Junior Participating Preferred Stock

1. CERTAIN DEFINITIONS. When used in this Subscription Agreement, the following terms shall have the following meanings:

A. Affiliate. "Affiliate" shall have the meaning set forth in Rule 12b-2 under the Securities Exchange Act of 1934.

B. Agreement. "Agreement" means this Subscription Agreement.

C. Bank. "Bank" means the First National Bank in Howell, a wholly-owned subsidiary of the Company.

D. Common Stock. "Common Stock" means the common stock of the Company.

E. Company. "Company" means FNBH Bancorp, Inc., a Michigan corporation.

F. Memorandum. The "Memorandum" is the Confidential Private Placement Memorandum prepared by the Company and dated June 20, 2013, as may be modified, supplemented, or restated from time to time. Terms used in this Agreement without being defined shall have the meanings assigned to them in the Memorandum.

G. Rights Offering. "Rights Offering" means an offering conducted by the Company pursuant to which the Company grants holders of its Common Stock the right to acquire additional shares of Common Stock.

H. Shares. "Shares" means the Company's shares of Series B Mandatorily Convertible Non-Cumulative Junior Participating Preferred Stock, with the terms set forth in the Certificate of Designations attached as Exhibit A to the Memorandum.

I. Subscriber. "Subscriber" means the person(s) or entity(ies) executing this Agreement, other than the Company.

2. SUBSCRIPTION. On the terms and subject to the conditions of this Agreement, the Subscriber irrevocably offers and agrees to purchase and to pay for such number of Shares as is set forth on the signature page of this Agreement. The Subscriber specifically accepts, adopts, and consents to be bound by each and every provision of this Agreement. The Subscriber shall pay for the Shares subscribed for pursuant to this Agreement at the price of $1,000 per Share, in good funds (e.g. cashier's check, personal check, or wire transfer), and for that purpose agrees to tender, within five (5) business days of receiving written demand from the Company, an amount equal to the total "Dollar Amount of Subscription" as set forth on the signature page of this Agreement.

Page 1 of 9

3. CLOSING. The Company may conduct one or more closings of the purchase and sale of the Shares (each, a "Closing"). Each Closing shall occur on such date as may be determined by the Company (each, a "Closing Date"). In connection with each Closing, the Company or the Company's transfer agent will deliver the Shares to the Subscriber, each registered in the Subscriber's name (or in the name of such Subscriber's nominees as may be specified by such Subscriber), against payment by the Subscriber of the purchase price set forth in Section 2 above. After the purchase price has been paid by the Subscriber pursuant to Section 2 above, such funds may be held in escrow by the Company pending a Closing, at which time the funds may be accepted and used by the Company for any purpose.  The Company shall have no obligation to place the funds in an interest-bearing account.

4. CONDITIONS PRECEDENT. The Subscriber's obligation to purchase the Shares is unconditional and irrevocable. The Company's obligations to issue the Shares and otherwise complete the Closing is subject to the fulfillment prior to the Closing of each of the conditions set forth in this Section 4, except to the extent any such condition is waived by the Company:

A. Regulatory Approvals. All approvals, consents, and similar actions by any federal or state regulatory agency required in order for the Company to issue all of the Shares subscribed to be purchased in the Private Placement (as defined in the Memorandum), including pursuant to the terms and conditions set forth in the Purchase Agreement (as defined in the Memorandum), shall have been received in a manner acceptable to the Company, in its reasonable discretion.

B. No Legal Prohibition. No provision of any federal or state law, rule, or regulation, and no judgment, injunction, order, or decree shall prohibit the Closing or shall prohibit the Company from issuing all of the Shares subscribed to be purchased in the Private Placement (as defined in the Memorandum), including pursuant to the terms and conditions set forth in the Purchase Agreement (as defined in the Memorandum).

C. Closing with Lead Investor. The closing of the initial issuance of Shares by the Company to Stanley B. Dickson, Jr. pursuant to the Purchase Agreement shall take place simultaneously with the Closing.

5. ACCEPTANCE. This Agreement is made subject to the Company's discretionary right to accept or reject the subscription set forth in this Agreement in whole or in part. Following action by the Company, the Subscriber will be notified as to whether the subscription has been accepted or rejected. If the Company shall for any reason reject all or part of this subscription, any amount already paid by the Subscriber with respect to the rejected subscription (whether in whole or in part) will be promptly refunded, without interest. Acceptance of this subscription by the Company will be evidenced by the delivery by the Company to the Subscriber of a copy of this Agreement countersigned by an officer of the Company. This Agreement, including the Subscriber's commitment to purchase the Shares set forth in this Agreement, is not revocable or cancelable by the Subscriber.

6. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. The Subscriber represents and warrants to the Company as follows, recognizing that the information contained in this Agreement is being furnished to the Company in order for the Company to determine whether the Subscriber's subscription to purchase Shares should be accepted by the Company in light of the requirements of Section 4(2) of the Securities Act of 1933 (the "Securities Act") and the rules and regulations promulgated under the Securities Act, similar sections of the securities laws of various states, and other relevant factors. The Subscriber understands that (a) the Company will rely on the information contained in this Agreement for purposes of such determination, (b) none of the Shares will be registered under the Securities Act, but are being issued in reliance upon exemptions from registration afforded under the Securities Act, which may include Regulation D promulgated pursuant to the Securities Act ("Regulation D"), and (c) none of the Shares will be registered or qualified under any state securities laws. Subscriber also represents and warrants to the Company as follows:

A. Advisors. Subscriber acknowledges that it has been advised to consult with its own attorney regarding legal matters concerning the Company and the Shares and to consult with its tax advisor regarding the tax consequences of acquiring the Shares.

B. Confidential Private Placement Memorandum and Access to SEC Filings. Subscriber has received and has had a full opportunity to review the Memorandum, including the description of the Shares and the Risk Factors contained in the Memorandum. Subscriber acknowledges it has had full access to the Company's public filings made pursuant to the Securities Exchange Act of 1934, as amended, which access can be gained at http://www.sec.gov. By entering into this Agreement, the Subscriber acknowledges receipt of the Company's Annual Report on Form 10-K for the year ended December 31, 2012 (as amended), and the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013.

Page 2 of 9

C. Shares Not Registered. Subscriber understands that the Shares have not been registered under the Securities Act or any other securities laws, but are being offered and sold to Subscriber in reliance upon specific exemptions from the registration requirements of federal and state securities laws, and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments, and understandings of Subscriber set forth in this Agreement in order to determine the applicability of such exemptions and the suitability of Subscribers to acquire the Shares.

D. Investment Experience. The Subscriber is a sophisticated, accredited, and experienced investor with regard to high-risk investments in restricted securities of the sort referred to in this Agreement (and the Memorandum) and is willing and able to bear the economic risk of an investment in the Shares in an amount equal to the amount the Subscriber has subscribed to purchase. The Subscriber has the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of an investment in the Shares. The Subscriber has adequate means of providing for current needs and personal contingencies, has no need for liquidity in the investment, and is able to bear the economic risk of an investment in the Company of the size contemplated. In making this statement, the Subscriber considered whether the Subscriber could afford to hold the Shares for an indefinite period and whether, at this time, the Subscriber could afford a complete loss of an investment in the Shares.

E. Accredited Investor Status. The Subscriber has submitted to the Company a complete and executed "Accredited Investor Questionnaire" substantially in the form attached to this Agreement. The Subscriber certifies it is an "Accredited Investor," as that term is defined under Rule 501(a) of the Securities Act, and all information the Subscriber has provided to the Company in the Accredited Investor Questionnaire is correct and complete as of the date set forth in such Accredited Investor Questionnaire. The Subscriber is aware the sale of the Shares is being made in reliance on Rule 506 of Regulation D, an exemption for non-public offerings under Section 4(2) of the Securities Act.

F. Purchase for Own Account. The Subscriber's purchase of the Shares will be solely for the Subscriber's own account and not for the account of any other person.

G. Investment Purpose. The Shares are being acquired by the Subscriber in good faith for investment and not with a view to distributing such Shares to others or otherwise reselling any of the Shares. The Subscriber understands the substance of the above representations is (i) that the Subscriber does not presently intend to sell or otherwise dispose of all or any part of the Shares; (ii) that the Subscriber does not now have in mind the sale or other disposition of all or any part of the Shares on the occurrence or nonoccurrence of any predetermined event; and (iii) that the Company is relying upon the truth and accuracy of the representations.

H. Investment Risks. The Subscriber understands the purchase of the Shares is subject to risks as stated in the Risk Factors section of the Memorandum and the Risk Factors disclosed in the Company's SEC filings (including those filed after the date of the Memorandum) or as otherwise may be applicable to similar investments. The Subscriber acknowledges it has had an opportunity to review, and upon review, fully understands all of such Risk Factors.

I. Due Diligence. The Subscriber has relied solely upon this Agreement, the Memorandum (including its exhibits), and the independent investigations made by the Subscriber with respect to the Shares subscribed, and no oral or written representations beyond the Company's SEC filings have been made to or been relied upon by the Subscriber in making this investment decision.

J. Representations Complete. The Subscriber's representations in this Agreement are complete and accurate to the best of the Subscriber's knowledge, and the Company may rely upon them. The Subscriber will notify the Company immediately if any material change occurs in any of this information before the Closing.

Page 3 of 9

K. Transfer Restrictions and Resale. None of the Shares have been registered with the Securities and Exchange Commission. The Shares may be sold or transferred only in compliance with the applicable securities laws and regulations, including the Securities Act. The Shares will be "restricted securities" for purposes of Rule 144 issued under the Securities Act. The Subscriber agrees to comply with Rule 144, which permits resales of shares by persons not affiliated with the Company only if the shares have been held for at least six months. The Subscriber acknowledges that due to the status of the Shares as "restricted securities," it may not be possible to liquidate the Subscriber's investment in the Company during the six month (or longer) holding period required by Rule 144.

L. Legend. The Subscriber understands and agrees stop transfer instructions relating to the Shares as well as the Common Stock into which the Shares are convertible will be placed in the Company's stock transfer ledger, and the certificates and other instruments evidencing all of such securities will bear a legend in substantially the following form:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE ISSUER. IN ADDITION, THE TRANSFER OF THESE SHARES IS SUBJECT TO ADDITIONAL RESTRICTIONS SET FORTH IN A SUBSCRIPTION AGREEMENT ENTERED INTO WITH RESPECT TO THE PURCHASE OF THESE SHARES (OR SHARES OF PREFERRED STOCK CONVERTED INTO THESE SHARES)."

M. Binding Obligation. This Agreement, if and when fully executed and accepted by the Company, will constitute a valid and legally binding obligation of the Subscriber, enforceable in accordance with its terms except (a) as its obligations may be affected by bankruptcy, insolvency, reorganization, moratorium, or similar laws, or by equitable principles relating to or limiting creditors' rights generally, and (b) that the remedies of specific performance, injunction, and other forms of equitable relief are subject to certain tests of equity jurisdiction, equitable defenses, and the discretion of the court before which any proceeding for any such remedy may be brought. The Subscriber, if it is a partnership, joint venture, corporation, trust, or other entity, was not formed or organized for the specific purpose of acquiring the Shares. The purchase of the Shares by the Subscriber, if it is an entity, is a permissible investment in accordance with the Subscriber's Articles of Incorporation, bylaws, partnership agreement, articles of organization, declaration of trust, or other similar charter document, and has been duly approved by all requisite action by the entity's owners, directors, officers, or other authorized managers. The person signing this Agreement and all documents necessary to consummate the purchase of the Shares has all requisite authority to sign such documents on behalf of the Subscriber, if it is an entity.

N. No General Solicitation. The Shares were not offered to the Subscriber by way of general solicitation or general advertising and at no time was the Subscriber presented with or solicited by means of any leaflet, public promotional meeting, circular, newspaper or magazine article, or radio or televisions advertisement.

O. Future Issuances. The Company may in the future issue additional preferred stock, senior debt, subordinated debt, and/or Common Stock and/or options, warrants, or other rights to acquire preferred stock, senior debt, subordinated debt, and/or Common Stock.

7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In connection with the agreement to purchase Shares by Subscriber set forth in this Agreement, the Company represents and warrants as follows:

Page 4 of 9

A. The Organization. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Michigan and has all the requisite power and authority to conduct its business and own and operate its properties and to enter into and execute this Agreement and to carry out the transactions contemplated by this Agreement.

B. Authority. The Company has the power to execute, deliver, and perform the terms and provisions of this Agreement and has taken all necessary action to authorize the execution, delivery, and performance of this Agreement and to authorize the issuance and sale of the Shares contemplated by this Agreement, and the representatives of the Company executing this Agreement are duly authorized to do so.

C. Capitalization. The authorized capital stock of the Company consists of 11,000,000 shares of Common Stock, of which 455,115 shares were outstanding as of March 31, 2013, and 30,000 shares of preferred stock, of which no shares were outstanding as of March 31, 2013.

D. Binding Obligation. Assuming the due execution and delivery of this Agreement by the Subscriber, this Agreement is a legal, valid, and binding obligation of the Company, enforceable in accordance with its terms except (a) as its obligations may be affected by bankruptcy, insolvency, reorganization, moratorium, or similar laws, or by equitable principles relating to or limiting creditors' rights generally, and (b) that the remedies of specific performance, injunction, and other forms of equitable relief are subject to certain tests of equity jurisdiction, equitable defenses, and the discretion of the court before which any proceeding for such remedy may be brought.

E. No Conflicts. The execution, delivery, and performance of this Agreement and the fulfillment of or compliance with the terms and provisions of this Agreement, including the issuance and sale of the Shares contemplated by this Agreement, are not in contravention of or in conflict with any material contract to which the Company is a party or by which the Company or any of its properties may be bound or affected.

F. Validly Issued. Upon receipt by the Company of payment for the Shares as contemplated by this Agreement and upon issuance of the Shares in accordance with this Agreement, the Shares will be validly issued and outstanding, fully paid, and non-assessable.

8. LOCK-UP. If the Closing occurs, the Subscriber agrees not to sell, transfer, or otherwise dispose of any Shares or any shares of Common Stock issued upon conversion of the Shares for a period of 180 days beginning on the Closing Date.

9. WAIVER OF RIGHTS IN RIGHTS OFFERING. If the Closing occurs, to the extent the Subscriber is granted or acquires any rights to acquire shares of Common Stock in a Rights Offering, the Subscriber waives and agrees not to exercise any such right to acquire shares of Common Stock in such Rights Offering; provided that this waiver and agreement shall only apply to the first Rights Offering conducted by the Company after the Closing and only if the record date for such Rights Offering occurs within one year following the Closing.

10. ENTIRE AGREEMENT. Except as set forth in Section 14 below, this Agreement, together with the Accredited Investor Questionnaire, constitute the entire agreement between the parties with respect to the subscription for the Shares described in this Agreement and may only be amended by a writing executed by all parties to this Agreement.

11. SURVIVAL OF REPRESENTATIONS. The representations, warranties, acknowledgements, and agreements made in this Agreement shall survive issuance of the Shares.

12. WAIVERS. No waiver or modification of any of the terms of this Agreement shall be valid unless in writing. No waiver of a breach of, or default under, any provision of this Agreement shall be deemed a waiver of such provision or of any subsequent breach or default of the same or similar nature or of any provision or condition of this Agreement.

13. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Page 5 of 9

14. CONFIDENTIALITY AGREEMENT. The Subscriber agrees the provisions of any Confidentiality Agreement previously signed by the Subscriber remains in full force and effect.

15. NOTICES. Except as otherwise required in this Agreement, all notices, communications and deliveries required or permitted by this Agreement shall be made in writing signed by the party making the same and shall be deemed given or made (a) on the date delivered if delivered in person, (b) on the third business day after it is mailed if mailed by registered or certified mail (return receipt requested) (with postage and other fees prepaid), (c) on the day after it is delivered, prepaid, to an overnight express delivery service that confirms to the sender delivery on such day, or (d) when sent by email, if during the recipient's regular business hours on a business day and, otherwise, on the next succeeding business day, but only if either the recipient confirms receipt or if a copy of the notice, demand, or other communication is also delivered to the recipient by one of the other methods described in this Section. Any such notice sent to the Subscriber shall be sent to the address set forth in this Agreement.

16. NON-ASSIGNABILITY. The obligations of either party pursuant to this Agreement shall not be delegated or assigned to any other person without the prior written consent of the other party.

17. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Michigan, excluding those provisions related to the conflict of laws of different jurisdictions if the effect of the application of those provisions will be to require the application of the laws of a jurisdiction other than Michigan. Each party consents to the jurisdiction of the federal courts located in either Kent or Livingston County, Michigan, which will be the sole venue for resolution of all disputes related to this Agreement. THE PARTIES WAIVE THE RIGHT TO TRIAL BY JURY IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.

INTENDING TO BE LEGALLY BOUND, the Subscriber has executed this Subscription Agreement and declares it is truthful and correct.

Page 6 of 9

INDIVIDUALS SIGN HERE:

	(Check One)
			X
			X
	¨	Individually
			X
	¨	Joint tenants with right of survivorship (Both must sign)
				Print Name
	¨	Tenants in common (All must sign)
				Print Name
				Print Name
				Address
				Address
				Telephone Number
				Telephone Number
				Social Security Number
Number of Shares Subscribed for Purchase:				Dollar Amount of Subscription ($1,000 per Share):
			$
			Date:

Signature Page for Individuals

Page 7 of 9

ENTITIES SIGN HERE:

¨	Partnerships or LLC
				Print Partnership or LLC Name
			By:
				Authorized Signature
¨	Corporation
				Print Corporate Name
			By:
				Authorized Signature
			Title:
¨	As Custodian, Trustee or Agent
				Print Name
			By:
				Authorized Signature
				Title, if applicable
		All Entities Complete:
				Address
				Address
				Address
				Telephone Number

Tax I.D. No.:

Number of Shares Subscribed for Purchase:		Dollar Amount of Subscription ($1,000 per Share):
	$
	Date:

Signature Page for Entities

Page 8 of 9

SUBSCRIPTION AGREEMENT ACCEPTED:

¨ IN FULL or ¨ for $                                    

FNBH BANCORP, INC.,

a Michigan corporation

By: ________________________________

Name: _______________________

Title: ________________________

Date: _______________________________

Page 9 of 9

EX-31.1

EXHIBIT 31.1

Certificate of the

Chief Executive Officer of

FNBH BANCORP, INC.

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:

I, Ronald L. Long, certify that:

1. I have reviewed this report on Form 10-Q of FNBH Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 14, 2013

/s/Ronald L. Long

Ronald L. Long

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certificate of the

Chief FINANCIAL Officer of

FNBH BANCORP, INC.

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:

I, Mark J. Huber, certify that:

1. I have reviewed this report on Form 10-Q of FNBH Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the Audit Committee of registrant's Board of Directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 14, 2013

/s/Mark J. Huber

Mark J. Huber

Chief Financial Officer

EX-32.1

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, Ronald L. Long, President and 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 June 30, 2013, 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 June 30, 2013, fairly presents, in all material respects, the financial condition and results of operations of FNBH Bancorp, Inc.

	FNBH BANCORP, INC.
Date: August 14, 2013	By:	/s/Ronald L. Long
		Ronald L. Long
	Its:	President and Chief Executive Officer

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.

EX-32.2

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, Mark J. Huber, 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 June 30, 2013, 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 June 30, 2013, fairly presents, in all material respects, the financial condition and results of operations of FNBH Bancorp, Inc.

	FNBH BANCORP, INC.
Date:  August 14, 2013	By	/s/Mark J. Huber
		Mark J. Huber
	Its:	Chief Financial Officer

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.

XML

Long Term Incentive Plan

6 Months Ended

Jun. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

9. Long Term Incentive Plan 

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

As of December 31, 2012, all restricted shares granted under the LTIP had vested and there was no unrecognized compensation cost related to nonvested stock awards. During the three and six months ended June 30, 2012, the total value of the awards which vested approximated $1,000 and $2,000, respectively.

XML

Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Interest and dividend income:
Interest and fees on loans	$ 2,301	$ 2,504	$ 4,767	$ 5,191
Interest and dividends on investment securities:
Agency securities and CMOs	253	281	515	488
Obligations of states and political subdivisions	12	12	23	26
Other securities	8	6	14	12
Interest on short term investments	0	1	1	1
Total interst and dividend income	2,574	2,804	5,320	5,718
Interest expense	231	276	466	584
Net interest income	2,343	2,528	4,854	5,134
Provision for loan losses	0	450	(2,250)	900
Net interest income after provison for loan losses	2,343	2,078	7,104	4,234
Noninterest income:
Service charges and other fee income	556	689	1,211	1,382
Trust income	37	46	79	91
Other	56	(3)	119	(3)
Total noninterest income	649	732	1,409	1,470
Noninterest expense:
Salaries and employee benefits	1,154	1,233	2,630	2,475
Net occupancy expense	213	172	463	403
Equipment expense	87	82	167	175
Professional and service fees	436	456	831	846
Loan collection and foreclosed property expenses	82	168	165	287
Computer service fees	111	112	225	225
Computer software amortization expense	10	5	18	62
FDIC assessment fees	253	252	509	503
Insurance	130	148	261	294
Printing and supplies	43	57	86	92
Director fees	0	20	0	40
Net (gain) loss on sale/writedown of OREO and repossessions	(90)	13	(46)	19
Other	202	181	395	326
Total noninterest expense	2,631	2,899	5,704	5,747
Income (loss) before federal income taxes	361	(89)	2,809	(43)
Federal income tax expense	146	0	104	0
Net income (loss)	$ 215	$ (89)	$ 2,705	$ (43)
Per share statistics:
Basic and diluted EPS (in dollars per share)	$ 0.47	$ (0.19)	$ 5.91	$ (0.09)
Basic and diluted average shares outstanding (in shares)	457,435	457,413	457,435	457,408

XML

Financial Condition and Management's Plan

6 Months Ended

Jun. 30, 2013

Financial Condition and Managements Plan [Abstract]

Financial Condition and Managements Plan [Text Block]

2. Financial Condition and Management’s Plan

In light of the Bank’s significant losses since 2008, insufficient capital position at June 30, 2013 and noncompliance with a regulatory capital directive stipulated under a Consent Order (as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), management believes it is reasonable that further regulatory enforcement action may occur if the capital raise described below is not completed or the Corporation is unable to effect another recapitalization within the relatively near future. Until such time as the Consent Order is either modified or lifted, management continues to pursue initiatives identified in its recovery plan to achieve full compliance with all requirements of the Consent Order in order to mitigate the impact of the regulatory challenges. In addition, execution of the recovery plan includes implementation of measures necessary to position the Bank to overcome current economic challenges. Management’s recovery plan is detailed in Note 2 of the consolidated financial statements included in the 2012 Annual Report within the Corporation’s Form 10-K filing.

Although management’s recovery plan is intended to restore the Bank’s regulatory standing and return the Bank to core profitability, there is uncertainty as to the plan’s ultimate effectiveness, the Bank’s ability to meet existing regulatory requirements, the ability of management to achieve the objectives of the recovery plan and the potential impact of future regulatory action against the Bank, which raises substantial doubt about the Corporation’s ability to continue as a going concern. The ability of the Corporation to continue as a going concern is dependent upon many factors, including regulatory action, the ability to complete the pending capital raise or some other recapitalization of the Corporation and the Bank, and the ability of management to achieve the other objectives in its recovery plan. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As part of the recovery plan that was initiated in late 2008, management and the Board of Directors have been aggressively pursuing all available alternatives to improve the Bank’s capital ratios, including raising capital, reducing assets, and cutting expenses. The recovery plan was designed to improve the Bank’s financial health by completing a significant recapitalization, aggressively reducing credit risk exposure in the loan portfolio and improving the efficiency and effectiveness of core business processes. The most important objective of the recovery plan is to restore the Bank’s capital to a level sufficient to comply with the capital directive in the Consent Order and provide sufficient capital resources and liquidity to meet commitments and business needs. To date, the Bank has not raised the capital necessary to satisfy requirements of the Consent Order.

As disclosed in a Current Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 2013, the Corporation terminated certain subscription agreements related to a proposed capital raise by the Corporation due to lack of regulatory approval. However, in a continued effort to raise additional capital necessary to improve the capital position of its subsidiary bank, the Corporation initiated a second private placement offering to certain accredited investors.Unlike the previous transaction, the new offering does not involve the issuance of any debt by the Corporation.

In a Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2013, the Corporation disclosed its acceptance of new subscription agreements pursuant to which the Corporation has agreed to sell shares of a new series of mandatorily convertible preferred stock of the Corporation (the “Preferred Stock”) in exchange for approximately $17.1 million in cash from investors, subject to satisfaction of certain closing conditions. As structured, the Preferred Stock will be convertible into shares of the Corporation’s common stock at a rate reflecting a price per share of common stock of $0.70, subject to certain anti-dilution adjustments. The conversion into common stock will take place automatically upon the approval by the Corporation’s shareholders of additional shares of authorized common stock. Until converted into common stock, the Preferred Stock will have terms that will be substantially identical to the terms applicable to the outstanding common stock with respect to dividends, distributions, voting, and other matters. For matters submitted to a vote of the holders of the Corporation’s common stock, including the proposal to authorize additional shares of common stock, the Preferred Stock will vote with the common stock, as a single class, as if the Preferred Stock was already converted into common stock.

The closing of this new private placement offering (“Capital Raise”) is subject to material conditions, including a requirement to obtain the approval of the Federal Reserve and compliance by one or more investors with federal law applicable to the acquisition of "control" of a bank holding company. The satisfaction of these conditions is largely out of the control of the Corporation. If the conditions to the closing of the Capital Raise are not satisfied, the closing will not occur.

The Corporation is hopeful that its ongoing efforts to complete a recapitalization of the Corporation in the near future will be successful.  However, the Corporation cannot give any assurances that it will be successful in closing the Capital Raise or, if it is unable to close the Capital Raise, that it will be successful in completing some other recapitalization of the Corporation on a timely basis, or at all. Therefore, a reader of this Quarterly Report should not make a decision regarding whether to invest in the Corporation based on an assumption that the Capital Raise or some other recapitalization of the Corporation will close. 

Even if the Corporation is successful in closing the Capital Raise, the net proceeds from the Capital Raise are not expected to be sufficient to enable the Bank to meet the minimum capital ratios required by the Consent Order.  In addition, even if the Bank is able to meet the minimum capital ratios following the closing of a recapitalization of the Corporation, it is possible that further losses at the Bank could cause its capital to once again fall below such minimum ratios.  In any event, even if the Corporation closes a recapitalization of sufficient size to bring the Bank into compliance with the minimum capital ratios of the Consent Order, the Corporation currently expects that the Bank will continue to be subject to the Consent Order or some other regulatory enforcement action for some period following the closing of a recapitalization while the Bank works to comply with the provisions of the Consent Order and demonstrate a period of performance with the requirements of the Consent Order.

There can be no assurance that the efforts of the Corporation to raise new capital, management's recovery plan, or related efforts will improve the Bank's financial condition; further deterioration of the Bank's capital position is possible.  The current economic environment in southeast Michigan and local real estate market conditions, while improving, will continue to present challenges to the Bank's financial performance.  Any further declines in the Bank’s capital levels may likely result in more regulatory oversight or enforcement action by either the Office of the Comptroller of the Currency (the “OCC”), as the Bank’s primary regulator, or the Federal Deposit Insurance Corporation (the “FDIC”), which insures the Bank’s deposits. See also the “Capital” section within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10-Q.

XML

Net Income per Common Share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following presents basic and diluted net income per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(dollars in thousands, except per share amounts)
Weighted average  basic and diluted shares outstanding		457,435		457,413		457,435		457,408
Net income (loss) available to common shareholders	$	215	$	(89)	$	2,705	$	(43)
Basic and diluted net income (loss) per share	$	0.47	$	(0.19)	$	5.91	$	(0.09)

XML

Income Taxes

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

10. Income Taxes

In the second quarter of 2013, the Corporation recorded $146,000 of federal income tax expense to increase its deferred tax valuation allowance due to the impact of additional unrealized net loss in the available for sale investment portfolio. Conversely, in the first quarter of 2013, the Corporation recorded $42,000 of federal income tax benefit to reduce its deferred tax valuation allowance related to the impact of additional unrealized gain in the available for sale investment portfolio.

No income tax expense was recognized on the Corporation’s pre-tax income for the three and six months ended June 30, 2013 due to the Corporation’s tax loss carryforward position. For the three and six months ended June 30, 2012, the Corporation recorded a deferred tax valuation allowance on the tax benefit related to the loss recognized during each respective period due to the uncertainty of future taxable income necessary to fully realize the recorded net deferred tax asset.

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Fair Value Measurements (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013		Dec. 31, 2012
Investment securities available for sale, at fair value	$ 77,905		$ 72,586
Impaired Loans [Member]
Investment securities available for sale, at fair value	21,626	[1]	21,272	[1]
Other Real Estate Owned [Member]
Investment securities available for sale, at fair value	2,000		3,427
Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale, at fair value	0		0
Fair Value, Inputs, Level 1 [Member] | Impaired Loans [Member]
Investment securities available for sale, at fair value	0	[1]	0	[1]
Fair Value, Inputs, Level 1 [Member] | Other Real Estate Owned [Member]
Investment securities available for sale, at fair value	0		0
Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale, at fair value	76,147		70,568
Fair Value, Inputs, Level 2 [Member] | Impaired Loans [Member]
Investment securities available for sale, at fair value	0	[1]	0	[1]
Fair Value, Inputs, Level 2 [Member] | Other Real Estate Owned [Member]
Investment securities available for sale, at fair value	0		0
Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale, at fair value	1,758		2,018
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member]
Investment securities available for sale, at fair value	21,626	[1]	21,272	[1]
Fair Value, Inputs, Level 3 [Member] | Other Real Estate Owned [Member]
Investment securities available for sale, at fair value	$ 2,000		$ 3,427

[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.

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Allowance for Loan Losses and Credit Quality of Loans (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
30-59 Days Past Due	$ 1,114	$ 3,502
60-89 Days Past Due	1,033	891
90+ Days Past Due	1,383	3,087
Total Past Due	3,530	7,480
Current	166,018	172,915
Total	169,548	180,395
90+Days Past Due and Accruing	0	201
Commercial [Member]
30-59 Days Past Due	0	136
60-89 Days Past Due	0	6
90+ Days Past Due	41	51
Total Past Due	41	193
Current	12,804	15,919
Total	12,845	16,112
90+Days Past Due and Accruing	0	0
Construction, land development, and other land [Member]
30-59 Days Past Due	119	1,609
60-89 Days Past Due	129	0
90+ Days Past Due	20	30
Total Past Due	268	1,639
Current	6,703	7,102
Total	6,971	8,741
90+Days Past Due and Accruing	0	0
Owner occupied [Member]
30-59 Days Past Due	31	142
60-89 Days Past Due	572	32
90+ Days Past Due	893	1,837
Total Past Due	1,496	2,011
Current	51,108	49,191
Total	52,604	51,202
90+Days Past Due and Accruing	0	0
Nonowner occupied [Member]
30-59 Days Past Due	0	0
60-89 Days Past Due	203	0
90+ Days Past Due	75	558
Total Past Due	278	558
Current	61,722	68,857
Total	62,000	69,415
90+Days Past Due and Accruing	0	0
Commercial purpose [Member]
30-59 Days Past Due	231	133
60-89 Days Past Due	14	0
90+ Days Past Due	178	558
Total Past Due	423	691
Current	6,492	6,220
Total	6,915	6,911
90+Days Past Due and Accruing	0	201
Mortgage - Residential [Member]
30-59 Days Past Due	626	1,109
60-89 Days Past Due	83	753
90+ Days Past Due	97	21
Total Past Due	806	1,883
Current	12,906	12,721
Total	13,712	14,604
90+Days Past Due and Accruing	0	0
Home equity and home equity lines of credit [Member]
30-59 Days Past Due	60	302
60-89 Days Past Due	0	76
90+ Days Past Due	79	0
Total Past Due	139	378
Current	8,539	7,929
Total	8,678	8,307
90+Days Past Due and Accruing	0	0
Consumer and Other [Member]
30-59 Days Past Due	47	71
60-89 Days Past Due	32	24
90+ Days Past Due	0	32
Total Past Due	79	127
Current	5,744	4,976
Total	5,823	5,103
90+Days Past Due and Accruing	$ 0	$ 0

XML

Securities (Details 1) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Carrying value	$ 3,358
Unrealized loss	(70)
Mortgage-backed/CMO [Member]
Par value	2,065	2,387
Book value	1,775	2,097
Carrying value	1,758	2,018
Unrealized loss	$ 17	$ 79
Par value, Percentage	100.00%	100.00%
Book value, Percentage	85.96%	87.82%
Carrying value, Percentage	85.13%	84.51%
Unrealized loss, Percentage	0.82%	3.31%

XML

Securities (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2013		Dec. 31, 2012
Amortized Cost	$ 78,342		$ 72,280
Unrealized Gains	477		490
Unrealized Losses	(914)		(184)
Fair Value	77,905		72,586
Obligations of state and political subdivisions [Member]
Amortized Cost	1,797		1,534
Unrealized Gains	17		46
Unrealized Losses	(2)		0
Fair Value	1,812		1,580
U.S. agency [Member]
Amortized Cost			3,000
Unrealized Gains			7
Unrealized Losses			0
Fair Value			3,007
Mortgage-backed/CMO [Member]
Amortized Cost	76,496		67,697
Unrealized Gains	99		349
Unrealized Losses	(912)		(184)
Fair Value	75,683		67,862
Preferred stock [Member]
Amortized Cost	49	[1]	49	[1]
Unrealized Gains	361		88
Unrealized Losses	0		0
Fair Value	$ 410	[1]	$ 137	[1]

[1] Represents preferred stocks issued by Freddie Mac and Fannie Mae

XML

Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013		Dec. 31, 2012
Investment securities available for sale, at fair value	$ 77,905		$ 72,586
Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale, at fair value	0		0
Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale, at fair value	76,147		70,568
Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale, at fair value	1,758		2,018
Obligations of state and political subdivisions [Member]
Investment securities available for sale, at fair value	1,812		1,580
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale, at fair value	0		0
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale, at fair value	1,812		1,580
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale, at fair value	0		0
U.S. agency [Member]
Investment securities available for sale, at fair value			3,007
U.S. agency [Member] | Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale, at fair value			0
U.S. agency [Member] | Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale, at fair value			3,007
U.S. agency [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale, at fair value			0
Mortgage-backed/CMO [Member]
Investment securities available for sale, at fair value	75,683		67,862
Mortgage-backed/CMO [Member] | Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale, at fair value	0		0
Mortgage-backed/CMO [Member] | Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale, at fair value	73,925		65,844
Mortgage-backed/CMO [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale, at fair value	1,758		2,018
Preferred stock [Member]
Investment securities available for sale, at fair value	410	[1]	137	[1]
Preferred stock [Member] | Fair Value, Inputs, Level 1 [Member]
Investment securities available for sale, at fair value	0		0
Preferred stock [Member] | Fair Value, Inputs, Level 2 [Member]
Investment securities available for sale, at fair value	410		137
Preferred stock [Member] | Fair Value, Inputs, Level 3 [Member]
Investment securities available for sale, at fair value	$ 0		$ 0

[1] Represents preferred stocks issued by Freddie Mac and Fannie Mae

XML

Loans (Details Textual) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Demand Deposit Overdrafts	$ 78,000	$ 116,000
Loans and Leases Receivable, Gross, Other	$ 4,000,000	$ 4,300,000

XML

Allowance for Loan Losses and Credit Quality of Loans (Details 5) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Loans Receivable With Specific Allowance [Member]
Recorded Investment	$ 14,870	$ 14,609
Unpaid Principal Balance	15,946	16,964
Valuation Allowance	1,479	1,671
Loans Receivable With No Specific Allowance [Member]
Recorded Investment	8,235	8,334
Unpaid Principal Balance	13,637	14,134
Valuation Allowance	0	0
Loans Receivable [Member]
Recorded Investment	23,105	22,943
Unpaid Principal Balance	29,583	31,098
Valuation Allowance	1,479	1,671
Commercial [Member] | Loans Receivable With Specific Allowance [Member]
Recorded Investment	381	463
Unpaid Principal Balance	412	543
Valuation Allowance	23	49
Commercial [Member] | Loans Receivable With No Specific Allowance [Member]
Recorded Investment	76	246
Unpaid Principal Balance	543	724
Valuation Allowance	0	0
Commercial [Member] | Loans Receivable [Member]
Recorded Investment	457	710
Unpaid Principal Balance	955	1,267
Valuation Allowance	23	49
Construction, land development, and other land [Member] | Loans Receivable With Specific Allowance [Member]
Recorded Investment	912	1,211
Unpaid Principal Balance	1,069	1,396
Valuation Allowance	186	166
Construction, land development, and other land [Member] | Loans Receivable With No Specific Allowance [Member]
Recorded Investment	2,211	2,391
Unpaid Principal Balance	4,544	4,730
Valuation Allowance	0	0
Construction, land development, and other land [Member] | Loans Receivable [Member]
Recorded Investment	3,123	3,602
Unpaid Principal Balance	5,613	6,126
Valuation Allowance	186	166
Owner occupied [Member] | Loans Receivable With Specific Allowance [Member]
Recorded Investment	4,218	5,473
Unpaid Principal Balance	4,714	6,045
Valuation Allowance	204	498
Owner occupied [Member] | Loans Receivable With No Specific Allowance [Member]
Recorded Investment	2,933	2,084
Unpaid Principal Balance	4,111	3,914
Valuation Allowance	0	0
Owner occupied [Member] | Loans Receivable [Member]
Recorded Investment	7,151	7,557
Unpaid Principal Balance	8,825	9,959
Valuation Allowance	204	498
Nonowner occupied [Member] | Loans Receivable With Specific Allowance [Member]
Recorded Investment	7,590	5,764
Unpaid Principal Balance	7,816	6,962
Valuation Allowance	846	581
Nonowner occupied [Member] | Loans Receivable With No Specific Allowance [Member]
Recorded Investment	2,229	2,930
Unpaid Principal Balance	3,012	3,616
Valuation Allowance	0	0
Nonowner occupied [Member] | Loans Receivable [Member]
Recorded Investment	9,819	8,694
Unpaid Principal Balance	10,828	10,578
Valuation Allowance	846	581
Commercial purpose [Member] | Loans Receivable With Specific Allowance [Member]
Recorded Investment	1,769	1,698
Unpaid Principal Balance	1,935	2,018
Valuation Allowance	220	377
Commercial purpose [Member] | Loans Receivable With No Specific Allowance [Member]
Recorded Investment	786	683
Unpaid Principal Balance	1,427	1,150
Valuation Allowance	0	0
Commercial purpose [Member] | Loans Receivable [Member]
Recorded Investment	2,555	2,380
Unpaid Principal Balance	3,362	3,168
Valuation Allowance	220	377
Mortgage - Residential [Member] | Loans Receivable With Specific Allowance [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	0	0
Mortgage - Residential [Member] | Loans Receivable With No Specific Allowance [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	0	0
Mortgage - Residential [Member] | Loans Receivable [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	0	0
Home equity and home equity lines of credit [Member] | Loans Receivable With Specific Allowance [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	0	0
Home equity and home equity lines of credit [Member] | Loans Receivable With No Specific Allowance [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	0	0
Home equity and home equity lines of credit [Member] | Loans Receivable [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	0	0
Consumer and Other [Member] | Loans Receivable With Specific Allowance [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	0	0
Consumer and Other [Member] | Loans Receivable With No Specific Allowance [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	0	0
Consumer and Other [Member] | Loans Receivable [Member]
Recorded Investment	0	0
Unpaid Principal Balance	0	0
Valuation Allowance	$ 0	$ 0

XML

Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
Financial assets:
Cash and cash equivalents	$ 49,159	$ 42,021	$ 26,709	$ 50,217
Short term investments	197	197
FHLBI and FRB stock	779	779
Loans, net	159,865	168,422
Financial liabilites:
Other borrowings	163	148
Accrued interest expense	2,352	1,672
Reported Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	48,962	41,824
Reported Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets:
Short term investments	197	197
Investment securities	76,147	70,568
FHLBI and FRB stock	779	779
Accured interest income	665	705
Financial liabilites:
Deposits	287,101	287,682
Other borrowings	163	148
Accrued interest expense	87	93
Reported Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets:
Non-agency mortgage-backed security	1,758	2,018
Loans, net	159,865	168,422
Portion at Other than Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	48,962	41,824
Portion at Other than Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets:
Short term investments	197	197
Investment securities	76,147	70,568
FHLBI and FRB stock	779	779
Accured interest income	665	705
Financial liabilites:
Deposits	283,595	287,749
Other borrowings	163	148
Accrued interest expense	87	93
Portion at Other than Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets:
Non-agency mortgage-backed security	1,758	2,018
Loans, net	$ 161,258	$ 169,365

XML

Securities (Details 5) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Amortized Cost, Maturing within one year	$ 0	$ 0
Amortized Cost, Maturing after one year but within five years	764	500
Amortized Cost, Maturing after five years but within ten years	305	3,305
Amortized Cost, Maturing after ten years	777	778
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	1,846	4,583
Amortized Cost	78,342	72,280
Fair Value, Maturing within one year	0	0
Fair Value, Maturing after one year but within five years	762	501
Fair Value, Maturing after five years but within ten years	309	3,323
Fair Value, Maturing after ten years	1,151	900
Available-for-sale Securities, Debt Maturities, without Single Maturity Date, Fair Value	2,222	4,724
Investment securities available for sale, at fair value	77,905	72,586
Mortgage-backed/CMO securities [Member]
Amortized Cost	76,496	67,697
Investment securities available for sale, at fair value	$ 75,683	$ 67,862

XML

Allowance for Loan Losses and Credit Quality of Loans (Details 8) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Numbers	Jun. 30, 2012 Numbers	Jun. 30, 2013 Numbers	Jun. 30, 2012 Numbers
Loan Receivable Modifications Number Of Contracts	1	3	4	7
Loan Receivable Modifications Pre Modification Recorded Investment	$ 105	$ 693	$ 1,974	$ 1,564
Loan Receivable Modifications Post Modification Recorded Investment	105	693	1,974	1,564
Commercial [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Loan Receivable Modifications Post Modification Recorded Investment	0	0	0	0
Construction, land development, and other land [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Loan Receivable Modifications Post Modification Recorded Investment	0	0	0	0
Owner occupied [Member]
Loan Receivable Modifications Number Of Contracts	0	0	1	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	390	0
Loan Receivable Modifications Post Modification Recorded Investment	0	0	390	0
Nonowner occupied [Member]
Loan Receivable Modifications Number Of Contracts	1	1	2	3
Loan Receivable Modifications Pre Modification Recorded Investment	105	262	1,470	873
Loan Receivable Modifications Post Modification Recorded Investment	105	262	1,470	873
Commercial purpose [Member]
Loan Receivable Modifications Number Of Contracts	0	2	1	2
Loan Receivable Modifications Pre Modification Recorded Investment	0	431	114	431
Loan Receivable Modifications Post Modification Recorded Investment	0	431	114	431
Mortgage - Residential [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	1
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	207
Loan Receivable Modifications Post Modification Recorded Investment	0	0	0	207
Home equity and home equity lines of credit [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	1
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	53
Loan Receivable Modifications Post Modification Recorded Investment	0	0	0	53
Consumer and Other [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Loan Receivable Modifications Post Modification Recorded Investment	$ 0	$ 0	$ 0	$ 0

XML

Financial Condition and Management's Plan (Details Textual) (USD $) In Millions, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Convertible Preferred Stock [Member]
Sale Of Stock Consideration Received Per Transaction	$ 17.1
Private Placement [Member]
Preferred Stock Conversion Price Per Share	$ 0.70

XML

Consolidated Statements of Shareholders' Equity (USD $) In Thousands	Total	Common Stock [Member]	Retained Earnings [Member]	Deferred Compensation, Share-based Payments [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balances at Dec. 31, 2011	$ 6,610	$ 7,082	$ (825)	$ 577	$ (224)
Earned portion of long term incentive plan	2	2
Issued shares for deferred directors' fees	0	116		(116)
Net loss	(43)		(43)
Other comprehensive income (loss)	68				68
Balances at Jun. 30, 2012	6,637	7,200	(868)	461	(156)
Balances at Dec. 31, 2012	7,369	7,202	(496)	461	202
Issued shares for deferred directors' fees	0	119		(119)
Net loss	2,705		2,705
Other comprehensive income (loss)	(639)				(639)
Balances at Jun. 30, 2013	$ 9,435	$ 7,321	$ 2,209	$ 342	$ (437)

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net income (loss)	$ 2,705	$ (43)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses	(2,250)	900
Depreciation and amortization	213	258
Deferred income tax expense	104	0
Net amortization on investment securities	627	326
Loss on sale of available for sale securities	0	3
Earned portion of long term incentive plan	0	2
Net (gain) loss on sale/writedown of OREO and repossessions	(46)	19
Decrease in accrued interest income and other assets	439	(12)
Decrease in accrued interest, taxes, and other liabilities	680	109
Net cash provided by operating activities	2,472	1,562
Cash flows from investing activities
Purchases of available for sale securities	(20,684)	(50,733)
Proceeds from the sales of available for sale securities	0	247
Proceeds from maturities and calls of available for sale securities	3,000	6,990
Proceeds from mortgage-backed securities paydowns - available for sale	10,995	4,591
Proceeds from sale of OREO and repossessions	1,559	295
Net decrease in loans	10,721	14,318
Capital expenditures	(359)	(125)
Net cash used in investing activities	5,232	(24,417)
Cash flows from financing activites:
Net decrease in deposits	(581)	(718)
Proceeds from other borrowings	15	65
Net cash used in financing activities	(566)	(653)
Net change in cash and cash equivalents	7,138	(23,508)
Cash and cash equivalents at beginning of year	42,021	50,217
Cash and cash equivalents at end of period	49,159	26,709
Supplemental disclosures:
Interest paid	472	609
Loans transferred to other real estate owned	86	619
Loans charged off	$ 383	$ 2,365

XML

Securities

6 Months Ended

Jun. 30, 2013

Investment Securities [Abstract]

Investment Securities [Text Block]

3. Securities

Securities available for sale consist of the following:

				Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	1,797	$	17	$	(2)	$	1,812
Mortgage-backed/CMO		76,496		99		(912)		75,683
Preferred stock(1)		49		361		-		410
Total available for sale	$	78,342	$	477	$	(914)	$	77,905
December 31, 2012
Obligations of state and political subdivisions	$	1,534	$	46	$	-	$	1,580
U.S. agency		3,000		7		-		3,007
Mortgage-backed/CMO		67,697		349		(184)		67,862
Preferred stock(1)		49		88		-		137
Total available for sale	$	72,280	$	490	$	(184)	$	72,586

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

Securities are reviewed quarterly for possible other-than-temporary impairment (OTTI) based on guidance included in ASC Topic 320, Investments–Debt and Equity Instruments. This guidance requires an entity to assess whether it intends to sell, or whether it is more likely than not that it will be required to sell, a security in an unrealized loss position before the recovery of the security’s amortized cost basis. If either of these criteria is met, the entire difference between the amortized cost and fair value is recognized in earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income.

Management’s review of the securities portfolio for the existence of OTTI considers 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.

At June 30, 2013, the Corporation had two mortgage-backed securities which have been impaired for more than twelve months. At December 31, 2012, there was one non-agency mortgage-backed security which has been impaired for more than twelve months.

A summary of the par value, book value, carrying value (fair value) and unrealized loss for the non-agency mortgage-backed security is presented below:

	June 30, 2013					December 31, 2012
	Amount		% of Par			Amount		% of Par
	(dollars in thousands)
Par value	$	2,065		100.00	%	$	2,387		100.00	%
Book value		1,775		85.96	%		2,097		87.82	%
Carrying value		1,758		85.13	%		2,018		84.51	%
Unrealized loss		17		0.82	%		79		3.31	%

The Corporation makes a quarterly assessment of OTTI on its non-agency mortgage-backed security primarily based on a quarterly cash flow analysis performed by an independent third-party specialist. The evaluation includes a comparison of the present value of the expected cash flows to previous estimates to determine whether adverse changes in cash flows resulted during the period. The analysis considers attributes of the security, such as its super tranche position, and specific loan level collateral underlying the security. Certain key attributes of the underlying loans supporting the security included the following:

	June 30, 2013			December 31, 2012
Weighted average remaining credit score (based on original FICO)		738			738
Primary location of underlying loans:
California		73	%		72	%
Florida		3	%		4	%
Other		24	%		24	%
Delinquency status of underlying loans:
Past due 30-59 days		3.57	%		2.70	%
Past due 60-89 days		1.44	%		2.62	%
Past due 90 days or more		7.57	%		8.03	%
In process of foreclosure		4.62	%		3.58	%
Held as other real estate owned		0.61	%		0.75	%

The specialist calculates an estimate of the fair value of the security's cash flows using an INTEX valuation model, subject to certain assumptions regarding collateral related cash flows such as expected prepayment rates, default rates, loss severity estimates, and discount rates as key valuation inputs. Certain key attributes of the underlying loans supporting the security included the following:

	June 30, 2013			December 31, 2012
Voluntary repayment rate (CRR)		12.50	%		10.14	%
Default rates:
Within next 24 months		7.33	%		6.87	%
Decreasing to (by month 37)		3.88	%		3.15	%
Decreasing to (by month 215)		0.00	%		0.00	%
Loss severity rates:
Initial loss upon default (Year 1)		48.16	%		50.70	%
Per annum decrease in loss rate (Years 2 - 11)		3.00	%		2.50	%
Floor (Year 12)		23.00	%		23.00	%
Discount rate (1):		6.50	%		7.00	%
Remaining credit support provided by other collateral     pools of underlying loans within the security:		0.02	%		0.02	%

⁽¹⁾ Intended to reflect estimated uncertainty and liquidity premiums, after adjustment for estimated credit loss cash flows.

The prepayment assumptions used within the model consider borrowers’ incentive to prepay based on market interest rates and borrowers’ ability to prepay based on underlying assumptions for borrowers’ ability to qualify for a new loan based on their credit and appraised property value, by location. As such, prepayment speeds decrease as credit quality and home prices deteriorate, reflecting a diminished ability to refinance.

In addition, collateral cash flow assumptions utilize a valuation technique under a “Liquidation Scenario” whereby loans are evaluated by delinquency and are assigned probability of default and loss factors deemed appropriate in the current economic environment. The liquidation scenarios assume that all loans 60 or more days past due migrate to default, are liquidated, and losses are realized over a period of between six and twenty four months based in part upon initial loan to value ratios and estimated changes in both historical and future property values since origination as obtained from financial data sources.

At June 30, 2013, based on a present value at a prospective yield of future cash flows for the investment as provided by the specialist and after management’s evaluation of the reasonableness of the specialist's underlying assumptions regarding Level 2 and Level 3 inputs, the Corporation concluded that the security’s expected cash flows continued to support the amortized cost of the security and no additional other-than-temporary impairment had been incurred.

At June 30, 2013 and December 31, 2012, the unrealized (non-credit) loss on the security was determined to be approximately $17,000 and $79,000, respectively, using the valuation methodology and applicable inputs and assumptions described above.

The following is a summary of the gross unrealized losses and fair value of securities by length of time that individual securities have been in a continuous loss position:

	Less than 12 months				12 months or more				Total
	Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	(2)	$	762	$	-	$	-	$	(2)		762
Mortgage-backed/CMO		(842)		58,511		(70)		3,358		(912)		61,869
Total	$	(844)	$	59,273	$	(70)	$	3,358	$	(914)	$	62,631
December 31, 2012
Mortgage-backed/CMO	$	(105)	$	13,448	$	(79)	$	2,018	$	(184)	$	15,466

The amortized cost and fair value of securities available for sale, by contractual maturity, follow. 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, 2013				December 31, 2012
	Amortized Cost		Approximate  Fair Value		Amortized  Cost		Approximate  Fair Value
	(in thousands)
Maturing within one year	$	-	$	-	$	-	$	-
Maturing after one year but within five years		764		762		500		501
Maturing after five years but within ten years		305		309		3,305		3,323
Maturing after ten years		777		1,151		778		900
	$	1,846	$	2,222	$	4,583	$	4,724
Mortgage-backed/CMO securities		76,496		75,683		67,697		67,862
Totals	$	78,342	$	77,905	$	72,280	$	72,586

Proceeds from at-par calls on securities totaled $3.0 million and $7.0 million for the six months ended June 30, 2013 and 2012, respectively.

At June 30, 2013 and December 31, 2012, the Corporation did not own any investment securities issued by states and political subdivisions in which the amortized cost and fair value of such securities individually exceeded 10% of shareholders’ equity.

Investment securities, with an amortized cost of approximately $73.9 million at June 30, 2013 were pledged to secure public deposits and for other purposes required or permitted by law, including approximately $29.9 million of securities pledged as collateral at the Federal Home Loan Bank of Indianapolis (FHLBI) to support potential liquidity needs of the Bank. At December 31, 2012, the amortized cost of pledged investment securities totaled $69.1 million of which $25.4 million of securities was pledged as collateral at the FHLBI for contingent liquidity needs of the Bank.

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 $735,000 at June 30, 2013 and December 31, 2012. The Bank’s investment in FRB stock, which totaled $44,000 at June 30, 2013 and December 31, 2012, 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. 

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Basis of Presentation

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies [Text Block]

1. Basis of Presentation

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, these financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management of FNBH Bancorp, Inc. (the Corporation), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation were included. The results of operations for the three and six month period ended June 30, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013. For further information, refer to the consolidated financial statements and footnotes thereto included in the 2012 Annual Report contained in the Corporation’s report on Form 10-K filing. Certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

The consolidated financial statements included in this Form 10-Q have been prepared assuming our wholly-owned subsidiary bank, First National Bank in Howell (the Bank), continues to operate in the normal course of business for the foreseeable future, and do not include any adjustments to recorded assets or liabilities should we be unable to continue as a going concern.

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Allowance for Loan Losses and Credit Quality of Loans (Details 6) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	$ 23,548		$ 22,012
Interest Income Recognized		30,446		27,766
Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	186		391
Interest Income Recognized		169		236
Commercial Loan [Member] | Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	470		473
Interest Income Recognized		712		728
Commercial Loan [Member] | Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	5		9
Interest Income Recognized		7		13
Construction, land development, and other land [Member] | Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	3,160		3,163
Interest Income Recognized		6,562		6,170
Construction, land development, and other land [Member] | Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	12		32
Interest Income Recognized		16		21
Owner occupied [Member] | Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	7,352		7,341
Interest Income Recognized		8,029		7,171
Owner occupied [Member] | Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	60		140
Interest Income Recognized		63		84
Nonowner occupied [Member] | Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	9,949		8,390
Interest Income Recognized		12,092		10,725
Nonowner occupied [Member] | Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	83		161
Interest Income Recognized		70		103
Commercial purpose [Member] | Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	2,617		2,645
Interest Income Recognized		3,051		2,972
Commercial purpose [Member] | Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	26		49
Interest Income Recognized		13		15
Mortgage - Residential [Member] | Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	0		0
Interest Income Recognized		0		0
Mortgage - Residential [Member] | Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	0		0
Interest Income Recognized		0		0
Home equity and home equity lines of credit [Member] | Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	0		0
Interest Income Recognized		0		0
Home equity and home equity lines of credit [Member] | Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	0		0
Interest Income Recognized		0		0
Consumer and Other [Member] | Average Of Impaired Loans [Member]
Average Outstanding Recorded Investment	0		0
Interest Income Recognized		0		0
Consumer and Other [Member] | Interest Income Recognized Loan [Member]
Average Outstanding Recorded Investment	0		0
Interest Income Recognized		$ 0		$ 0

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Securities (Details 2)	Jun. 30, 2013	Dec. 31, 2012
California [Member]
Primary Location Of Underlying Loans Classification Percentage	73.00%	72.00%
Florida [Member]
Primary Location Of Underlying Loans Classification Percentage	3.00%	4.00%
Other [Member]
Primary Location Of Underlying Loans Classification Percentage	24.00%	24.00%
Mortgage-backed/CMO [Member]
Weighted average remaining credit score (based on original FICO)	738	738
Past due 30-59 days	3.57%	2.70%
Past due 60-89 days	1.44%	2.62%
Past due 90 days or more	7.57%	8.03%
In process of foreclosure	4.62%	3.58%
Held as other real estate owned	0.61%	0.75%

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Securities (Details Textual) (USD $)	6 Months Ended					6 Months Ended	12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jun. 30, 2013 Federal Home Loan Bank Of Indianapolis [Member]	Dec. 31, 2012 Federal Home Loan Bank Of Indianapolis [Member]	Jun. 30, 2013 Mortgage-backed/CMO [Member]	Dec. 31, 2012 Mortgage-backed/CMO [Member]
Proceeds from maturities and calls of available for sale securities	$ 3,000,000	$ 6,990,000
Deposit Liabilities, Collateral Issued, Financial Instruments	73,900,000		69,100,000	29,900,000	25,400,000
Stockholding Percentage	5.00%
Federal Home Loan Bank Stock	735,000		735,000
Federal Reserve Bank Stock	44,000		44,000
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Loss	$ (70,000)					$ 17,000	$ 79,000

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Allowance for Loan Losses and Credit Quality of Loans (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Commercial	$ 12,845	$ 16,112
Construction, land development, and other land	6,971	8,741
Owner occupied	52,604	51,202
Nonowner occupied	62,000	69,415
Commercial purpose	6,915	6,911
Mortgage - Residential	13,712	14,604
Home equity and home equity lines of credit	8,678	8,307
Consumer and Other	5,823	5,103
Total	169,548	180,395
Credit Risk Grade Not Rated [Member]
Commercial	78	391
Construction, land development, and other land	0	0
Owner occupied	37	42
Nonowner occupied	3	0
Commercial purpose	0	0
Mortgage - Residential	10,530	11,232
Home equity and home equity lines of credit	8,121	7,760
Consumer and Other	5,655	4,948
Total	24,424	24,373
Credit Risk Grade I [Member]
Commercial	401	430
Construction, land development, and other land	0	0
Owner occupied	0	0
Nonowner occupied	0	0
Commercial purpose	0	0
Mortgage - Residential	0	0
Home equity and home equity lines of credit	0	0
Consumer and Other	0	0
Total	401	430
Credit Risk Grade II [Member]
Commercial	29	0
Construction, land development, and other land	0	0
Owner occupied	821	0
Nonowner occupied	423	451
Commercial purpose	0	0
Mortgage - Residential	0	0
Home equity and home equity lines of credit	0	0
Consumer and Other	0	0
Total	1,273	451
Credit Risk Grade III [Member]
Commercial	1,676	2,356
Construction, land development, and other land	0	0
Owner occupied	3,071	1,671
Nonowner occupied	1,388	1,404
Commercial purpose	164	297
Mortgage - Residential	0	0
Home equity and home equity lines of credit	0	0
Consumer and Other	0	0
Total	6,299	5,728
Credit Risk Grade IV [Member]
Commercial	5,334	5,881
Construction, land development, and other land	1,292	1,431
Owner occupied	19,280	18,963
Nonowner occupied	20,571	17,057
Commercial purpose	936	948
Mortgage - Residential	0	0
Home equity and home equity lines of credit	0	0
Consumer and Other	5	6
Total	47,418	44,286
Credit Risk Grade V [Member]
Commercial	4,184	5,360
Construction, land development, and other land	3,070	4,006
Owner occupied	21,591	21,619
Nonowner occupied	27,751	30,847
Commercial purpose	3,835	3,594
Mortgage - Residential	12	0
Home equity and home equity lines of credit	72	0
Consumer and Other	51	5
Total	60,566	65,431
Credit Risk Grade VI [Member]
Commercial	899	1,000
Construction, land development, and other land	0	136
Owner occupied	3,409	3,594
Nonowner occupied	6,634	11,307
Commercial purpose	747	758
Mortgage - Residential	0	0
Home equity and home equity lines of credit	0	0
Consumer and Other	0	0
Total	11,689	16,795
Credit Risk Grade VII [Member]
Commercial	244	694
Construction, land development, and other land	2,609	3,168
Owner occupied	4,395	5,313
Nonowner occupied	5,230	8,349
Commercial purpose	1,233	1,314
Mortgage - Residential	3,170	3,372
Home equity and home equity lines of credit	485	547
Consumer and Other	112	144
Total	17,478	22,901
Non Performing Loans [Member]
Commercial	57	264
Construction, land development, and other land	2,286	2,391
Owner occupied	2,878	3,040
Nonowner occupied	2,328	3,632
Commercial purpose	795	1,158
Mortgage - Residential	1,456	2,019
Home equity and home equity lines of credit	426	411
Consumer and Other	112	125
Total	$ 10,338	$ 13,040

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Net Income per Common Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Weighted average basic and diluted shares outstanding (in shares)	457,435	457,413	457,435	457,408
Net income (loss) available to common shareholders	$ 215	$ (89)	$ 2,705	$ (43)
Basic and diluted net income (loss) per share (in dollars per share)	$ 0.47	$ (0.19)	$ 5.91	$ (0.09)

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Allowance for Loan Losses and Credit Quality of Loans (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Pre Modification Recorded Investment Included In Non Market Interest Rate Restructuring		$ 692,000		$ 888,000
Impairment Evaluation Condition			Those loans graded 7 and higher are considered substandard and are individually evaluated for impairment if reported as nonaccrual and are greater than $100,000 or part of an aggregate relationship exceeding $100,000.
Three Loans Recorded Investment	124,000		124,000
Loan Five Recorded Investment		$ 917,000
Pass [Member]
Financing Receivable, Credit Quality, Additional Information			Grades 1 through 5
Watch [Member]
Financing Receivable, Credit Quality, Additional Information			grade 6
Substandard [Member]
Financing Receivable, Credit Quality, Additional Information			graded 7 and higher

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Consolidated Balance Sheets [Parenthetical] (USD $)	Jun. 30, 2013	Dec. 31, 2012
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, authorized	30,000	30,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, authorized	11,000,000	11,000,000
Common stock, issued	455,115	454,327
Common stock, outstanding	455,115	454,327

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Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

6. Fair Value Measurements

ASC Topic 820 defines fair value and establishes a consistent framework for measuring fair value and expands disclosure requirements for fair value measurements. Fair values represent the estimated price that would be received from selling an asset or paid to transfer a liability, otherwise known as an “exit price”. The three levels of inputs that may be used to measure fair value are 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.

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 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 (Level 1). If quoted prices are not available, fair values are measured using independent pricing models such as matrix pricing models (Level 2). Matrix pricing is a mathematical technique widely used in the financial industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. 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. The fair value measurement of our only Level 3 security, a non-investment grade CMO, and details regarding significant inputs and assumptions used in estimating its fair value, is detailed in Note 3, Securities.

Fair value of assets measured on a recurring basis:

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	1,812	$	-	$	1,812	$	-
Mortgage-backed/CMO		75,683		-		73,925		1,758
Preferred stock		410		-		410		-
Total investment securities available for sale	$	77,905	$	-	$	76,147	$	1,758
December 31, 2012
Obligations of state and political subdivisions	$	1,580	$	-	$	1,580	$	-
U.S. agency		3,007		-		3,007		-
Mortgage-backed/CMO		67,862		-		65,844		2,018
Preferred stock		137		-		137		-
Total investment securities available for sale	$	72,586	$	-	$	70,568	$	2,018

The reconciliation of the beginning and ending balances of the asset classified by the Corporation within Level 3 of the valuation hierarchy for the six months ended June 30, 2013 is as follows:

	Fair Value Measurement
	Using Significant
	Unobservable Inputs
	(Level 3)
Fair value of non-agency mortgage-backed security, beginning of year(1)	$	2,018
Total gains (losses) realized/unrealized:
Included in earnings(2)		-
Included in other comprehensive income (2)		62
Purchases, issuances, and other settlements		(322)
Transfers into Level 3		-
Fair value of non-agency mortgage-backed security, June 30, 2013	$	1,758
Total amount of losses for the year included in earnings attributable to the change in unrealized in unrealized losses relating to assets still held at June 30, 2013	$	-

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

⁽²⁾ Realized gains (losses), including unrealized losses deemed other-than-temporary, are reported in noninterest income. Unrealized gains (losses) are reported in accumulated other comprehensive income (loss).

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 non-recurring basis:

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 or deed-in-lieu 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, less cost to sell. A valuation based on a current appraisal or by a broker’s opinion is considered a Level 2 fair value. If management determines the fair value of the property is further impaired below the appraised value and there is no observable market price, the Corporation records the property as nonrecurring Level 3.

Fair value of assets on a non-recurring basis:

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Impaired loans (1)	$	21,626	$	-	$	-	$	21,626
Other real estate owned	$	2,000	$	-	$	-	$	2,000
December 31, 2012
Impaired loans (1)	$	21,272	$	-	$	-	$	21,272
Other real estate owned	$	3,427	$	-	$	-	$	3,427

⁽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.

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Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net income (loss)	$ 215	$ (89)	$ 2,705	$ (43)
Other comprehensive income (loss):
Net change in unrealized gains (losses) on securities available for sale	(721)	107	(639)	71
Less: reclassification adjustment for gain (loss) recognized in earnings	0	(3)	0	(3)
Other comprehensive income (loss)	(721)	104	(639)	68
Comprehensive income (loss)	$ (506)	$ 15	$ 2,066	$ 25

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Assets
Cash and due from banks	$ 48,962	$ 41,824
Short term investments	197	197
Total cash and cash equivalents	49,159	42,021
Investment securities:
Investment securities available for sale, at fair value	77,905	72,586
FHLBI and FRB stock, at cost	779	779
Total investment securities	78,684	73,365
Loans held for investment:
Commercial	141,156	152,152
Consumer	15,383	14,582
Real estate mortgage	12,809	13,457
Total loans held for investment	169,348	180,191
Less allowance for loan losses	(9,483)	(11,769)
Net loans held for investment	159,865	168,422
Premises and equipment, net	7,341	7,211
Other real estate owned, held for sale	2,000	3,427
Accrued interest and other assets	2,002	2,425
Total assets	299,051	296,871
Liabilities and Shareholders' Equity
Demand (non-interest bearing)	92,017	95,779
NOW	30,964	29,501
Savings and money market	82,678	79,566
Time deposits	80,321	81,716
Brokered certificates of deposit	1,121	1,120
Total deposits	287,101	287,682
Other borrowings	163	148
Accrued interest, taxes, and other liabilities	2,352	1,672
Total liabilities	289,616	289,502
Shareholders' Equity
Preferred stock, no par value.Authorized 30,000 shares; no shares issued and outstanding	0	0
Common stock, no par value.Authorized 11,000,000 shares at June 30, 2013 and December 31, 2012; 455,115 shares issued and outstanding at June 30, 2013 and 454,327 shares issued and outstanding at December 31, 2012.	7,321	7,202
Retained earnings (deficit)	2,209	(496)
Deferred directors' compensation	342	461
Accumulated other comprehensive income	(437)	202
Total shareholders' equity	9,435	7,369
Total liabilities and shareholders' equity	$ 299,051	$ 296,871

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Long Term Incentive Plan (Details Textual) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Total Fair Value	$ 1,000	$ 2,000

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Securities (Details 3)	Jun. 30, 2013		Dec. 31, 2012
Voluntary repayment rate (CRR)	12.50%		10.14%
Default rates:
Within next 24 months	7.33%		6.87%
Decreasing to (by month 37)	3.88%		3.15%
Decreasing to (by month 215)	0.00%		0.00%
Loss severity rates:
Initial loss upon default (Year 1)	48.16%		50.70%
Per annum decrease in loss rate (Years 2 - 11)	3.00%		2.50%
Floor (Year 12)	23.00%		23.00%
Discount rate:	6.50%	[1]	7.00%	[1]
Remaining credit support provided by other collateral pools of underlying loans within the security:	0.02%		0.02%

[1] Intended to reflect estimated uncertainty and liquidity premiums, after adjustment for estimated credit loss cash flows.

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Investments, All Other Investments [Abstract]

Fair Value, by Balance Sheet Grouping [Table Text Block]

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. 

	Level in Fair	June 30, 2013				December 31, 2012
	Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)
Financial assets:
Cash and cash equivalents	Level 1	$	48,962	$	48,962	$	41,824	$	41,824
Short term investments	Level 2		197		197		197		197
Investment and mortgage-backed securities	Level 2		76,147		76,147		70,568		70,568
Non-agency mortgage-backed security	Level 3		1,758		1,758		2,018		2,018
FHLBI and FRB stock	Level 2		779		779		779		779
Loans, net	Level 3		159,865		161,258		168,422		169,365
Accrued interest income	Level 2		665		665		705		705
Financial liabilities:
Deposits	Level 2	$	287,101	$	283,595	$	287,682	$	287,749
Other borrowings	Level 2		163		163		148		148
Accrued interest expense	Level 2		87		87		93		93

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Allowance for Loan Losses and Credit Quality of Loans (Details 9) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Numbers	Jun. 30, 2012 Numbers	Jun. 30, 2013 Numbers	Jun. 30, 2012 Numbers
Loan Receivable Modifications Number Of Contracts	1	3	4	7
Loan Receivable Modifications Pre Modification Recorded Investment	$ 105	$ 693	$ 1,974	$ 1,564
Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	3	0	6
Loan Receivable Modifications Pre Modification Recorded Investment	0	693	0	1,096
Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	1	0	3	0
Loan Receivable Modifications Pre Modification Recorded Investment	105	0	1,584	0
Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	1	1
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	390	468
Commercial [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Commercial [Member] | Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Commercial [Member] | Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Commercial [Member] | Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Construction, land development, and other land [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Construction, land development, and other land [Member] | Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Construction, land development, and other land [Member] | Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Construction, land development, and other land [Member] | Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Owner occupied [Member]
Loan Receivable Modifications Number Of Contracts	0	0	1	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	390	0
Owner occupied [Member] | Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Owner occupied [Member] | Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Owner occupied [Member] | Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	1	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	390	0
Nonowner occupied [Member]
Loan Receivable Modifications Number Of Contracts	1	1	2	3
Loan Receivable Modifications Pre Modification Recorded Investment	105	262	1,470	873
Nonowner occupied [Member] | Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	1	0	2
Loan Receivable Modifications Pre Modification Recorded Investment	0	262	0	405
Nonowner occupied [Member] | Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	1	0	2	0
Loan Receivable Modifications Pre Modification Recorded Investment	105	0	1,470	0
Nonowner occupied [Member] | Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	1
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	468
Commercial purpose [Member]
Loan Receivable Modifications Number Of Contracts	0	2	1	2
Loan Receivable Modifications Pre Modification Recorded Investment	0	431	114	431
Commercial purpose [Member] | Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	2	0	2
Loan Receivable Modifications Pre Modification Recorded Investment	0	431	0	431
Commercial purpose [Member] | Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	1	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	114	0
Commercial purpose [Member] | Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Mortgage - Residential [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	1
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	207
Mortgage - Residential [Member] | Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	1
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	207
Mortgage - Residential [Member] | Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Mortgage - Residential [Member] | Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Home equity and home equity lines of credit [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	1
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	53
Home equity and home equity lines of credit [Member] | Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	1
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	53
Home equity and home equity lines of credit [Member] | Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Home equity and home equity lines of credit [Member] | Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Consumer and Other [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Consumer and Other [Member] | Non-Market Interest Rate [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Consumer and Other [Member] | Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	0	0	0	0
Consumer and Other [Member] | Non-Market Interest Rate And Extension Of Amortization Period [Member]
Loan Receivable Modifications Number Of Contracts	0	0	0	0
Loan Receivable Modifications Pre Modification Recorded Investment	$ 0	$ 0	$ 0	$ 0

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Allowance for Loan Losses and Credit Quality of Loans (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Recorded Investment Non Accrual	$ 10,338	$ 12,839
Commercial [Member]
Recorded Investment Non Accrual	57	264
Construction, land development, and other land [Member]
Recorded Investment Non Accrual	2,286	2,391
Owner occupied [Member]
Recorded Investment Non Accrual	2,878	3,040
Nonowner occupied [Member]
Recorded Investment Non Accrual	2,328	3,632
Commercial purpose [Member]
Recorded Investment Non Accrual	795	957
Mortgage - Residential [Member]
Recorded Investment Non Accrual	1,456	2,019
Home equity and home equity lines of credit [Member]
Recorded Investment Non Accrual	426	411
Consumer and Other [Member]
Recorded Investment Non Accrual	$ 112	$ 125

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Allowance for Loan Losses and Credit Quality of Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Allowance for loan losses:
Beginning balance	$ 9,553	$ 12,002	$ 11,769	$ 12,690
Charge offs	(308)	(797)	(383)	(2,365)
Recoveries	238	507	347	937
Provision	0	450	(2,250)	900
Ending balance	9,483	12,162	9,483	12,162
Commercial Portfolio Segment [Member]
Allowance for loan losses:
Beginning balance	892	565	908	636
Charge offs	(164)	(24)	(164)	(241)
Recoveries	38	85	55	113
Provision	4	48	(29)	166
Ending balance	770	674	770	674
Commercial Real Estate Portfolio Segment [Member]
Allowance for loan losses:
Beginning balance	6,866	8,560	8,682	9,113
Charge offs	(63)	(590)	(88)	(1,695)
Recoveries	7	314	12	680
Provision	(7)	1,042	(1,803)	1,228
Ending balance	6,803	9,326	6,803	9,326
Consumer Real Estate Portfolio Segment [Member]
Allowance for loan losses:
Beginning balance	1,647	2,645	2,036	2,680
Charge offs	(56)	(145)	(62)	(362)
Recoveries	156	92	219	103
Provision	(14)	(521)	(460)	(350)
Ending balance	1,733	2,071	1,733	2,071
Consumer and Other Portfolio Segment [Member]
Allowance for loan losses:
Beginning balance	148	232	143	261
Charge offs	(25)	(38)	(69)	(67)
Recoveries	37	16	61	41
Provision	17	(119)	42	(144)
Ending balance	$ 177	$ 91	$ 177	$ 91

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Allowance for Loan Losses and Credit Quality of Loans (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Allowance for loan losses:
Individually evaluated for impairment	$ 1,478		$ 1,671
Collectively evaluated for impairment	8,005		10,098
Total allowance for loan losses	9,483	9,553	11,769	12,162	12,002	12,690
Recorded investment in loans:
Individually evaluated for impairment	23,105		22,943
Collectively evaluated for impairment	146,443		157,452
Total recorded investment in loans	169,548		180,395
Commercial Portfolio Segment [Member]
Allowance for loan losses:
Individually evaluated for impairment	23		49
Collectively evaluated for impairment	747		859
Total allowance for loan losses	770	892	908	674	565	636
Recorded investment in loans:
Individually evaluated for impairment	457		710
Collectively evaluated for impairment	12,388		15,402
Total recorded investment in loans	12,845		16,112
Commercial Real Estate Portfolio Segment [Member]
Allowance for loan losses:
Individually evaluated for impairment	1,236		1,245
Collectively evaluated for impairment	5,567		7,437
Total allowance for loan losses	6,803	6,866	8,682	9,326	8,560	9,113
Recorded investment in loans:
Individually evaluated for impairment	20,093		19,853
Collectively evaluated for impairment	101,482		109,505
Total recorded investment in loans	121,575		129,358
Consumer Real Estate Portfolio Segment [Member]
Allowance for loan losses:
Individually evaluated for impairment	219		377
Collectively evaluated for impairment	1,514		1,659
Total allowance for loan losses	1,733	1,647	2,036	2,071	2,645	2,680
Recorded investment in loans:
Individually evaluated for impairment	2,555		2,380
Collectively evaluated for impairment	26,750		27,442
Total recorded investment in loans	29,305		29,822
Consumer and Other Portfolio Segment [Member]
Allowance for loan losses:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	177		143
Total allowance for loan losses	177	148	143	91	232	261
Recorded investment in loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	5,823		5,103
Total recorded investment in loans	$ 5,823		$ 5,103

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Allowance for Loan Losses and Credit Quality of Loans

6 Months Ended

Jun. 30, 2013

Disclosure Text Block Supplement [Abstract]

Allowance for Credit Losses [Text Block]

5. Allowance for Loan Losses and Credit Quality of Loans

The Corporation separates its loan portfolio into segments to perform the calculation and analysis of the allowance for loan losses. The four segments analyzed are Commercial, Commercial Real Estate, Consumer Real Estate, and Consumer and Other. The Commercial segment includes loans to finance commercial and industrial businesses that are not secured by real estate. The Commercial Real Estate segment includes: i) construction real estate loans to finance construction and land development and/or loans secured by vacant land and ii) commercial real estate loans secured by non-farm, non-residential real estate which are further classified as either owner occupied or non-owner occupied based on the underlying collateral type. The Consumer Real Estate segment includes (commercial and non-commercial purpose) loans that are secured by 1 – 4 family residential real estate properties, including first mortgages on residential properties and home equity loans and lines of credit that are secured by first or second liens on residential properties. The Consumer and Other segment include all loans not included in any other segment. These are primarily loans to consumers for household, family, and other personal expenditures, such as autos, boats, and recreational vehicles.

Activity in the allowance for loan losses by portfolio segment for the three months ended:

	Commercial		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Beginning balance	$	892	$	6,866	$	1,647	$	148	$	9,553
Charge offs		(164)		(63)		(56)		(25)		(308)
Recoveries		38		7		156		37		238
Provision		4		(7)		(14)		17		-
Ending balance	$	770	$	6,803	$	1,733	$	177	$	9,483
June 30, 2012
Allowance for loan losses:
Beginning balance	$	565	$	8,560	$	2,645	$	232	$	12,002
Charge offs		(24)		(590)		(145)		(38)		(797)
Recoveries		85		314		92		16		507
Provision		48		1,042		(521)		(119)		450
Ending balance	$	674	$	9,326	$	2,071	$	91	$	12,162

Activity in the allowance for loan losses by portfolio segment for the six months ended:

	Commercial		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Beginning balance	$	908	$	8,682	$	2,036	$	143	$	11,769
Charge offs		(164)		(88)		(62)		(69)		(383)
Recoveries		55		12		219		61		347
Provision		(29)		(1,803)		(460)		42		(2,250)
Ending balance	$	770	$	6,803	$	1,733	$	177	$	9,483
June 30, 2012
Allowance for loan losses:
Beginning balance	$	636	$	9,113	$	2,680	$	261	$	12,690
Charge offs		(241)		(1,695)		(362)		(67)		(2,365)
Recoveries		113		680		103		41		937
Provision		166		1,228		(350)		(144)		900
Ending balance	$	674	$	9,326	$	2,071	$	91	$	12,162

The following presents the balance in allowance for loan losses and loan balances by portfolio segment based on impairment method:

	Commercial		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Individually evaluated for impairment	$	23	$	1,236	$	219	$	-	$	1,478
Collectively evaluated for impairment		747		5,567		1,514		177		8,005
Total allowance for loan losses	$	770	$	6,803	$	1,733	$	177	$	9,483
Recorded investment in loans:
Individually evaluated for impairment	$	457	$	20,093	$	2,555	$	-	$	23,105
Collectively evaluated for impairment		12,388		101,482		26,750		5,823		146,443
Total recorded investment in loans	$	12,845	$	121,575	$	29,305	$	5,823	$	169,548
December 31, 2012
Allowance for loan losses:
Individually evaluated for impairment	$	49	$	1,245	$	377	$	-	$	1,671
Collectively evaluated for impairment		859		7,437		1,659		143		10,098
Total allowance for loan losses	$	908	$	8,682	$	2,036	$	143	$	11,769
Recorded investment in loans:
Individually evaluated for impairment	$	710	$	19,853	$	2,380	$	-	$	22,943
Collectively evaluated for impairment		15,402		109,505		27,442		5,103		157,452
Total recorded investment in loans	$	16,112	$	129,358	$	29,822	$	5,103	$	180,395

Management’s on-going monitoring of the credit quality of the portfolio relies on an extensive credit risk monitoring process that considers several factors including: current economic conditions affecting the Bank’s customers, the payment performance of individual loans and pools of homogenous loans, portfolio seasoning, changes in collateral values, and detailed reviews of specific relationships.

Our internal loan grading system assigns a risk grade to all commercial loans. This grading system is similar to those employed by banking regulators. Grades 1 through 5 are considered “pass” credits and grade 6 are considered “watch” credits and are subject to greater scrutiny. Those loans graded 7 and higher are considered substandard and are individually evaluated for impairment if reported as nonaccrual and are greater than $100,000 or part of an aggregate relationship exceeding $100,000. All commercial loans are graded at inception and reviewed, and if appropriate, re-graded at various intervals thereafter. Additionally, our commercial loan portfolio and assigned risk grades are periodically subjected to review by external loan reviewers and banking regulators. Certain of the key factors considered in assigning loan grades include: cash flows, operating performance, financial condition, collateral, industry condition, management, and the strength, liquidity and willingness of guarantors’ support.

A description of the general characteristics of each risk grade follows:

· RATING 1 (Satisfactory – Minimal Risk) - Loans in this category are to persons or entities of unquestioned financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin.

· RATING 2 (Satisfactory – Modest Risk) – These loans to persons or entities with strong financial condition and above-average liquidity who have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally-generated cash flow covers current maturities of long-term debt more than adequately.

· RATING 3 (Satisfactory - Average) – These are loans with average cash flow and ratios compared to peers. Usually RMA comparisons show where companies fall in the performance spectrum. Companies have consistent performance for 3 or more years.

· RATING 4 (Satisfactory – Acceptable Risk) – Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in this category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future. Overall, these loans are basically sound.

· RATING 5 (Satisfactory - Acceptable – Monitor) - These loans are characterized by borrowers who have marginal, but adequate cash flow, marginal profitability, but currently have been meeting the obligations of their loan structure. However, adverse changes in the borrower’s circumstances and/ or current economic conditions are more likely to impair their capacity for repayment. The borrower has in the past satisfactorily handled debts with the Bank, but may be experiencing some minor delinquency in making payments, or other signs of temporary cash flow issues. Borrower may be experiencing declining margins or other negative financial trends, despite the borrower’s continued satisfactory condition and positive cash flow. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement, or declining but positive repayment capacity. This classification includes loans to new or established borrowers with satisfactory loan structure, but where near term economic or business issues appears to remain stable and the near term projections would limit the ability for an improvement in the financial trends of the borrower.

· RATING 6 (Special Mention - OAEM) - Loans in this class have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. These potential weaknesses may result in a deterioration of the repayment of the loan and increase the credit risk. Special mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Special mention credits may include a borrower that pays the Bank on a timely basis (occasional 30 day delinquent) and may be experiencing temporary cash flow deficiencies.

· RATING 7 (Substandard) – A substandard loan is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans. Substandard credits may include a borrower that pays consistently past due, has significant cash flow shortages and may have a collateral shortfall that requires a specific reserve.

· RATING 8 (Doubtful) - This risk rating class has all of the weaknesses inherent in the substandard rating but with the added characteristic that the weaknesses make collection in full or liquidation, on the basis of currently known existing facts, condition, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full within a reasonable period of time; in fact, there is permanent impairment in the collateral securing the Bank’s loan. These loans are in a work-out status, must be non-accrual status and have a defined work-out strategy.

This is a transitional risk rating class while collateral value and other factors are assessed. Loans will remain in this class for the assessment period, but in no event for more than 1 year. If there is no improvement in the Bank’s position during that time, a charge-off will be taken to best reflect known asset collateral value. If the loan goes into a “Deeds in Redemption” status before 1 year, any shortfall will be recognized immediately.

The assessment of compensating factors may result in a rating plus or minus one grade from those listed above. These factors include, but are not limited to collateral, guarantors, environmental conditions, history, plan/projection reasonableness, quality of information, and payment delinquency.

The internal loan grading system is applied to the residential real estate portion of our consumer loan portfolio upon certain triggering events (e.g., delinquency, bankruptcy, restructuring, etc.). However, large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment and they are not separately identified for impairment disclosures. The primary risk element for the residential real estate portion of consumer loans is the timeliness of borrowers’ scheduled payments. We rely primarily on our internal reporting system to monitor past due loans and have internal policies and procedures to pursue collection and protect our collateral interests in order to mitigate losses.

Our monitoring of credit quality is further denoted by classification of loans as nonperforming, which reflects loans where the accrual of interest has been discontinued and loans that are past due 90 days or more and still accruing interest. In addition, nonperforming loans include troubled debt restructured loans (as discussed below) that are on nonaccrual status or past due 90 days or more. Troubled debt restructured loans that are accruing interest and not past due 90 days or more are excluded from nonperforming loans.

The following presents the recorded investment in loans by risk grade and a summary of nonperforming loans, by class of loan: 

	Not Rated		1		2		3		4		5		6		7		Total		Nonperforming
	(in thousands)
June 30, 2013
Commercial	$	78	$	401	$	29	$	1,676	$	5,334	$	4,184	$	899	$	244	$	12,845	$	57
Commercial Real Estate:
Construction, land development, and other land		-		-		-		-		1,292		3,070		-		2,609		6,971		2,286
Owner occupied		37		-		821		3,071		19,280		21,591		3,409		4,395		52,604		2,878
Nonowner occupied		3		-		423		1,388		20,571		27,751		6,634		5,230		62,000		2,328
Consumer real estate:
Commercial Purpose		-		-		-		164		936		3,835		747		1,233		6,915		795
Mortgage - Residential		10,530		-		-		-		-		12		-		3,170		13,712		1,456
Home equity and home equity lines of credit		8,121		-		-		-		-		72		-		485		8,678		426
Consumer and Other		5,655		-		-		-		5		51		-		112		5,823		112
Total	$	24,424	$	401	$	1,273	$	6,299	$	47,418	$	60,566	$	11,689	$	17,478	$	169,548	$	10,338
December 31, 2012
Commercial	$	391	$	430	$	-	$	2,356	$	5,881	$	5,360	$	1,000	$	694	$	16,112	$	264
Commercial Real Estate:
Construction, land development, and other land		-		-		-		-		1,431		4,006		136		3,168		8,741		2,391
Owner occupied		42		-		-		1,671		18,963		21,619		3,594		5,313		51,202		3,040
Nonowner occupied		-		-		451		1,404		17,057		30,847		11,307		8,349		69,415		3,632
Consumer real estate:
Commercial Purpose		-		-		-		297		948		3,594		758		1,314		6,911		1,158
Mortgage - Residential		11,232		-		-		-		-		-		-		3,372		14,604		2,019
Home equity and home equity lines of credit		7,760		-		-		-		-		-		-		547		8,307		411
Consumer and Other		4,948		-		-		-		6		5		-		144		5,103		125
Total	$	24,373	$	430	$	451	$	5,728	$	44,286	$	65,431	$	16,795	$	22,901	$	180,395	$	13,040

Loans are considered past due when contractually required principal or interest has not been received. The amount classified as past due is the entire principal balance outstanding of the loan, not just the amount of payments that are past due.

An aging analysis of the recorded investment in past due loans, segregated by class of loans follows:

													90+ Days
	Loans Past Due												Past Due
	30-59 Days		60-89 Days		90+ Days		Total		Current		Total		and Accruing
	(in thousands)
June 30, 2013
Commercial	$	-	$	-	$	41	$	41	$	12,804	$	12,845	$	-
Commercial real estate:
Construction, land development, and other land		119		129		20		268		6,703		6,971		-
Owner occupied		31		572		893		1,496		51,108		52,604		-
Nonowner occupied		-		203		75		278		61,722		62,000		-
Consumer real estate:
Commercial purpose		231		14		178		423		6,492		6,915		-
Mortgage - Residential		626		83		97		806		12,906		13,712		-
Home equity and home equity lines of credit		60		-		79		139		8,539		8,678		-
Consumer and Other		47		32		-		79		5,744		5,823		-
Total	$	1,114	$	1,033	$	1,383	$	3,530	$	166,018	$	169,548	$	-
December 31, 2012
Commercial	$	136	$	6	$	51	$	193	$	15,919	$	16,112	$	-
Commercial real estate:
Construction, land development, and other land		1,609		-		30		1,639		7,102		8,741		-
Owner occupied		142		32		1,837		2,011		49,191		51,202		-
Nonowner occupied		-		-		558		558		68,857		69,415		-
Consumer real estate:
Commercial purpose		133		-		558		691		6,220		6,911		201
Mortgage - Residential		1,109		753		21		1,883		12,721		14,604		-
Home equity and home equity lines of credit		302		76		-		378		7,929		8,307		-
Consumer and Other		71		24		32		127		4,976		5,103		-
Total	$	3,502	$	891	$	3,087	$	7,480	$	172,915	$	180,395	$	201

Loans are placed on nonaccrual when, in the opinion of management, the collection of additional interest is doubtful. Loans are generally placed on nonaccrual upon becoming ninety days past due. However, loans may be placed on nonaccrual regardless of whether or not they are past due. All cash received on nonaccrual loans is applied to the principal balance. Loans are considered for return to accrual status on an individual basis when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following is a summary of the recorded investment in nonaccrual loans, by class of loan:

	June 30, 2013		December 31, 2012
	(in thousands)
Commercial	$	57	$	264
Commercial real estate:
Construction, land development, and other land		2,286		2,391
Owner occupied		2,878		3,040
Nonowner occupied		2,328		3,632
Consumer real estate:
Commercial purpose		795		957
Mortgage - Residential		1,456		2,019
Home equity and home equity lines of credit		426		411
Consumer and Other		112		125
Total	$	10,338	$	12,839

The following presents information pertaining to impaired loans and related valuation allowance allocations by class of loan:

	June 30, 2013						December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Valuation Allowance		Recorded Investment		Unpaid Principal Balance		Valuation Allowance
	(in thousands)
With an allowance recorded:
Commercial	$	381	$	412	$	23	$	463	$	543	$	49
Commercial real estate:
Construction, land development, and other land		912		1,069		186		1,211		1,396		166
Owner occupied		4,218		4,714		204		5,473		6,045		498
Nonowner occupied		7,590		7,816		846		5,764		6,962		581
Consumer real estate:
Commercial purpose		1,769		1,935		220		1,698		2,018		377
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		14,870		15,946		1,479		14,609		16,964		1,671
With no related allowance recorded:
Commercial		76		543		-		246		724		-
Commercial real estate:
Construction, land development, and other land		2,211		4,544		-		2,391		4,730		-
Owner occupied		2,933		4,111		-		2,084		3,914		-
Nonowner occupied		2,229		3,012		-		2,930		3,616		-
Consumer real estate:
Commercial purpose		786		1,427		-		683		1,150		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		8,235		13,637		-		8,334		14,134		-
Total:
Commercial		457		955		23		710		1,267		49
Commercial real estate:
Construction, land development, and other land		3,123		5,613		186		3,602		6,126		166
Owner occupied		7,151		8,825		204		7,557		9,959		498
Nonowner occupied		9,819		10,828		846		8,694		10,578		581
Consumer real estate:
Commercial purpose		2,555		3,362		220		2,380		3,168		377
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total Impaired Loans	$	23,105	$	29,583	$	1,479	$	22,943	$	31,098	$	1,671

The following presents information pertaining to the recorded investment in impaired loans for the three and six  months ended as follows: 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2013		2012		2013		2012
				(in thousands)
Average of impaired loans during the period
Commercial	$	470	$	712	$	473	$	728
Commercial real estate:
Construction, land development, and other land		3,160		6,562		3,163		6,170
Owner occupied		7,352		8,029		7,341		7,171
Nonowner occupied		9,949		12,092		8,390		10,725
Consumer real estate:
Commercial purpose		2,617		3,051		2,645		2,972
Mortgage - Residential		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-
Consumer and Other		-		-		-		-
Total	$	23,548	$	30,446	$	22,012	$	27,766
Interest income recognized during impairment
Commercial	$	5	$	7	$	9	$	13
Commercial real estate:
Construction, land development, and other land		12		16		32		21
Owner occupied		60		63		140		84
Nonowner occupied		83		70		161		103
Consumer real estate:
Commercial purpose		26		13		49		15
Mortgage - Residential		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-
Consumer and Other		-		-		-		-
Total	$	186	$	169	$	391	$	236

For loans where impairment is measured based on the present value of expected future cash flows, subsequent changes in present value and related allowance adjustments resulting from the passage of time are accounted within the provision for loan losses rather than interest income.

Troubled Debt Restructurings

The Corporation may agree to modify the terms of a loan to improve its ability to collect amounts due. The modified terms are intended to enable customers to mitigate the risk of foreclosure by creating a payment structure that provides for continued loan payment requirements based on their current cash flow ability. Modifications, including renewals, where concessions are made by the Bank and result from the debtor’s financial difficulties are considered troubled debt restructurings (TDRs).

Loan modifications are considered TDRs when the modification includes terms outside of normal lending practices (i.e., concessions) to a borrower who is experiencing financial difficulties.

Typical concessions granted include, but are not limited to:

1. Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics

2. Extending the amortization period beyond typical lending guidelines for debt with similar risk characteristics

3. Forbearance of principal

4. Forbearance of accrued interest

To determine if a borrower is experiencing financial difficulties, the Corporation considers if:

1. The borrower is currently in default on any other of their debt

2. It is likely that the borrower would default on any of their debt if the concession was not granted

3. The borrower’s cash flow was sufficient to service all of their debt if the concession was not granted

4. The borrower has declared, or is in the process of declaring bankruptcy

5. The borrower is a going concern (if the entity is a business)

The following summarizes troubled debt restructurings:

	June 30, 2013						December 31, 2012
	Outstanding Recorded Investment						Outstanding Recorded Investment
	Accruing		Nonaccrual		Total		Accruing		Nonaccrual		Total
	(in thousands)
Commercial	$	374	$	57	$	431	$	446	$	264	$	710
Commercial real estate:
Construction, land development, and other land		837		2,136		2,973		1,211		2,271		3,482
Owner occupied		4,950		2,487		6,582		4,335		2,029		6,364
Nonowner occupied		7,491		2,253		9,744		5,063		3,447		8,510
Consumer real estate:
Commercial purpose		1,760		664		2,424		1,424		596		2,020
Mortgage - Residential		1,109		800		1,909		738		1,232		1,970
Home equity and home equity lines of credit		60		267		327		62		284		346
Consumer and Other		7		86		93		9		96		105
Total	$	16,588	$	8,750	$	24,483	$	13,288	$	10,219	$	23,507

Troubled debt restructured loans may qualify for return to accrual status if the borrower complies with the revised terms and conditions and has demonstrated sustained payment performance consistent with the modified terms for a minimum of six consecutive payment cycles after the restructuring date. In addition, the collection of future payments must be reasonably assured.

The following presents information regarding existing loans that were restructured, resulting in the loan being classified as a troubled debt restructuring:

	Loans Restructured in the Three Months						Loans Restructured in the Six Months
	Ended June 30, 2013						Ended June 30, 2013
			Pre- Modification		Post-Modification				Pre- Modification		Post-Modification
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of Loans		Investment		Investment		of Loans		Investment		Investment
	(dollars in thousands)
Commercial		-	$	-	$	-		-	$	-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		1		390		390
Nonowner occupied		1		105		105		2		1,470		1,470
Consumer real estate:
Commercial purpose		-		-		-		1		114		114
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		1	$	105	$	105		4	$	1,974	$	1,974

During the three and six months ended June 30, 2013, the Corporation had three TDR loans with a recorded investment of $124,000 that defaulted within 12 months of restructuring. A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

	Loans Restructured in the Three Months						Loans Restructured in the Six Months
	Ended June 30, 2012						Ended June 30, 2012
			Pre- Modification		Post-Modification				Pre- Modification		Post-Modification
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of Loans		Investment		Investment		of Loans		Investment		Investment
	(dollars in thousands)
Commercial		-	$	-	$	-		-	$	-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		1		262		262		3		873		873
Consumer real estate:
Commercial purpose		2		431		431		2		431		431
Mortgage - Residential		-		-		-		1		207		207
Home equity and home equity lines of credit		-		-		-		1		53		53
Consumer and Other		-		-		-		-		-		-
Total		3	$	693	$	693		7	$	1,564	$	1,564

During the three and six months ended June 30, 2012, the Corporation had five TDR loans with a recorded investment of $917,000 that defaulted within 12 months of restructuring. A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

The following summarizes the nature of concessions granted by the Corporation to borrowers experiencing financial difficulties which resulted in troubled debt restructurings:

									Non-Market Interest Rate
					Extension of				and Extension of
	Non-Market Interest Rate				Amortization Period				Amortization Period
			Pre-Modification				Pre-Modification				Pre-Modification
	Number		Recorded		Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment		of Loans		Investment
	(dollars in thousands)
Three months ended June 30, 2013
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		-		-		1		105		-		-
Consumer real estate:
Commercial purpose		-		-		-		-		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		-	$	-		1	$	105		-	$	-
Six months ended June 30, 2013
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		1		390
Nonowner occupied		-		-		2		1,470		-		-
Consumer real estate:
Commercial purpose		-		-		1		114		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		-	$	-		3	$	1,584		1	$	390

During the three and six months ended June 30, 2013, there were no non-market interest rate restructurings of substandard performing loans that were renewed at their existing contractual rates or non-market rates. Renewals of substandard performing loans at non-market interest rates are considered troubled debt restructurings.

									Non-Market Interest Rate
					Extension of				and Extension of
	Non-Market Interest Rate				Amortization Period				Amortization Period
			Pre-Modification				Pre-Modification				Pre-Modification
	Number		Recorded		Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment		of Loans		Investment
	(dollars in thousands)
Three months ended June 30, 2012
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		1		262		-		-		-		-
Consumer real estate:
Commercial purpose		2		431		-		-		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		3	$	693		-	$	-		-	$	-
Six months ended June 30, 2012
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		2		405		-		-		1		468
Consumer real estate:
Commercial purpose		2		431		-		-		-		-
Mortgage - Residential		1		207		-		-		-		-
Home equity and home equity lines of credit		1		53		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		6	$	1,096		-	$	-		1	$	468

During the three and six months ended June 30, 2012, non-market interest rate restructurings included pre-modification recorded investments of $692,000 and $888,000, respectively, related to performing loans that were renewed at either their existing contractual rates or non-market interest rates.

Because these performing loans were graded substandard and the modified rates were not market rates for similar loans, these renewals are considered troubled debt restructurings.

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Securities (Details 4) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Unrealized losses, Less than 12 months	$ (844)
Fair Value, Less than 12 months	59,273
Unrealized losses, 12 months or more	(70)
Fair Value, 12 months or more	3,358
Unrealized losses, Total	(914)
Fair Value, Total	62,631
Mortgage-backed/CMO [Member]
Unrealized losses, Less than 12 months	(842)	(105)
Fair Value, Less than 12 months	58,511	13,448
Unrealized losses, 12 months or more	17	79
Fair Value, 12 months or more	1,758	2,018
Unrealized losses, Total	(912)	(184)
Fair Value, Total	61,869	15,466
Obligations Of State and Political Subdivisions [Member]
Unrealized losses, Less than 12 months	(2)
Fair Value, Less than 12 months	762
Unrealized losses, 12 months or more	0
Fair Value, 12 months or more	0
Unrealized losses, Total	(2)
Fair Value, Total	$ 762

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Allowance for Loan Losses and Credit Quality of Loans (Details 7) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Outstanding Recorded Investment, Accruing	$ 16,588	$ 13,288
Outstanding Recorded Investment Nonaccrual	8,750	10,219
Outstanding Recorded Investment, Total	24,483	23,507
Commercial [Member]
Outstanding Recorded Investment, Accruing	374	446
Outstanding Recorded Investment Nonaccrual	57	264
Outstanding Recorded Investment, Total	431	710
Construction, land development, and other land [Member]
Outstanding Recorded Investment, Accruing	837	1,211
Outstanding Recorded Investment Nonaccrual	2,136	2,271
Outstanding Recorded Investment, Total	2,973	3,482
Owner occupied [Member]
Outstanding Recorded Investment, Accruing	4,950	4,335
Outstanding Recorded Investment Nonaccrual	2,487	2,029
Outstanding Recorded Investment, Total	6,582	6,364
Nonowner occupied [Member]
Outstanding Recorded Investment, Accruing	7,491	5,063
Outstanding Recorded Investment Nonaccrual	2,253	3,447
Outstanding Recorded Investment, Total	9,744	8,510
Commercial purpose [Member]
Outstanding Recorded Investment, Accruing	1,760	1,424
Outstanding Recorded Investment Nonaccrual	664	596
Outstanding Recorded Investment, Total	2,424	2,020
Mortgage - Residential [Member]
Outstanding Recorded Investment, Accruing	1,109	738
Outstanding Recorded Investment Nonaccrual	800	1,232
Outstanding Recorded Investment, Total	1,909	1,970
Home equity and home equity lines of credit [Member]
Outstanding Recorded Investment, Accruing	60	62
Outstanding Recorded Investment Nonaccrual	267	284
Outstanding Recorded Investment, Total	327	346
Consumer and Other [Member]
Outstanding Recorded Investment, Accruing	7	9
Outstanding Recorded Investment Nonaccrual	86	96
Outstanding Recorded Investment, Total	$ 93	$ 105

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Net Income per Common Share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

8. Net Income per Common Share

Basic earnings per common 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. On January 1, 2009, the Corporation adopted new guidance impacting ASC Topic 260, Earnings Per Share, related to determining whether instruments granted in a share-based payment transaction are participating securities. This guidance 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 (see Note 9) is considered a participating security. As of December 31, 2012, all restricted shares granted under the LTIP had vested. 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, 2012 the unvested restricted shares are not included in determining both basic and diluted earnings per share for the respective periods. The following presents basic and diluted net income per share:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(dollars in thousands, except per share amounts)
Weighted average  basic and diluted shares outstanding		457,435		457,413		457,435		457,408
Net income (loss) available to common shareholders	$	215	$	(89)	$	2,705	$	(43)
Basic and diluted net income (loss) per share	$	0.47	$	(0.19)	$	5.91	$	(0.09)

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Loans

6 Months Ended

Jun. 30, 2013

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

4. Loans

The recorded investment in portfolio loans consists of the following:

	June 30, 2012		December 31, 2012
	(in thousands)
Commercial	$	12,845	$	16,112
Commercial real estate:
Construction, land development, and other land		6,971		8,741
Owner occupied		52,604		51,202
Nonowner occupied		62,000		69,415
Consumer real estate:
Commercial purpose		6,915		6,911
Mortgage - Residential		13,712		14,604
Home equity and home equity lines of credit		8,678		8,307
Consumer and Other		5,823		5,103
Subtotal		169,548		180,395
Unearned income		(200)		(204)
Total Loans	$	169,348	$	180,191

Included in the consumer real estate loans above are residential first mortgages reported as “real estate mortgages” on the consolidated balance sheets. In addition, a portion of these consumer real estate loans include commercial purpose loans where the borrower has pledged a 1-4 family residential property as collateral. Loans also include the reclassification of demand deposit overdrafts, which amounted to $78,000 at June 30, 2013 and $116,000 at December 31, 2012, respectively.

Loans serviced for others, including commercial participations sold, are not reported as assets of the Bank and approximated $4.0 million at June 30, 2012 and $4.3 million at December 31, 2012.

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Consolidated Statements of Shareholders' Equity [Parenthetical] In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Issued shares for deferred directors' fees (in shares)	788	774

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Income Taxes (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Income Tax Expense (Benefit)	$ 146	$ 0	$ 104	$ 0

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Fair Value Measurements (Details 1) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Fair value of non-agency mortgage-backed security, beginning of year	$ 2,018	[1]
Total gains (losses) realized/unrealized:
Included in earnings	0	[2]
Included in other comprehensive income	62	[2]
Purchases, issuances, and other settlements	(322)
Transfers into Level 3	0
Fair value of non-agency mortgage-backed security, end of year	1,758
Total amount of losses for the year included in earnings attributable to the change in unrealized in unrealized losses relating to assets still held at end of year	$ 0

[1] Non-agency CMO classified as available for sale is valued using internal valuation models and pricing information from third parties

[2] Realized gains (losses), including unrealized losses deemed other-than-temporary, are reported in noninterest income. Unrealized gains (losses) are reported in accumulated other comprehensive income (loss).

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Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Commercial	$ 12,845	$ 16,112
Commercial real estate:
Construction, land development, and other land	6,971	8,741
Owner occupied	52,604	51,202
Nonowner occupied	62,000	69,415
Consumer real estate:
Commercial purpose	6,915	6,911
Mortgage - Residential	13,712	14,604
Home equity and home equity lines of credit	8,678	8,307
Consumer and Other	5,823	5,103
Subtotal	169,548	180,395
Unearned income	(200)	(204)
Total loans held for investment	$ 169,348	$ 180,191

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Securities (Tables)

6 Months Ended

Jun. 30, 2013

Investment Securities [Abstract]

Available-for-sale Securities [Table Text Block]

Securities available for sale consist of the following:

				Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	1,797	$	17	$	(2)	$	1,812
Mortgage-backed/CMO		76,496		99		(912)		75,683
Preferred stock(1)		49		361		-		410
Total available for sale	$	78,342	$	477	$	(914)	$	77,905
December 31, 2012
Obligations of state and political subdivisions	$	1,534	$	46	$	-	$	1,580
U.S. agency		3,000		7		-		3,007
Mortgage-backed/CMO		67,697		349		(184)		67,862
Preferred stock(1)		49		88		-		137
Total available for sale	$	72,280	$	490	$	(184)	$	72,586

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

Schedule Of Securities Par value Book Value Carrying Value and Unrealized Losses [Table Text Block]

A summary of the par value, book value, carrying value (fair value) and unrealized loss for the non-agency mortgage-backed security is presented below:

	June 30, 2013					December 31, 2012
	Amount		% of Par			Amount		% of Par
	(dollars in thousands)
Par value	$	2,065		100.00	%	$	2,387		100.00	%
Book value		1,775		85.96	%		2,097		87.82	%
Carrying value		1,758		85.13	%		2,018		84.51	%
Unrealized loss		17		0.82	%		79		3.31	%

Schedule Of Financing Receivable Key Attributes [Table Text Block]

Certain key attributes of the underlying loans supporting the security included the following:

	June 30, 2013			December 31, 2012
Weighted average remaining credit score (based on original FICO)		738			738
Primary location of underlying loans:
California		73	%		72	%
Florida		3	%		4	%
Other		24	%		24	%
Delinquency status of underlying loans:
Past due 30-59 days		3.57	%		2.70	%
Past due 60-89 days		1.44	%		2.62	%
Past due 90 days or more		7.57	%		8.03	%
In process of foreclosure		4.62	%		3.58	%
Held as other real estate owned		0.61	%		0.75	%

Key Assumptions Used To Estimate Fair Value Of Security [Table Text Block]

Certain key attributes of the underlying loans supporting the security included the following:

	June 30, 2013			December 31, 2012
Voluntary repayment rate (CRR)		12.50	%		10.14	%
Default rates:
Within next 24 months		7.33	%		6.87	%
Decreasing to (by month 37)		3.88	%		3.15	%
Decreasing to (by month 215)		0.00	%		0.00	%
Loss severity rates:
Initial loss upon default (Year 1)		48.16	%		50.70	%
Per annum decrease in loss rate (Years 2 - 11)		3.00	%		2.50	%
Floor (Year 12)		23.00	%		23.00	%
Discount rate (1):		6.50	%		7.00	%
Remaining credit support provided by other collateral     pools of underlying loans within the security:		0.02	%		0.02	%

⁽¹⁾ Intended to reflect estimated uncertainty and liquidity premiums, after adjustment for estimated credit loss cash flows.

Schedule Of Available For Sale Securities Amortized Cost Basis Over Fair Value Of Securities [Table Text Block]

The following is a summary of the gross unrealized losses and fair value of securities by length of time that individual securities have been in a continuous loss position:

	Less than 12 months				12 months or more				Total
	Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	(2)	$	762	$	-	$	-	$	(2)		762
Mortgage-backed/CMO		(842)		58,511		(70)		3,358		(912)		61,869
Total	$	(844)	$	59,273	$	(70)	$	3,358	$	(914)	$	62,631
December 31, 2012
Mortgage-backed/CMO	$	(105)	$	13,448	$	(79)	$	2,018	$	(184)	$	15,466

Schedule Of Amortized Cost and Approximate Fair Value Of Investment Securities By Contractual Maturity [Table Text Block]

The amortized cost and fair value of securities available for sale, by contractual maturity, follow. 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, 2013				December 31, 2012
	Amortized Cost		Approximate  Fair Value		Amortized  Cost		Approximate  Fair Value
	(in thousands)
Maturing within one year	$	-	$	-	$	-	$	-
Maturing after one year but within five years		764		762		500		501
Maturing after five years but within ten years		305		309		3,305		3,323
Maturing after ten years		777		1,151		778		900
	$	1,846	$	2,222	$	4,583	$	4,724
Mortgage-backed/CMO securities		76,496		75,683		67,697		67,862
Totals	$	78,342	$	77,905	$	72,280	$	72,586

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2013

Investments, All Other Investments [Abstract]

Financial Instruments Disclosure [Text Block]

7. Fair Value of Financial Instruments 

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.

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 carrying amount of other borrowings is a reasonable estimate of fair value.

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. 

	Level in Fair	June 30, 2013				December 31, 2012
	Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)
Financial assets:
Cash and cash equivalents	Level 1	$	48,962	$	48,962	$	41,824	$	41,824
Short term investments	Level 2		197		197		197		197
Investment and mortgage-backed securities	Level 2		76,147		76,147		70,568		70,568
Non-agency mortgage-backed security	Level 3		1,758		1,758		2,018		2,018
FHLBI and FRB stock	Level 2		779		779		779		779
Loans, net	Level 3		159,865		161,258		168,422		169,365
Accrued interest income	Level 2		665		665		705		705
Financial liabilities:
Deposits	Level 2	$	287,101	$	283,595	$	287,682	$	287,749
Other borrowings	Level 2		163		163		148		148
Accrued interest expense	Level 2		87		87		93		93

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.

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

Fair value of assets measured on a recurring basis:

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Obligations of state and political subdivisions	$	1,812	$	-	$	1,812	$	-
Mortgage-backed/CMO		75,683		-		73,925		1,758
Preferred stock		410		-		410		-
Total investment securities available for sale	$	77,905	$	-	$	76,147	$	1,758
December 31, 2012
Obligations of state and political subdivisions	$	1,580	$	-	$	1,580	$	-
U.S. agency		3,007		-		3,007		-
Mortgage-backed/CMO		67,862		-		65,844		2,018
Preferred stock		137		-		137		-
Total investment securities available for sale	$	72,586	$	-	$	70,568	$	2,018

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

The reconciliation of the beginning and ending balances of the asset classified by the Corporation within Level 3 of the valuation hierarchy for the six months ended June 30, 2013 is as follows:

	Fair Value Measurement
	Using Significant
	Unobservable Inputs
	(Level 3)
Fair value of non-agency mortgage-backed security, beginning of year(1)	$	2,018
Total gains (losses) realized/unrealized:
Included in earnings(2)		-
Included in other comprehensive income (2)		62
Purchases, issuances, and other settlements		(322)
Transfers into Level 3		-
Fair value of non-agency mortgage-backed security, June 30, 2013	$	1,758
Total amount of losses for the year included in earnings attributable to the change in unrealized in unrealized losses relating to assets still held at June 30, 2013	$	-

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

⁽²⁾ Realized gains (losses), including unrealized losses deemed other-than-temporary, are reported in noninterest income. Unrealized gains (losses) are reported in accumulated other comprehensive income (loss).

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Table Text Block]

Fair value of assets on a non-recurring basis:

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Impaired loans (1)	$	21,626	$	-	$	-	$	21,626
Other real estate owned	$	2,000	$	-	$	-	$	2,000
December 31, 2012
Impaired loans (1)	$	21,272	$	-	$	-	$	21,272
Other real estate owned	$	3,427	$	-	$	-	$	3,427

⁽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.

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Loans (Tables)

6 Months Ended

Jun. 30, 2013

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

The recorded investment in portfolio loans consists of the following:

	June 30, 2012		December 31, 2012
	(in thousands)
Commercial	$	12,845	$	16,112
Commercial real estate:
Construction, land development, and other land		6,971		8,741
Owner occupied		52,604		51,202
Nonowner occupied		62,000		69,415
Consumer real estate:
Commercial purpose		6,915		6,911
Mortgage - Residential		13,712		14,604
Home equity and home equity lines of credit		8,678		8,307
Consumer and Other		5,823		5,103
Subtotal		169,548		180,395
Unearned income		(200)		(204)
Total Loans	$	169,348	$	180,191

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Document And Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 14, 2013
Document Information [Line Items]
Entity Registrant Name	FNBH BANCORP INC
Entity Central Index Key	0000943119
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	FNHM
Entity Common Stock, Shares Outstanding		455,115
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2013

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Allowance for Loan Losses and Credit Quality of Loans (Tables)

6 Months Ended

Jun. 30, 2013

Receivables [Abstract]

Allowance For Loan Losses and Credit Quality Of Loans [Table Text Block]

Activity in the allowance for loan losses by portfolio segment for the three months ended:

	Commercial		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Beginning balance	$	892	$	6,866	$	1,647	$	148	$	9,553
Charge offs		(164)		(63)		(56)		(25)		(308)
Recoveries		38		7		156		37		238
Provision		4		(7)		(14)		17		-
Ending balance	$	770	$	6,803	$	1,733	$	177	$	9,483
June 30, 2012
Allowance for loan losses:
Beginning balance	$	565	$	8,560	$	2,645	$	232	$	12,002
Charge offs		(24)		(590)		(145)		(38)		(797)
Recoveries		85		314		92		16		507
Provision		48		1,042		(521)		(119)		450
Ending balance	$	674	$	9,326	$	2,071	$	91	$	12,162

Activity in the allowance for loan losses by portfolio segment for the six months ended:

	Commercial		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Beginning balance	$	908	$	8,682	$	2,036	$	143	$	11,769
Charge offs		(164)		(88)		(62)		(69)		(383)
Recoveries		55		12		219		61		347
Provision		(29)		(1,803)		(460)		42		(2,250)
Ending balance	$	770	$	6,803	$	1,733	$	177	$	9,483
June 30, 2012
Allowance for loan losses:
Beginning balance	$	636	$	9,113	$	2,680	$	261	$	12,690
Charge offs		(241)		(1,695)		(362)		(67)		(2,365)
Recoveries		113		680		103		41		937
Provision		166		1,228		(350)		(144)		900
Ending balance	$	674	$	9,326	$	2,071	$	91	$	12,162

Schedule Of Allowance For Loan Losses and Loan Balances By Portfolio Segment Based On Impairment [Table Text Block]

The following presents the balance in allowance for loan losses and loan balances by portfolio segment based on impairment method:

	Commercial		Commercial Real Estate		Consumer Real Estate		Consumer and Other		Total
	(in thousands)
June 30, 2013
Allowance for loan losses:
Individually evaluated for impairment	$	23	$	1,236	$	219	$	-	$	1,478
Collectively evaluated for impairment		747		5,567		1,514		177		8,005
Total allowance for loan losses	$	770	$	6,803	$	1,733	$	177	$	9,483
Recorded investment in loans:
Individually evaluated for impairment	$	457	$	20,093	$	2,555	$	-	$	23,105
Collectively evaluated for impairment		12,388		101,482		26,750		5,823		146,443
Total recorded investment in loans	$	12,845	$	121,575	$	29,305	$	5,823	$	169,548
December 31, 2012
Allowance for loan losses:
Individually evaluated for impairment	$	49	$	1,245	$	377	$	-	$	1,671
Collectively evaluated for impairment		859		7,437		1,659		143		10,098
Total allowance for loan losses	$	908	$	8,682	$	2,036	$	143	$	11,769
Recorded investment in loans:
Individually evaluated for impairment	$	710	$	19,853	$	2,380	$	-	$	22,943
Collectively evaluated for impairment		15,402		109,505		27,442		5,103		157,452
Total recorded investment in loans	$	16,112	$	129,358	$	29,822	$	5,103	$	180,395

Loan and Lease Receivables, Credit Risk Grades [Table Text Block]

The following presents the recorded investment in loans by risk grade and a summary of nonperforming loans, by class of loan: 

	Not Rated		1		2		3		4		5		6		7		Total		Nonperforming
	(in thousands)
June 30, 2013
Commercial	$	78	$	401	$	29	$	1,676	$	5,334	$	4,184	$	899	$	244	$	12,845	$	57
Commercial Real Estate:
Construction, land development, and other land		-		-		-		-		1,292		3,070		-		2,609		6,971		2,286
Owner occupied		37		-		821		3,071		19,280		21,591		3,409		4,395		52,604		2,878
Nonowner occupied		3		-		423		1,388		20,571		27,751		6,634		5,230		62,000		2,328
Consumer real estate:
Commercial Purpose		-		-		-		164		936		3,835		747		1,233		6,915		795
Mortgage - Residential		10,530		-		-		-		-		12		-		3,170		13,712		1,456
Home equity and home equity lines of credit		8,121		-		-		-		-		72		-		485		8,678		426
Consumer and Other		5,655		-		-		-		5		51		-		112		5,823		112
Total	$	24,424	$	401	$	1,273	$	6,299	$	47,418	$	60,566	$	11,689	$	17,478	$	169,548	$	10,338
December 31, 2012
Commercial	$	391	$	430	$	-	$	2,356	$	5,881	$	5,360	$	1,000	$	694	$	16,112	$	264
Commercial Real Estate:
Construction, land development, and other land		-		-		-		-		1,431		4,006		136		3,168		8,741		2,391
Owner occupied		42		-		-		1,671		18,963		21,619		3,594		5,313		51,202		3,040
Nonowner occupied		-		-		451		1,404		17,057		30,847		11,307		8,349		69,415		3,632
Consumer real estate:
Commercial Purpose		-		-		-		297		948		3,594		758		1,314		6,911		1,158
Mortgage - Residential		11,232		-		-		-		-		-		-		3,372		14,604		2,019
Home equity and home equity lines of credit		7,760		-		-		-		-		-		-		547		8,307		411
Consumer and Other		4,948		-		-		-		6		5		-		144		5,103		125
Total	$	24,373	$	430	$	451	$	5,728	$	44,286	$	65,431	$	16,795	$	22,901	$	180,395	$	13,040

Past Due Financing Receivables [Table Text Block]

An aging analysis of the recorded investment in past due loans, segregated by class of loans follows:

													90+ Days
	Loans Past Due												Past Due
	30-59 Days		60-89 Days		90+ Days		Total		Current		Total		and Accruing
	(in thousands)
June 30, 2013
Commercial	$	-	$	-	$	41	$	41	$	12,804	$	12,845	$	-
Commercial real estate:
Construction, land development, and other land		119		129		20		268		6,703		6,971		-
Owner occupied		31		572		893		1,496		51,108		52,604		-
Nonowner occupied		-		203		75		278		61,722		62,000		-
Consumer real estate:
Commercial purpose		231		14		178		423		6,492		6,915		-
Mortgage - Residential		626		83		97		806		12,906		13,712		-
Home equity and home equity lines of credit		60		-		79		139		8,539		8,678		-
Consumer and Other		47		32		-		79		5,744		5,823		-
Total	$	1,114	$	1,033	$	1,383	$	3,530	$	166,018	$	169,548	$	-
December 31, 2012
Commercial	$	136	$	6	$	51	$	193	$	15,919	$	16,112	$	-
Commercial real estate:
Construction, land development, and other land		1,609		-		30		1,639		7,102		8,741		-
Owner occupied		142		32		1,837		2,011		49,191		51,202		-
Nonowner occupied		-		-		558		558		68,857		69,415		-
Consumer real estate:
Commercial purpose		133		-		558		691		6,220		6,911		201
Mortgage - Residential		1,109		753		21		1,883		12,721		14,604		-
Home equity and home equity lines of credit		302		76		-		378		7,929		8,307		-
Consumer and Other		71		24		32		127		4,976		5,103		-
Total	$	3,502	$	891	$	3,087	$	7,480	$	172,915	$	180,395	$	201

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

The following is a summary of the recorded investment in nonaccrual loans, by class of loan:

	June 30, 2013		December 31, 2012
	(in thousands)
Commercial	$	57	$	264
Commercial real estate:
Construction, land development, and other land		2,286		2,391
Owner occupied		2,878		3,040
Nonowner occupied		2,328		3,632
Consumer real estate:
Commercial purpose		795		957
Mortgage - Residential		1,456		2,019
Home equity and home equity lines of credit		426		411
Consumer and Other		112		125
Total	$	10,338	$	12,839

Schedule Of Impaired Loans and Related Valuation Allowance Allocations By Class Of Loan [Table Text Block]

The following presents information pertaining to impaired loans and related valuation allowance allocations by class of loan:

	June 30, 2013						December 31, 2012
	Recorded Investment		Unpaid Principal Balance		Valuation Allowance		Recorded Investment		Unpaid Principal Balance		Valuation Allowance
	(in thousands)
With an allowance recorded:
Commercial	$	381	$	412	$	23	$	463	$	543	$	49
Commercial real estate:
Construction, land development, and other land		912		1,069		186		1,211		1,396		166
Owner occupied		4,218		4,714		204		5,473		6,045		498
Nonowner occupied		7,590		7,816		846		5,764		6,962		581
Consumer real estate:
Commercial purpose		1,769		1,935		220		1,698		2,018		377
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		14,870		15,946		1,479		14,609		16,964		1,671
With no related allowance recorded:
Commercial		76		543		-		246		724		-
Commercial real estate:
Construction, land development, and other land		2,211		4,544		-		2,391		4,730		-
Owner occupied		2,933		4,111		-		2,084		3,914		-
Nonowner occupied		2,229		3,012		-		2,930		3,616		-
Consumer real estate:
Commercial purpose		786		1,427		-		683		1,150		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		8,235		13,637		-		8,334		14,134		-
Total:
Commercial		457		955		23		710		1,267		49
Commercial real estate:
Construction, land development, and other land		3,123		5,613		186		3,602		6,126		166
Owner occupied		7,151		8,825		204		7,557		9,959		498
Nonowner occupied		9,819		10,828		846		8,694		10,578		581
Consumer real estate:
Commercial purpose		2,555		3,362		220		2,380		3,168		377
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total Impaired Loans	$	23,105	$	29,583	$	1,479	$	22,943	$	31,098	$	1,671

Schedule Of Impaired Loans [Table Text Block]

The following presents information pertaining to the recorded investment in impaired loans for the three and six  months ended as follows: 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2013		2012		2013		2012
				(in thousands)
Average of impaired loans during the period
Commercial	$	470	$	712	$	473	$	728
Commercial real estate:
Construction, land development, and other land		3,160		6,562		3,163		6,170
Owner occupied		7,352		8,029		7,341		7,171
Nonowner occupied		9,949		12,092		8,390		10,725
Consumer real estate:
Commercial purpose		2,617		3,051		2,645		2,972
Mortgage - Residential		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-
Consumer and Other		-		-		-		-
Total	$	23,548	$	30,446	$	22,012	$	27,766
Interest income recognized during impairment
Commercial	$	5	$	7	$	9	$	13
Commercial real estate:
Construction, land development, and other land		12		16		32		21
Owner occupied		60		63		140		84
Nonowner occupied		83		70		161		103
Consumer real estate:
Commercial purpose		26		13		49		15
Mortgage - Residential		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-
Consumer and Other		-		-		-		-
Total	$	186	$	169	$	391	$	236

Schedule Of Troubled Debt Restructurings [Table Text Block]

The following summarizes troubled debt restructurings:

	June 30, 2013						December 31, 2012
	Outstanding Recorded Investment						Outstanding Recorded Investment
	Accruing		Nonaccrual		Total		Accruing		Nonaccrual		Total
	(in thousands)
Commercial	$	374	$	57	$	431	$	446	$	264	$	710
Commercial real estate:
Construction, land development, and other land		837		2,136		2,973		1,211		2,271		3,482
Owner occupied		4,950		2,487		6,582		4,335		2,029		6,364
Nonowner occupied		7,491		2,253		9,744		5,063		3,447		8,510
Consumer real estate:
Commercial purpose		1,760		664		2,424		1,424		596		2,020
Mortgage - Residential		1,109		800		1,909		738		1,232		1,970
Home equity and home equity lines of credit		60		267		327		62		284		346
Consumer and Other		7		86		93		9		96		105
Total	$	16,588	$	8,750	$	24,483	$	13,288	$	10,219	$	23,507

Schedule Of Existing Loans That Were Restructured and Troubled Debt Restructuring [Table Text Block]

The following presents information regarding existing loans that were restructured, resulting in the loan being classified as a troubled debt restructuring:

	Loans Restructured in the Three Months						Loans Restructured in the Six Months
	Ended June 30, 2013						Ended June 30, 2013
			Pre- Modification		Post-Modification				Pre- Modification		Post-Modification
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of Loans		Investment		Investment		of Loans		Investment		Investment
	(dollars in thousands)
Commercial		-	$	-	$	-		-	$	-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		1		390		390
Nonowner occupied		1		105		105		2		1,470		1,470
Consumer real estate:
Commercial purpose		-		-		-		1		114		114
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		1	$	105	$	105		4	$	1,974	$	1,974

During the three and six months ended June 30, 2013, the Corporation had three TDR loans with a recorded investment of $124,000 that defaulted within 12 months of restructuring. A loan is considered to be in payment default generally once it is 90 days contractually past due under the modified terms.

	Loans Restructured in the Three Months						Loans Restructured in the Six Months
	Ended June 30, 2012						Ended June 30, 2012
			Pre- Modification		Post-Modification				Pre- Modification		Post-Modification
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of Loans		Investment		Investment		of Loans		Investment		Investment
	(dollars in thousands)
Commercial		-	$	-	$	-		-	$	-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		1		262		262		3		873		873
Consumer real estate:
Commercial purpose		2		431		431		2		431		431
Mortgage - Residential		-		-		-		1		207		207
Home equity and home equity lines of credit		-		-		-		1		53		53
Consumer and Other		-		-		-		-		-		-
Total		3	$	693	$	693		7	$	1,564	$	1,564

Schedule Of Concessions Granted By The Corporation To Borrowers [Table Text Block]

The following summarizes the nature of concessions granted by the Corporation to borrowers experiencing financial difficulties which resulted in troubled debt restructurings:

									Non-Market Interest Rate
					Extension of				and Extension of
	Non-Market Interest Rate				Amortization Period				Amortization Period
			Pre-Modification				Pre-Modification				Pre-Modification
	Number		Recorded		Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment		of Loans		Investment
	(dollars in thousands)
Three months ended June 30, 2013
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		-		-		1		105		-		-
Consumer real estate:
Commercial purpose		-		-		-		-		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		-	$	-		1	$	105		-	$	-
Six months ended June 30, 2013
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		1		390
Nonowner occupied		-		-		2		1,470		-		-
Consumer real estate:
Commercial purpose		-		-		1		114		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		-	$	-		3	$	1,584		1	$	390

During the three and six months ended June 30, 2013, there were no non-market interest rate restructurings of substandard performing loans that were renewed at their existing contractual rates or non-market rates. Renewals of substandard performing loans at non-market interest rates are considered troubled debt restructurings.

									Non-Market Interest Rate
					Extension of				and Extension of
	Non-Market Interest Rate				Amortization Period				Amortization Period
			Pre-Modification				Pre-Modification				Pre-Modification
	Number		Recorded		Number		Recorded		Number		Recorded
	of Loans		Investment		of Loans		Investment		of Loans		Investment
	(dollars in thousands)
Three months ended June 30, 2012
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		1		262		-		-		-		-
Consumer real estate:
Commercial purpose		2		431		-		-		-		-
Mortgage - Residential		-		-		-		-		-		-
Home equity and home equity lines of credit		-		-		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		3	$	693		-	$	-		-	$	-
Six months ended June 30, 2012
Commercial		-	$	-		-	$	-		-	$	-
Commercial real estate:
Construction, land development, and other land		-		-		-		-		-		-
Owner occupied		-		-		-		-		-		-
Nonowner occupied		2		405		-		-		1		468
Consumer real estate:
Commercial purpose		2		431		-		-		-		-
Mortgage - Residential		1		207		-		-		-		-
Home equity and home equity lines of credit		1		53		-		-		-		-
Consumer and Other		-		-		-		-		-		-
Total		6	$	1,096		-	$	-		1	$	468