| |  |                                                                               
| |  | ------------------------------------------------------------------------------
| |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934





| |  |                                                                
| |  | ---------------------------------------------------------------
| |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

Commission file number: 333-17317



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Michigan                                                       |  | 38-3318018                          
|                                                              
|                                                              
|                                                              
|                                                              
|(State or other jurisdiction
of incorporation or organization) |  | (I.R.S. employer identification no.)





Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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:  No:

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.

State issuers revenues for its most recently completed fiscal year:
$9,972,000

The aggregate market value of the voting and no-voting common equity held by
non-affiliates, computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of March
2, 2001, was $7,816,011.

As of March 2, 2001, there were 1,488,764 shares of Common Stock of the Issuer
issued and outstanding.

Transitional Small Business Disclosure Format (check one): Yes: No:

Portions of the registrants Proxy Statement for its 2000 Annual Meeting of
Shareholders to be held April 19, 2001, to the extent expressly so stated
herein, are incorporated by reference into Part III of this Report.





---

TABLE OF CONTENTS



|                                                                 |                                                                                                                          |  |  |  |  |  |  | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I                                                          
|                                                                 | Item 1. Description of Business.                                                                                        
|                                                                 | Item 2. Description of Properties.                                                                                      
|                                                                 | Item 3. Legal Proceedings.                                                                                              
|                                                                 | Item 4. Submission of Matters to a Vote of Security Holders.                                                            
|PART II                                                         
|Item 5. Market for Common Stock and Related Stockholder Matters.
|                                                                 | Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations.                          
|                                                                 | Item 7. Financial Statements.                                                                                           
|                                                                 | Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.                           
|PART III                                                        
|                                                                 | Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.
|                                                                 | Item 10. Executive Compensation.                                                                                        
|                                                                 | Item 11. Security Ownership of Certain Beneficial Owners and Management.                                                
|                                                                 | Item 12. Certain Relationships and Related Transactions.                                                                
|                                                                 | Item 13. Exhibits, List and Reports on Form 8-K.                                                                        
|                                                                 | SIGNATURES                                                                                                              
|EXHIBIT INDEX                                                   
|Computation of Earnings Per Share                               

|              |  |                                                                |                               |  |      |    |   
|------------- |  | -------------------------------------------------------------- | ----------------------------- |  | ---- | -- | --
|              |  |                                                                |                               |  | Page
|              |  |                                                                |                               |  |     
|PART I        |  |                                                                |                               | 
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|Item 1        |  | Description of Business                                        |                               |  |      | 2  |   
|             
|             
|             
|             
|Item 2        |  | Description of Properties                                      |                               |  |      | 7  |   
|             
|             
|             
|             
|Item 3        |  | Legal Proceedings                                              |                               |  |      | 7  |   
|             
|             
|             
|             
|Item 4        |  | Submission of Matters to a Vote of Security Holders            |                               |  |      | 7  |   
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|PART II       |  |                                                                |                               | 
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|Item 5        |  | Market for Common Stock and Related Stockholder Matters        |                               |  |      | 8  |   
|             
|             
|             
|             
|Item 6        |  | Managements Discussion and Analysis                           |                               |  |      | 9  |   
|             
|             
|             
|             
|Item 7        |  | Financial Statements                                           |                               |  |      | 16 |   
|             
|             
|             
|             
|Item 8        |  | Changes in and Disagreements with Accountants on Accounting    |                               |  |     
|             
|             
|             
|             
|              |  |                                                                | and Financial Disclosure      |  |      | 16 |   
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|PART III      |  |                                                                |                               | 
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|Item 9        |  | Directors, Executive Officers, Promoters and Control Persons;  |                               |  |      |    |   
|             
|             
|             
|             
|              |  |                                                                | Compliance With Section 16(a) |  |      | 17 |   
|             
|             
|             
|             
|Item 10       |  | Executive Compensation                                         |                               |  |      | 17 |   
|             
|             
|             
|             
|Item 11       |  | Security Ownership of Certain Beneficial Owners and Management |                               |  | 17   |   
|             
|             
|             
|             
|Item 12       |  | Certain Relationships and Related Transactions                 |                               |  |      | 17 |   
|             
|             
|             
|             
|Item 13       |  | Exhibits, List and Reports on Form 8-K                         |                               |  |      | 17 |   
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|Signatures    |  |                                                                |                               |  |      |    | 44
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|             
|Exhibit Index |  |                                                                |                               |  |      |    | 45

PRELIMINARY NOTE: The Company wishes to caution readers not to place undue
reliance on any forward-looking statements contained in the following
discussion, and advises readers that various factors, including regional and
national economic conditions, substantial changes in levels of market interest
rates, credit and other risks of lending and investment activities and
competitive and regulatory factors, could affect the Companys financial
performance and could cause the Companys actual results for future periods to
differ materially from those anticipated or projected. The Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events of
circumstances after the date of such statements.

1



---



Item 1. Description of Business.

General

Michigan Heritage Bancorp, Inc. (the Company) was incorporated in 1989 as a
Michigan corporation and was inactive from the time of its formation until
November 1996. Michigan Heritage Bank, the Companys wholly-owned subsidiary
(the Bank), is a Michigan banking corporation with depository accounts
insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation. The Bank provides a range of commercial and consumer banking
services primarily in Oakland and western Wayne counties including Novi,
Farmington, Farmington Hills, Livonia, Northville, Northville Township, and
Troy.

The Banks present lending activities are primarily focused on commercial
equipment financing and commercial term loans to businesses secured by the
assets of the borrower. The Bank originates loans both directly and through
third party referral sources such as leasing companies and mortgage brokers,
many of whom are known to management. The banks retail strategy focuses on
single-family mortgage loans, home equity loans, and, to a lesser extent, other
forms of consumer lending. The Bank offers ATM cards, competitive rates on
various deposit products and other attractive products and services. The Bank
is also scheduled to offer Telebanking during the second quarter of 2001.
These services reflect the Banks intended strategy of serving small- to
medium-sized businesses and individual customers in its market area.

The Banks main office is currently located along the rapidly developing
Haggerty Road corridor in the southeast corner of Novi, Michigan. The Bank
leases and has renovated a former bank branch building. The communities that
comprise the Banks primary service area are Novi, Farmington, Farmington
Hills, Livonia, Northville, Northville Township, and Troy. Management believes
these communities have an expanding and diverse economic base, which includes a
wide range of small- to medium-sized businesses engaged in manufacturing, high
technology research and development, computer services and retail. The Banks
secondary service area is the remaining portions of Oakland County and Wayne
County not included within the primary service area.

In January 1999, the Company opened its second branch location in Troy,
Michigan. The branch office is leased with leasehold improvements of
approximately $80,000. Furniture and equipment purchased for the new location
was approximately $50,000.

The headquarters for both the Company and the Bank was relocated to the
northeast area of Farmington Hills in December 1999. Leasehold improvements,
furniture and equipment for the new headquarters were approximately $400,000.
The Bank entered into a 15 year lease at approximately $220,000 annual rent net
of rental income.

In January 2000, the Company opened its third branch on the first floor of the
Banks new headquarters in Farmington Hills, Michigan. The branch office
located in the new building is leased with minimal leasehold improvements.
Furniture and equipment purchased for the new location was approximately
$24,000.

Lending

The Banks lending activities include commercial equipment leases, direct
financing leases, commercial loans, commercial real estate loans, residential
mortgage loans, home equity loans, and consumer installment loans. The Bank
considers a loan impaired when it is probable that all interest and principal
will not be collected. For the period ended December 31, 2000, impaired loans
were $265,000 resulting from six commercial loan customers. Specific
allowances for impaired loans were $124,000 at year-end 2000. Management
believes the total specific allowances for impaired loans will adequately
provide for expected charge-offs. Management is not aware of any other
potential problem loans which could have a material effect on the Banks
operating results, liquidity, or capital resources. Furthermore, except as
noted, management is not aware of any other factors that it believes would
cause future net loan charge-offs, in total and by loan category, to
significantly differ from those experienced by institutions of similar size.

2



---



The following table sets forth outstanding loan balances at December 31, 2000
and 1999, by category of loan.

|                                       |             |      |                           |        |  |   |        |        | 
|-------------------------------------- | ----------- | ---- | ------------------------- | ------ |  | - | ------ | ------ | 
|                                       |             |      | ($ in 000s)              
|                                       |             |      | Amount as of December 31,
|                                       |             |      |                          
|Type of Loan                           |             | 2000 |                           | 1999  
|                                       |             |      |                           |       
|Commercial, financial and agricultural |             | $    | 76,804                    |        |  | $ | 74,005 |       
|                                      
|                                      
|                                      
|                                      
|Real estateconstruction               |             |      | 2,985                     |        |  |   | 417    |       
|                                      
|                                      
|                                      
|                                      
|Real estatemortgage                   |             |      | 11,349                    |        |  |   | 4,677  |       
|                                      
|                                      
|                                      
|                                      
|Home equity                            |             |      | 1,865                     |        |  |   | 1,657  |       
|                                      
|                                      
|                                      
|                                      
|Installment loans to individuals       |             |      | 301                       |        |  |   | 166    |       
|                                      
|                                      
|                                      
|                                      
|Lease financing                        |             |      | 1,833                     |        |  |   | 948    |       
|                                       |             |      |                           |        |  |   |        |       
|                                       | Total loans |      | $                         | 95,137 |  |   | $      | 81,870 | 
|                                       |             |      |                           |        |  |   |        |       

The Bank has made only domestic loans.

Allowance for Loan Losses
The following table summarizes changes in the allowance for loan and lease
losses arising from additions to the allowance which have been charged to
expense, selected ratios, and the allocation of the allowance for loan losses.

|                                                                        |  |                           |        |      |  |  |        |  
|----------------------------------------------------------------------- |  | ------------------------- | ------ | ---- |  |  | ------ | -
|                                                                        |  | ($ in 000s)              
|                                                                        |  | Amount as of December 31,
|                                                                        |  |                          
|                                                                        |  | 2000                      |        | 1999
|                                                                        |  |                           |        |     
|Average loans outstanding                                               |  |                           | 85,789 |      |  |  | 82,523 |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Total loans at year end                                                 |  |                           | 95,137 |      |  |  | 81,870 |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Allowance for loan losses at beginning of period                        |  |                           | 1,987  |      |  |  | 1,816  |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Provision charged to expense                                            |  |                           | 60     |      |  |  | 1,072  |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Loan charge-offs during the period                                      |  |                           | 160    |      |  |  | 969    |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Loan recoveries during the period                                       |  |                           | 0      |      |  |  | 68     |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Allowance for loan losses at end of year                                |  |                           | 1,887  |      |  |  | 1,987  |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Ratio of net charge-offs during the period to
average loans outstanding |  |                           | 0.19   | %    |  |  | 1.09   | %
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Allowance for loan losses as a percentage
of loans at period end        |  |                           | 1.98   | %    |  |  | 2.43   | %
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Specific allowance for impaired loans                                   |  |                           | 124    |      |  |  | 63     |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Unallocated allowance                                                   |  |                           | 1,763  |      |  |  | 1,924  |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Total allowance for loan losses                                         |  |                           | 1,887  |      |  |  | 1,987  |  

In each accounting period, the allowance for loan and lease losses is adjusted
by management to the amount necessary to maintain the allowance at adequate
levels. Through its credit department, management attempts to allocate
specific

3



---



portions of the allowance for loan losses based on specifically
identifiable problem loans. Managements evaluation of the allowance is
further based on consideration of actual loss experience, the present and
prospective financial condition of borrowers, industry concentrations within
the portfolio and general economic conditions.

The primary risk element considered by management with respect to each
installment and residential real estate loan is lack of timely payment.
Management has a reporting system that monitors past due loans and has adopted
policies to pursue its creditors rights in order to preserve the Banks
position. The primary risk elements with respect to commercial loans and
leases are the financial condition of the borrower, the sufficiency of
collateral, and lack of timely payment. Management has a policy of requesting
and reviewing periodic financial statements from its commercial loan and lease
customers. There can be no assurance that the Bank will not sustain losses in
any given period which could be substantial in relation to the size of the
allowance for loan and lease losses.

Deposits

The following summarizes certain information regarding deposits with the Bank.

|                                                      |                |        |                                 |          |      |        |         |          |      |  |        |        |  |  |      |      | 
|----------------------------------------------------- | -------------- | ------ | ------------------------------- | -------- | ---- | ------ | ------- | -------- | ---- |  | ------ | ------ |  |  | ---- | ---- | 
|                                                      |                |        | ($ in 000s)                    
|                                                      |                |        | For the Year Ended December 31,
|                                                      |                |        |                                
|                                                      |                |        | 2000                            |          | 1999
|                                                      |                |        |                                 |          |     
|                                                      |                |        | Average                         |          | Rate |        | Average |          | Rate
|Type of Deposit                                       |                | Amount |                                 | Paid (%) |      | Amount |         | Paid (%)
|                                                      |                |        |                                 |          |      |        |         |         
|Noninterest bearing demand deposits                   |                |        | 1,858                           |          |      |        | 0.00    |          |      |  | 1,670  |        |  |  | 0.00 |     
|                                                     
|                                                     
|                                                     
|                                                     
|Interest bearing checking and
money   market deposits |                |        | 9,084                           |          |      |        | 4.58    |          |      |  | 8,001  |        |  |  | 4.50 |     
|                                                     
|                                                     
|                                                     
|                                                     
|Savings deposits                                      |                |        | 19                              |          |      |        | 3.00    |          |      |  | 36     |        |  |  | 2.78 |     
|                                                     
|                                                     
|                                                     
|                                                     
|Time deposits                                         |                |        | 86,251                          |          |      |        | 6.14    |          |      |  | 82,041 |        |  |  | 5.63 |     
|                                                      |                |        |                                 |          |      |        |         |          |      |  |        |        |  |  |      |     
|                                                      | Total deposits |        |                                 | 97,212   |      |        |         | 5.88     |      |  |        | 91,748 |  |  |      | 5.43 | 
|                                                      |                |        |                                 |          |      |        |         |          |      |  |        |        |  |  |      |     

The Bank has no foreign banking offices.

4



---



Company Selected Financial Information

The following table contains selected financial information for the Company:

|                                                     |  |                                   |         |      |  |      |         |      |  |      |         |   |  |   |        |   |  |   |     |  
|---------------------------------------------------- |  | --------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | - |  | - | --- | -
|                                                     |  | ($ in 000s except per share data)
|                                                     |  |                                  
|For the years ended December 31,                     |  | 2000                              |         | 1999 |  | 1998 |         | 1997 |  | 1996
|                                                     |  |                                   |         |      |  |      |         |      |  |     
|Net interest income before provision for loan losses |  | $                                 | 4,083   |      |  | $    | 3,403   |      |  | $    | 2,440   |   |  | $ | 896    |   |  | $ | 1   |  
|                                                    
|                                                    
|                                                    
|                                                    
|Net income                                           |  | $                                 | 504     |      |  | $    | 475     |      |  | $    | (113    | ) |  | $ | (602   | ) |  | $ | (68 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Net income per fully diluted
share of common stock   |  | $                                 | 0.34    |      |  | $    | 0.36    |      |  | $    | (0.09   | ) |  | $ | (0.57  | ) |  |   | n/a |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Cash dividends declared per
common share of stock    |  |                                   |        |      |  |      |        |      |  |      |        |   |  |   |       |   |  |   |    |  
|                                                    
|                                                    
|                                                    
|                                                    
|Dividend payout ratio                                |  |                                   | n/a     |      |  |      | n/a     |      |  |      | n/a     |   |  |   | n/a    |   |  |   | n/a |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Total assets at year-end                             |  | $                                 | 120,568 |      |  | $    | 108,887 |      |  | $    | 100,267 |   |  | $ | 51,438 |   |  | $ | 244 |  
|                                                    
|                                                    
|                                                    
|                                                    
|Total stockholders equity at year-end               |  | $                                 | 12,323  |      |  | $    | 11,718  |      |  | $    | 10,041  |   |  | $ | 10,145 |   |  | $ | (68 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Total average assets                                 |  | $                                 | 110,036 |      |  | $    | 102,935 |      |  | $    | 74,321  |   |  | $ | 26,220 |   |  | $ | 122 |  
|                                                    
|                                                    
|                                                    
|                                                    
|Total average stockholders equity                   |  | $                                 | 12,010  |      |  | $    | 10,566  |      |  | $    | 10,358  |   |  | $ | 8,591  |   |  | $ | (34 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Return on average total assets                       |  |                                   | 0.46    | %    |  |      | 0.46    | %    |  |      | -0.15   | % |  |   | -2.30  | %
|                                                    
|                                                    
|                                                    
|                                                    
|Return on average stockholders equity               |  |                                   | 4.20    | %    |  |      | 4.50    | %    |  |      | -1.09   | % |  |   | -7.01  | %
|                                                    
|                                                    
|                                                    
|                                                    
|Average equity to average assets                     |  |                                   | 10.91   | %    |  |      | 10.26   | %    |  |      | 13.94   | % |  |   | 32.77  | %

5



---



Supervision and Regulation

The Company is a registered bank holding company and, as such, is subject to
the supervision of and regulation by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended (BHCA). Under the BHCA, the Company
is subject to periodic examination by the Federal Reserve Board and is required
to file periodic reports of its operations and such additional information as
the Federal Reserve Board may require. The Company is also required to file
periodic reports with, and otherwise comply with the rules and regulations of
the Securities and Exchange Commission under the federal securities laws.

In accordance with Federal Reserve Board policy, the Company acts as a source
of financial strength to the Bank and is expected to commit resources to
support the Bank in circumstances where the Company might not do so absent such
policy. In addition, in certain circumstances, a Michigan state bank having
impaired capital may be required by the Commissioner of the Michigan Office of
Financial and Insurance Services of the State of Michigan (the Commissioner)
either to restore the banks capital by a special assessment upon its
shareholders or to initiate the liquidation of the bank.

The Bank is a Michigan banking corporation and its deposit accounts are insured
up to applicable limits by the Federal Deposit Insurance Corporation (the
FDIC) under the Bank Insurance Fund. As a FDIC-insured, Michigan-chartered
bank, and a member of the Federal Reserve System, the Bank is subject to the
examination, supervision, reporting and enforcement requirements of the
Commissioner, as the chartering authority for Michigan banks, and the Federal
Reserve Board, as the Banks primary federal regulator. These agencies and
federal and state law extensively regulate various aspects of the banking
business including, among other things, permissible types and amounts of loans,
investments and other activities, capital adequacy, branching, interest rates
on loans and on deposits, the maintenance of non-interest bearing reserves on
deposit accounts and the safety and soundness of banking practices.

Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things, the
scope of business, investments, reserves against deposits, capital levels
relative to operations, lending activities and practices, the nature and amount
of collateral for loans, the establishment of branches, mergers, consolidations
and dividends. The system of supervision and regulation applicable to the
Company and the Bank establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC deposit
insurance funds, the depositors of the Bank and the public, rather than
shareholders of the Bank or the Company.

Federal law and regulations, including provisions added by the Federal Deposit
Insurance Corporation Improvement Act of 1991 and regulations promulgated
thereunder, establish supervisory standards applicable to the operation,
management and lending activities of the Bank, including internal controls,
loan documentation, credit underwriting, interest rate exposure, asset growth,
compensation and loan-to-value ratios for loans secured by real property.

Employees

At December 31, 2000, the Company employed 32 people on a full-time basis
including 2 customer service representatives in training for the Banks new
Farmington Hills branch that opened in January 2000. Over the next 12 months
the Bank expects to add 7 full-time people: 1 full-time commercial loan officer
and 6 full-time mortgage employees3 of which are primarily commission only
mortgage originators. Additional mortgage originators may be added primarily
on a commission only basis.

Competition

The Company and the Bank face strong competition for deposits, loans and other
financial services from numerous Michigan and out-of-state banks, thrifts,
credit unions and other financial institutions as well as other entities which
provide financial services, including consumer finance companies, securities
brokerage firms, mortgage brokers, equipment leasing companies, insurance
companies, mutual funds, and other lending sources and investment alternatives.
Some of the financial institutions and financial service organizations with
which the Bank will compete are not subject to the same degree of regulation as
the Bank. Many of the financial institutions aggressively compete

6



---



for business
in the Banks market areas. Many of these competitors have been in business
for many years, have established customer bases, have substantially higher
lending limits than the Bank, are larger and will be able to offer certain
services that the Bank does not expect to provide in the foreseeable future,
including trust services, and international banking services. In addition,
most of these entities have greater capital resources than the Bank which,
among other things, may allow them to price their services at levels more
favorable to the customer and to provide larger credit facilities than could
the Bank.

Item 2. Description of Properties.

The Bank leases a 3,000 square foot building at 21211 Haggerty Road, Novi,
Michigan 48375 for use as its main banking office. The Company also used the
same building as its headquarters from inception until December 1999. The
lease term extends until June 30, 2002, at an annual rent of $45,000. The
building was originally built in 1988 to be a bank branch and has one drive-up
window and three drive-up bays. The building has substantial on-site parking.
There is one entrance/exit on Haggerty Road as well as a rear exit to Orchard
Hill Place. Access to the main office is available to Oakland and Wayne County
residents by using I-275, I-96, I-696, and Grand River Avenue.

The Bank opened its first branch in January 1999, with 1,500 square feet of
office space within a strip mall at 1917 East Big Beaver Road, Troy, MI 48083.
The lease extends until January 18, 2004, at an annual rent of $32,000. The
branch has two teller windows, two customer service desks, a mutual funds room,
and a conference room.

The Bank signed a 15 year lease for approximately 10,000 square feet for a new
headquarters in Farmington Hills, Michigan which was occupied during December
1999. The lease extends until June 30, 2014. Additional costs for furniture,
equipment and leasehold improvements for the new headquarters were
approximately $400,000. The annual rent, net of rental income, is
approximately $220,000.

The Bank opened its third branch in January 2000 with 1,200 square feet of
office space on the first floor of the new headquarters building. The lease
extends until June 30, 2014, at an annual rent of $28,000. The branch has two
teller windows, two customer service desks, a mutual funds room, and a
conference room. There were minimal leasehold improvements for the branch.
Additional equipment for the branch was approximately $24,000.

Item 3. Legal Proceedings.

None

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

Not applicable.

7



---





Item 5. Market for Common Stock and Related Stockholder Matters.

The Companys common stock is traded in the over-the-counter market and
quotations are reported on the OTC Bulletin Board under the symbol MHBC.
There were approximately 70 holders of record as of December 31, 2000.
Included among the 70 holders of record are investment firms with an
undetermined number of clients owning the Companys common stock. The Company
paid a 10% common stock dividend on June 15, 1998. There were no cash
dividends paid during 2000, 1999, 1998 or 1997.

The Company completed a rights offering to existing shareholders in October
1999. Up to 500,000 shares of common stock were offered for sale in order to
contribute additional capital to Michigan Heritage Bank. The shares were
offered for a limited period of time exclusively to shareholders of Michigan
Heritage Bancorp, Inc. at $6.00 per share. Shareholders were entitled to
purchase one share for each three shares they owned on July 14, 1999. The
common stock offering to existing shareholders began on July 30, 1999 and ended
on October 1, 1999. A total of 223,765 shares of common stock were sold
resulting in $1,248,000 in additional capital after payment of offering
expenses. The number of shares of common stock now outstanding after the
rights offering is 1,488,764.

The following sets forth the quarterly high and low bid price per share
during each of the four quarters in 2000, 1999, 1998 and 1997 (since the date
of the Companys public offering). These quotations reflect inter-dealer
prices without retail mark-up, mark-down or commission, and may not represent
actual transactions.

|     |  |             |  |      |       |  |     |   |       | 
|---- |  | ----------- |  | ---- | ----- |  | --- | - | ----- | 
|     |  |             |  | High | /     |  | Low
|     |  |             |  |      |       |  |     |   |       | 
|2000 |  | 4th Quarter |  | $    | 4.38  |  | /   | $ | 3.94  | 
|    
|    
|    
|    
|     |  | 3rd Quarter |  | $    | 4.88  |  | /   | $ | 3.94  | 
|    
|    
|    
|    
|     |  | 2nd Quarter |  | $    | 5.50  |  | /   | $ | 3.13  | 
|    
|    
|    
|    
|     |  | 1st Quarter |  | $    | 4.88  |  | /   | $ | 3.25  | 
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|1999 |  | 4th Quarter |  | $    | 6.00  |  | /   | $ | 3.13  | 
|    
|    
|    
|    
|     |  | 3rd Quarter |  | $    | 7.00  |  | /   | $ | 5.00  | 
|    
|    
|    
|    
|     |  | 2nd Quarter |  | $    | 7.75  |  | /   | $ | 5.75  | 
|    
|    
|    
|    
|     |  | 1st Quarter |  | $    | 9.88  |  | /   | $ | 6.75  | 
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|1998 |  | 4th Quarter |  | $    | 10.50 |  | /   | $ | 8.00  | 
|    
|    
|    
|    
|     |  | 3rd Quarter |  | $    | 12.00 |  | /   | $ | 9.00  | 
|    
|    
|    
|    
|     |  | 2nd Quarter |  | $    | 13.18 |  | /   | $ | 12.00 | 
|    
|    
|    
|    
|     |  | 1st Quarter |  | $    | 13.18 |  | /   | $ | 9.77  | 
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|    
|1997 |  | 4th Quarter |  | $    | 11.82 |  | /   | $ | 9.09  | 
|    
|    
|    
|    
|     |  | 3rd Quarter |  | $    | 12.05 |  | /   | $ | 8.41  | 
|    
|    
|    
|    
|     |  | 2nd Quarter |  | $    | 9.77  |  | /   | $ | 8.41  | 
|    
|    
|    
|    
|     |  | 1st Quarter |  | $    | 9.77  |  | /   | $ | 8.86  | 

8



---



Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion addresses material factors affecting the financial
condition and results of the Company. This discussion should be read in
conjunction with the audited financial statements, footnotes and supplemental
financial data presented elsewhere in this report.

The Company was in the development stage during 1996 and the first two months
and nine days of 1997. The Company completed an initial public offering of
common stock during February and March 1997. On March 10, 1997, Michigan
Heritage Bank opened for business. As of December 31, 2000, the Bank had been
operational almost 46 months and has completed its third full fiscal year of
operations.

Results of Operations

Year 2000 Compared to Year 1999
The Company earned $504,000 in net profits for 2000, a $29,000 improvement over
1999. Net interest income after provision for loan losses increased by
$1,692,000 or 73% to $4,023,000 for 2000 due to increases in both the volume
and net interest margin of average earning assets and a reduction in the
provision for loan loss expense. Other income decreased by $1,933,000 to
$177,000 due primarily to reductions in operating lease rental income, gain on
sale of the operating lease equipment, and gain on sale of loans. Other
expenses decreased by $215,000 to $3,463,000. Increases in salaries and
employee benefits and occupancy expense were more than compensated by
reductions in depreciation of property on operating lease and provision of
other asset losses. Quarterly net profits for 2000 were $130,000, $123,000,
$117,000, and $134,000 for the first, second, third, and fourth quarters,
respectively.

Year 1999 Compared to Year 1998
The Company earned $475,000 in net profits for 1999, a $588,000 improvement
over 1998. The $588,000 improvement resulted primarily from earning asset
growth which netted an additional $1,240,000 in net interest income after
provision for loan losses. Also, other income increased $1,523,000 mostly due
to operating lease rental income, gain on sale of operating lease equipment,
and gains on loans sold. These increases to income were offset partially by a
$1,622,000 increase in other expenses due mostly to growth. Provision for
federal income taxes applicable to operating income increased $653,000.
Quarterly net profits for 1999 were $114,000, $120,000, $111,000, and $130,000
for the first, second, third, and fourth quarters, respectively.

The Company earned its first monthly profit in January 1998, which was only its
10th full month of operation. This quick breakeven result is attributable
directly to controlled growth of both deposit and loan portfolios coupled with
lower than average overhead expense. Quarterly profits for the first three
quarters of 1998 were $73,000 for the first quarter, $78,000 for the second
quarter, and $106,000 for the third quarter. The fourth quarter of 1998
incurred a $370,000 net loss due primarily to a pretax adjustment of $795,000
($525,000 net of tax) in additional provision for possible loan losses due to a
single customer that filed for protection under the bankruptcy laws, which is
not indicative of the overall loan portfolio, and a pretax charge of $100,000
($66,000 net of tax) in organizational costs expensed due to a change in an
accounting principle. The net result for 1998, the Companys first full fiscal
year of operation, was a net loss of only $113,000.

9



---



Quarterly Summary
The Companys quarterly consolidated net interest income before provision for
loan losses, operating income, net income, and net earnings (loss) per share
are summarized below for years 2000, 1999, and 1998. Total operating income is
net interest income after provision for loan losses plus other operating
income. The addition of 223,765 shares of common stock from a rights offering
of common stock completed in October 1999 affected net earnings per share in
the fourth quarter of 1999. The fourth quarter of 1998 includes a $66,000
expense net of tax due to a change in an accounting principle.

|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |       |       |       |  
|----------------------------- | ----------------------------------- | ------------------------- | ---------------------- | ---- | ------------------------------------- | ----- | ---- | ---- | ----- | ----- | - | ----- | ----- | ----- | -
|                              |                                     |                           |                        |      | ($ in 000s Except per Share Earnings)
|                              |                                     |                           |                        |      |                                      
|                              |                                     |                           |                        |      | 2000                                  |       | 1999 |      | 1998 
|                              |                                     |                           |                        |      |                                       |       |      |      |      
|Net Interest Income Before    |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|                             
|                             
|                             
|                             
|                              | Provision for Loan Losses           |                           |                        |      |                                       |       |      |      |       |       |   |       |      
|                             
|                             
|                             
|                             
|                              |                                     |                           | 1st Quarter            | $    | 980                                   |       |      | $    | 854   |       |   | $     | 479   |      
|                             
|                             
|                             
|                             
|                              |                                     |                           | 2nd Quarter            |      |                                       | 1,039 |      |      |       | 857   |   |       |       | 581   |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 3rd Quarter            |      |                                       | 1,000 |      |      |       | 827   |   |       |       | 668   |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 4th Quarter            |      |                                       | 1,064 |      |      |       | 865   |   |       |       | 712   |  
|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|                              |                                     | Total Net Interest Income |                        | $    | 4,083                                 |       |      | $    | 3,403 |       |   | $     | 2,440 |      
|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|Total Operating Income        |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|                             
|                             
|                             
|                             
|                              |                                     |                           | 1st Quarter            |      | $                                     | 1,006 |      |      | $     | 1,031 |   |       | $     | 403   |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 2nd Quarter            |      |                                       | 1,052 |      |      |       | 956   |   |       |       | 462   |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 3rd Quarter            |      |                                       | 1,027 |      |      |       | 1,188 |   |       |       | 724   |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 4th Quarter            |      |                                       | 1,115 |      |      |       | 1,266 |   |       |       | 89    |  
|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|                              |                                     |                           | Total Operating Income |      | $                                     | 4,200 |      |      | $     | 4,441 |   |       | $     | 1,678 |  
|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|Consolidated Net Income       |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|                             
|                             
|                             
|                             
|                              |                                     |                           | 1st Quarter            |      | $                                     | 130   |      |      | $     | 114   |   |       | $     | 73    |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 2nd Quarter            |      |                                       | 123   |      |      |       | 120   |   |       |       | 78    |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 3rd Quarter            |      |                                       | 117   |      |      |       | 111   |   |       |       | 106   |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 4th Quarter            |      |                                       | 134   |      |      |       | 130   |   |       |       | (370  | )
|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|                              |                                     |                           | Total Net Income       |      | $                                     | 504   |      |      | $     | 475   |   |       | $     | (113  | )
|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|Net Earnings (Loss) per Share |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|                             
|                             
|                             
|                             
|                              |                                     |                           | 1st Quarter            |      | $                                     | 0.09  |      |      | $     | 0.09  |   |       | $     | 0.06  |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 2nd Quarter            |      |                                       | 0.08  |      |      |       | 0.09  |   |       |       | 0.06  |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 3rd Quarter            |      |                                       | 0.08  |      |      |       | 0.09  |   |       |       | 0.08  |  
|                             
|                             
|                             
|                             
|                              |                                     |                           | 4th Quarter            |      |                                       | 0.09  |      |      |       | 0.09  |   |       |       | (0.29 | )
|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      
|                              | Total Net Earnings (Loss) per Share |                           | $                      | 0.34 |                                       |       | $    | 0.36 |       |       | $ | (0.09 | )    
|                              |                                     |                           |                        |      |                                       |       |      |      |       |       |   |      

Return on Average Equity and Average Assets
For 2000, the return on average equity was 4.20% compared to 4.50% for 1999 and
-1.09% for 1998. The return for average assets for both 2000 and 1999 was
0.46% and -0.15% for 1998. While there have been no cash dividends paid to
date, the Board of Directors declared and distributed a 10% common stock
dividend during the second quarter of 1998.

10



---



Balance Sheet Comparisons at Year End2000 Compared to 1999
The Companys total assets at December 31, 2000 were $120,568,000 compared to
$108,887,000 at the end of 1999, an increase of $11,681,000 or 11%. Total
loans increased by $13,267,000 or 16% to $95,137,000 at the end of 2000. The
loan increase was funded primarily by deposits which increased by $10,706,000
or 11% to a 2000 year-end balance of $106,660,000. Cash and cash equivalents
were $12,652,000 at the end of 2000, a decrease of $5,536,000 from 1999
year-end. The $5,536,000 decrease was reallocated to longer term investments
and loans.

As of December 31, 2000, the Bank had reserves for possible loan losses of
1.98% of total loans outstanding. This reserve is, in managements opinion, a
conservative loan reserve position relative to the overall quality of the loan
portfolio. At 2000 year-end, specific allowances of $124,000 were allocated for
impaired loans classified by management of $265,000. At the end of 1999,
specific allowances of $63,000 were allocated for impaired loans classified by
management of $113,000. During 2000, there were $160,000 in net loan
charge-offs. In 1999, there were $901,000 in net loan charge-offs primarily
due to a single customer situation. There were no loan charge-offs during 1998
or 1997.

The Banks loan portfolio at the end of 2000 and 1999 by category and as a
percentage of total loans outstanding is summarized below.

|                            |             |             |              |        |      |             |  |  |  |  |      |       |   |   |        |        |  |  |  |  |      |  |      |       |  
|--------------------------- | ----------- | ----------- | ------------ | ------ | ---- | ----------- |  |  |  |  | ---- | ----- | - | - | ------ | ------ |  |  |  |  | ---- |  | ---- | ----- | -
|                            |             |             | ($ in 000s) 
|                            |             |             | December 31,
|                            |             |             |             
|                            |             |             | 2000         |        | 1999
|                            |             |             |              |        |     
|                            |             |             |              |        |      |             |  |  |  |  | % of |       |   |   |        |        |  |  |  |  | % of
|Type of Loan                |             | Outstanding |              | Total  |      | Outstanding |  |  |  |  |      | Total
|                            |             |             |              |        |      |             |  |  |  |  |      |      
|Commercial loans discounted |             | $           | 56,937       |        |      |             |  |  |  |  | 59.9 | %     |   | $ | 58,269 |        |  |  |  |  |      |  | 71.1 | %    
|                           
|                           
|                           
|                           
|Commercial loans direct     |             |             | 5,091        |        |      |             |  |  |  |  | 5.4  | %     |   |   | 8,103  |        |  |  |  |  |      |  | 9.9  | %    
|                           
|                           
|                           
|                           
|Commercial lines of credit  |             |             | 6,691        |        |      |             |  |  |  |  | 7.0  | %     |   |   | 5,371  |        |  |  |  |  |      |  | 6.6  | %    
|                           
|                           
|                           
|                           
|Commercial real estate      |             |             | 8,085        |        |      |             |  |  |  |  | 8.5  | %     |   |   | 2,262  |        |  |  |  |  |      |  | 2.8  | %    
|                           
|                           
|                           
|                           
|Real estateconstruction    |             |             | 2,985        |        |      |             |  |  |  |  | 3.1  | %     |   |   | 417    |        |  |  |  |  |      |  | 0.5  | %    
|                           
|                           
|                           
|                           
|Real estatemortgage        |             |             | 11,349       |        |      |             |  |  |  |  | 11.9 | %     |   |   | 4,677  |        |  |  |  |  |      |  | 5.7  | %    
|                           
|                           
|                           
|                           
|Home equity                 |             |             | 1,865        |        |      |             |  |  |  |  | 2.0  | %     |   |   | 1,657  |        |  |  |  |  |      |  | 2.0  | %    
|                           
|                           
|                           
|                           
|Installment loans and other |             |             | 301          |        |      |             |  |  |  |  | 0.3  | %     |   |   | 166    |        |  |  |  |  |      |  | 0.2  | %    
|                           
|                           
|                           
|                           
|Lease financing             |             |             | 1,833        |        |      |             |  |  |  |  | 1.9  | %     |   |   | 948    |        |  |  |  |  |      |  | 1.2  | %    
|                            |             |             |              |        |      |             |  |  |  |  |      |       |   |   |        |        |  |  |  |  |      |  |      |      
|                            | Total loans |             | $            | 95,137 |      |             |  |  |  |  |      | 100.0 | % |   | $      | 81,870 |  |  |  |  |      |  |      | 100.0 | %
|                            |             |             |              |        |      |             |  |  |  |  |      |       |   |   |        |        |  |  |  |  |      |  |      |      

Loans were funded primarily by deposits consisting mostly of time deposits
which represented 91% of total deposits at 2000 year-end compared to 86% of
total deposits at 1999 year-end. Additional loan information can be found
elsewhere in this report in the Notes to Consolidated Financial Statements.

Net Interest Income Analysis
The largest source of the Companys revenues is net interest income. Net
interest income is the spread between interest income on loans and investments
and interest expense on deposits and borrowed funds. Two statistics used to
measure net interest income are (1) net interest spread and (2) net interest
margin. Net interest spread is the difference between the average yield on
interest-earning assets and the average rate incurred on interest-bearing
liabilities. Net interest margin is expressed as net interest income divided
by average interest-earning assets. Net interest margin is greater than net
interest spread due to the interest income earned on interest-earning assets
funded by non-interest-bearing liabilities such as non-interest bearing demand
deposits, escrow accounts and stockholders equity.

The following table presents the Companys average balance sheets, net interest
spread and net interest margin for the three years ended December 31, 2000,
1999, and 1998. Net interest income for 2000 increased $680,000 or 20% to
$4,083,000 as compared to $3,403,000 for 1999. Net interest income for 1999
increased $963,000 or 39% to $3,403,000 as compared to $2,440,000 for 1998.

11



---



|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |       |      |      |      |      | 
|----------------------------------------------------------- | ---------------------------------------- | ----------------------------- | ------------------------------------------ | ------ | ------- | ------- | -------- | ----- | ------ | ------- | ------- | ---- | -------- | ---- | ----- | ------ | ------ | ------- | ----- | ------- | --- | ----- | ---- | ---- | ---- | ---- | 
|Consolidated Average Balance Sheets                        
|and Analysis of Net Interest Income                        
|(Taxable Equivalent Basis)                                 
|For the Years Ended December 31,                            |                                          | 2000                          |                                            | 1999  
|($ in 000s)                                                 |                                          |                               |                                            |       
|                                                            |                                          |                               |                                            |        |         |         |          |       |        | Average |         |      |          |      |       |        |        |         |       | Average
|                                                            |                                          |                               | Average                                    |        |         |         |          |       | Yield/ |         | Average |      |          |      |       |        | Yield/
|                                                            |                                          |                               |                                            |        | Balance |         | Interest |       | Rate   |         | Balance |      | Interest |      | Rate 
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |     
|Assets                                                     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest bearing balances in other banks |                               | $                                          | 3,398  |         |         | $        | 211   |        |         |         | 6.21 | %        |      | $     | 3,574  |        |         | $     | 182     |     |       |      | 5.09 | %   
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Federal funds sold                       |                               |                                            | 6,556  |         |         |          | 408   |        |         |         | 6.22 |          |      |       | 8,156  |        |         |       | 409     |     |       |      | 5.01 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment securities                    |                               |                                            | 13,243 |         |         |          | 866   |        |         |         | 6.54 |          |      |       | 5,872  |        |         |       | 322     |     |       |      | 5.48 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Loans                                    |                               |                                            | 85,789 |         |         |          | 8,310 |        |         |         | 9.69 |          |      |       | 82,523 |        |         |       | 7,473   |     |       |      | 9.06 |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |        
|                                                            |                                          |                               | Total earning assets                       |        |         | 108,986 |          |       |        | 9,795   |         |      |          | 8.99 |       |        |        | 100,125 |       |         |     | 8,386 |      |      |      | 8.38 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cash and due from banks                  |                               |                                            | 945    |         |         |          |       |        |         |         |      |          |      |       | 811    |        |         |       |         |     |       |      |      |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Allowance for loan losses                |                               |                                            | (1,988 | )       |         |          |       |        |         |         |      |          |      |       | (1,682 | )      |         |       |         |     |       |      |      |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operating lease equipment, net           |                               |                                            |       |         |         |          |       |        |         |         |      |          |      |       | 1,831  |        |         |       |         |     |       |      |      |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other assets                             |                               |                                            | 2,093  |         |         |          |       |        |         |         |      |          |      |       | 1,850  |        |         |       |         |     |       |      |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|                                                            |                                          |                               | Total assets                               |        | $       | 110,036 |          |       |        |         |         |      |          |      |       |        | $      | 102,935 |       |         |     |       |      |      |      |      | 
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|Liabilities and
Stockholders Equity                       
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on checking and                
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                          | Money market deposit accounts |                                            | $      | 9,084   |         |          | $     | 416    |         |         |      | 4.58     | %    |       | $      | 8,001  |         |       | $       | 360 |       |      |      | 4.50 | %   
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Savings deposits                         |                               |                                            | 19     |         |         |          | 1     |        |         |         | 3.00 |          |      |       | 36     |        |         |       | 1       |     |       |      | 2.78 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other time deposits less than $100,000   |                               |                                            | 57,831 |         |         |          | 3,487 |        |         |         | 6.03 |          |      |       | 60,059 |        |         |       | 3,362   |     |       |      | 5.60 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Time deposits $100,000 and greater       |                               |                                            | 28,420 |         |         |          | 1,808 |        |         |         | 6.36 |          |      |       | 21,982 |        |         |       | 1,259   |     |       |      | 5.73 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Borrowed funds                           |                               |                                            | 4      |         |         |          | 0     |        |         |         | 6.88 |          |      |       | 14     |        |         |       | 1       |     |       |      | 5.25 |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |        
|                                                            |                                          |                               | Total interest bearing liabilities         |        |         | 95,358  |          |       |        | 5,712   |         |      |          | 5.99 |       |        |        | 90,092  |       |         |     | 4,983 |      |      |      | 5.53 | 
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|                                                            | Other deposits, non-interest bearing     |                               |                                            | 1,858  |         |         |          |       |        |         |         |      |          |      |       | 1,670  |        |         |       |         |     |       |      |      |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other liabilities                        |                               |                                            | 810    |         |         |          |       |        |         |         |      |          |      |       | 607    |        |         |       |         |     |       |      |      |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Stockholders equity                     |                               |                                            | 12,010 |         |         |          |       |        |         |         |      |          |      |       | 10,566 |        |         |       |         |     |       |      |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|                                                            |                                          |                               | Total liabilities and stockholders equity |        | $       | 110,036 |          |       |        |         |         |      |          |      |       |        | $      | 102,935 |       |         |     |       |      |      |      |      | 
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|Net interest income                                         |                                          |                               |                                            |        |         | $       | 4,083    |       |        |         |         |      |          |      |       |        |        | $       | 3,403 |         |     |       |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|Net interest rate spread                                    |                                          |                               |                                            |        |         |         |          |       |        |         | 3.00    | %    |          |      |       |        |        |         |       |         |     |       | 2.85 | %   
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |       |      |     
|Cost of earning assets                                      |                                          |                               |                                            |        |         |         |          |       |        |         | 5.24    | %    |          |      |       |        |        |         |       |         |     |       | 4.98 | %   
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |       |      |     
|Net interest margin                                         |                                          |                               |                                            |        |         |         |          |       |        |         | 3.75    | %    |          |      |       |        |        |         |       |         |     |       | 3.40 | %   
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |       |      |     
|Net interest-earning assets to
interest-bearing liabilities |                                          |                               | 114                                        | %      |         |         |          |       |        |         |         |      |          |      | 111   | %      |        |         |       |         |     |       |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|Net income after taxes                                      |                                          | $                             | 504                                        |        |         |         |          |       |        |         |         |      |          | $    | 475   |        |        |         |       |         |     |       |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|Return on equity                                            |                                          |                               | 4.20                                       | %      |         |         |          |       |        |         |         |      |          |      | 4.50  | %      |        |         |       |         |     |       |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|Return on assets                                            |                                          |                               | 0.46                                       | %      |         |         |          |       |        |         |         |      |          |      | 0.46  | %      |        |         |       |         |     |       |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|Dividend payout ratio                                       |                                          |                               |                                           | %      |         |         |          |       |        |         |         |      |          |      |      | %      |        |         |       |         |     |       |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      
|Equity to assets ratio                                      |                                          |                               | 10.91                                      | %      |         |         |          |       |        |         |         |      |          |      | 10.26 | %      |        |         |       |         |     |       |      |     
|                                                            |                                          |                               |                                            |        |         |         |          |       |        |         |         |      |          |      |       |        |        |         |       |         |     |      

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                            |                                          |                               |                                            |        |         |        |          |        |      |         |      |      |      |      | 
|----------------------------------------------------------- | ---------------------------------------- | ----------------------------- | ------------------------------------------ | ------ | ------- | ------ | -------- | ------ | ---- | ------- | ---- | ---- | ---- | ---- | 
|Consolidated Average Balance Sheets                        
|and Analysis of Net Interest Income                        
|(Taxable Equivalent Basis)                                 
|For the Years Ended December 31,                            |                                          | 1998                         
|($ in 000s)                                                 |                                          |                              
|                                                            |                                          |                               |                                            |        |         |        |          |        |      | Average
|                                                            |                                          | Average                       |                                            |        |         |        |          | Yield/
|                                                            |                                          |                               |                                            |        | Balance |        | Interest |        | Rate
|                                                            |                                          |                               |                                            |        |         |       
|Assets                                                     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest bearing balances in other banks |                               | $                                          | 2,743  |         |        | $        | 146    |      |         |      | 5.32 | %   
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Federal funds sold                       |                               |                                            | 4,198  |         |        |          | 224    |      |         |      | 5.34 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Investment securities                    |                               |                                            | 12,231 |         |        |          | 685    |      |         |      | 5.60 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Loans                                    |                               |                                            | 53,368 |         |        |          | 5,051  |      |         |      | 9.46 |     
|                                                            |                                          |                               |                                            |        |         |        |          |        |      |        
|                                                            |                                          |                               | Total earning assets                       |        |         | 72,540 |          |        |      | 6,106   |      |      |      | 8.42 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Cash and due from banks                  |                               |                                            | 558    |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Allowance for loan losses                |                               |                                            | (694   | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Operating lease equipment, net           |                               |                                            | 858    |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other assets                             |                               |                                            | 1,059  |        
|                                                            |                                          |                               |                                           
|                                                            |                                          |                               | Total assets                               |        | $       | 74,321 |         
|                                                            |                                          |                               |                                           
|Liabilities and
Stockholders Equity                       
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest on checking and                
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            |                                          | Money market deposit accounts |                                            | $      | 5,632   |        |          | $      | 273  |         |      |      | 4.85 | %   
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Savings deposits                         |                               |                                            | 66     |         |        |          | 2      |      |         |      | 3.03 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other time deposits less than $100,000   |                               |                                            | 40,253 |         |        |          | 2,393  |      |         |      | 5.94 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Time deposits $100,000 and greater       |                               |                                            | 16,787 |         |        |          | 998    |      |         |      | 5.95 |     
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Borrowed funds                           |                               |                                            | 5      |         |        |          | 0      |      |         |      | 5.25 |     
|                                                            |                                          |                               |                                            |        |         |        |          |        |      |        
|                                                            |                                          |                               | Total interest bearing liabilities         |        |         | 62,743 |          |        |      | 3,666   |      |      |      | 5.84 | 
|                                                            |                                          |                               |                                            |        |         |        |          |        |      |         |     
|                                                            | Other deposits, non-interest bearing     |                               |                                            | 753    |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Other liabilities                        |                               |                                            | 467    |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Stockholders equity                     |                               |                                            | 10,358 |        
|                                                            |                                          |                               |                                           
|                                                            |                                          |                               | Total liabilities and stockholders equity |        | $       | 74,321 |         
|                                                            |                                          |                               |                                           
|Net interest income                                         |                                          |                               |                                            |        |         | $      | 2,440    |       
|                                                            |                                          |                               |                                            |        |         |        |         
|Net interest rate spread                                    |                                          |                               |                                            |        |         |        |          |        |      |         | 2.58 | %   
|                                                            |                                          |                               |                                            |        |         |        |          |        |      |         |      |     
|Cost of earning assets                                      |                                          |                               |                                            |        |         |        |          |        |      |         | 5.05 | %   
|                                                            |                                          |                               |                                            |        |         |        |          |        |      |         |      |     
|Net interest margin                                         |                                          |                               |                                            |        |         |        |          |        |      |         | 3.37 | %   
|                                                            |                                          |                               |                                            |        |         |        |          |        |      |         |      |     
|Net interest-earning assets to
interest-bearing liabilities |                                          |                               | 116                                        | %     
|                                                            |                                          |                               |                                           
|Net income after taxes                                      |                                          | $                             | (113                                       | )     
|                                                            |                                          |                               |                                           
|Return on equity                                            |                                          |                               | -1.09                                      | %     
|                                                            |                                          |                               |                                           
|Return on assets                                            |                                          |                               | -0.15                                      | %     
|                                                            |                                          |                               |                                           
|Dividend payout ratio                                       |                                          |                               |                                           | %     
|                                                            |                                          |                               |                                           
|Equity to assets ratio                                      |                                          |                               | 13.94                                      | %     
|                                                            |                                          |                               |                                           

The 3.75% net interest margin for 2000 is a 35 bps increase from the 3.40% net
interest margin for 1999. The 3.40% net interest margin for 1999 is a 3 bps
increase from the 3.37% net interest margin for 1998. While the yield on
earning assets went up 61 bps in 2000, the cost of earning assets also went up
26 bps to 5.24% in 2000 compared to 4.98% in 1999 primarily due to higher costs
of time deposits in 2000 compared to 1999. While the yield on earning assets
went down 4 bps in 1999, the cost of earning assets also went down 7 bps, 4.98%
in 1999 compared to 5.05% in 1998 primarily due to lower costs of interest
bearing liabilities in 1999 compared to 1998 and, to a lesser extent,
additional capital from the rights offering completed in October 1999. The
ratio of net interest-bearing assets to interest-bearing liabilities was 114%,
111%, and 116% for 2000, 1999, and 1998, respectively.

The net interest spread for 2000 of 3.00% increased 0.15% or 15 basis points
(bps) over the 2.85% spread for 1999.
The net interest spread for 1999 of 2.85% increased 0.27% or 27 bps over the
2.58% spread for 1998. The 2000 average yield on earning assets of 8.99%
increased 61 bps from 1999 primarily due to the change in mix of earning

12



---



assets and higher yields. The 1999 average yield on earning assets of 8.38% decreased
4 bps from 1998 primarily due to the change in mix of earning assets and lower
loan yields. The 5.99% cost of interest-bearing liabilities for 2000 increased
46 bps from 5.53% in 1999 due primarily to higher costing time deposits in
2000. The 5.53% cost of interest-bearing liabilities for 1999 decreased 31 bps
from 5.84% in 1998 due primarily to higher costing time deposits being repriced
at lower rates in 1999 and new time deposits being acquired at rates lower than
existing time deposits. The cost of interest-bearing liabilities for 2000,
1999, and 1998 reflect slightly higher market rates being paid on time
deposits. These higher rates were paid to attract and retain depositors since
the Bank is relatively new. The Bank also does not yet have an extensive
branch network, with corresponding higher operating expenses, to draw deposits
which creates additional pressure to pay higher rates to attract deposits.

An analysis of the Companys changes in net interest income is presented in the
next table. The $680,000 net interest income increase in 2000 resulted
primarily from a $320,000 increase due to increases in average balances,
$318,000 increase due to changes in yields received on earning assets and rates
paid on funds provided, and a $42,000 increase due to a change in the mix. The
$963,000 net interest income increase in 1999 resulted primarily from a
$1,058,000 increase due to increases in average balances partially offset by a
$95,000 decrease due to changes in both yield/rate and mix. Loan fee income
included in loan interest income was $501,000, $276,000, and $189,000 for 2000,
1999, and 1998, respectively. Nonaccrual loans had an insignificant effect on
net interest income due to the average amount of nonaccrual loans being
insignificant for 2000, 1999 and 1998.

|                                        |                                                        |                               |   |                       |     |            |   |     |     |       |   |        |    |            |   |     |       |       |   |       |       |  |   |      |      |   |   |      |      |   |   |       |       | 
|--------------------------------------- | ------------------------------------------------------ | ----------------------------- | - | --------------------- | --- | ---------- | - | --- | --- | ----- | - | ------ | -- | ---------- | - | --- | ----- | ----- | - | ----- | ----- |  | - | ---- | ---- | - | - | ---- | ---- | - | - | ----- | ----- | 
|Analysis of Net Interest Income Changes |                                                        | 2000 Compared to 1999         |   | 1999 Compared to 1998
|(Taxable Equivalent Basis)              |                                                        |                               |   |                      
|($ in 000s)                             |                                                        | Volume &                      |   | Volume &             
|                                        |                                                        | Yield/Rate                    |   | Yield/Rate           
|                                        |                                                        |                               |   | Volume                |     | Yield/Rate |   | Mix |     | Total |   | Volume |    | Yield/Rate |   | Mix |       | Total
|                                        |                                                        |                               |   |                       |     |            |   |     |     |       |   |        |    |            |   |    
|Increase (Decrease) in Interest Income  |                                                        |                               |   |                       |     |            |   |     |     |       |   |        |    |            |   |     |       |       |   |       |       |  |   |      |      |   |   |      |      |   |   |      
|                                       
|                                       
|                                       
|                                       
|                                        | Interest bearing balances in other banks               |                               | $ | (9                    | )   |            | $ | 40  |     |       | $ | (2     | )  |            | $ | 29  |       |       | $ | 44    |       |  | $ | (6   | )    |   | $ | (2   | )    |   | $ | 36    |      
|                                       
|                                       
|                                       
|                                       
|                                        | Federal funds sold                                     |                               |   | (80                   | )   |            |   | 99  |     |       |   | (20    | )  |            |   | (1  | )     |       |   | 211   |       |  |   | (13  | )    |   |   | (13  | )    |   |   | 185   |      
|                                       
|                                       
|                                       
|                                       
|                                        | Taxable investment securities                          |                               |   | 404                   |     |            |   | 62  |     |       |   | 78     |    |            |   | 544 |       |       |   | (356  | )     |  |   | (14  | )    |   |   | 7    |      |   |   | (363  | )    
|                                       
|                                       
|                                       
|                                       
|                                        | Loans                                                  |                               |   | 296                   |     |            |   | 521 |     |       |   | 20     |    |            |   | 837 |       |       |   | 2,759 |       |  |   | (218 | )    |   |   | (119 | )    |   |   | 2,422 |      
|                                        |                                                        |                               |   |                       |     |            |   |     |     |       |   |        |    |            |   |     |       |       |   |       |       |  |   |     
|                                        |                                                        | Total interest income change  |   |                       | 611 |            |   |     | 722 |       |   |        | 76 |            |   |     | 1,409 |       |   |       | 2,658 |  |   |      | (251 | ) |   |      | (127 | ) |   |       | 2,280 | 
|                                       
|                                       
|                                       
|                                       
|Increase (Decrease) in Interest Expense |                                                        |                               |   |                       |     |            |   |     |     |       |   |        |    |            |   |     |       |       |   |       |       |  |   |      |      |   |   |      |      |   |   |      
|                                       
|                                       
|                                       
|                                       
|                                        | Interest on checking and Money market deposit accounts |                               |   | 49                    |     |            |   | 6   |     |       |   | 1      |    |            |   | 56  |       |       |   | 115   |       |  |   | (20  | )    |   |   | (8   | )    |   |   | 87    |      
|                                       
|                                       
|                                       
|                                       
|                                        | Savings deposits                                       |                               |   |                      |     |            |   |    |     |       |   |       |    |            |   |    |       |       |   | (1    | )     |  |   |     |      |   |   |     |      |   |   | (1    | )    
|                                       
|                                       
|                                       
|                                       
|                                        | Other time deposits less than $100,000                 |                               |   | (125                  | )   |            |   | 259 |     |       |   | (9     | )  |            |   | 125 |       |       |   | 1,177 |       |  |   | (140 | )    |   |   | (68  | )    |   |   | 969   |      
|                                       
|                                       
|                                       
|                                       
|                                        | Time deposits $100,000 and greater                     |                               |   | 368                   |     |            |   | 139 |     |       |   | 42     |    |            |   | 549 |       |       |   | 308   |       |  |   | (37  | )    |   |   | (10  | )    |   |   | 261   |      
|                                       
|                                       
|                                       
|                                       
|                                        | Borrowed funds                                         |                               |   | (1                    | )   |            |   |    |     |       |   |       |    |            |   | (1  | )     |       |   | 1     |       |  |   |     |      |   |   |     |      |   |   | 1     |      
|                                        |                                                        |                               |   |                       |     |            |   |     |     |       |   |        |    |            |   |     |       |       |   |       |       |  |   |     
|                                        |                                                        | Total interest expense change |   |                       | 291 |            |   |     | 404 |       |   |        | 34 |            |   |     | 729   |       |   |       | 1,600 |  |   |      | (197 | ) |   |      | (86  | ) |   |       | 1,317 | 
|                                        |                                                        |                               |   |                       |     |            |   |     |     |       |   |        |    |            |   |     |       |       |   |       |       |  |   |     
|                                        |                                                        | Net interest income change    |   | $                     | 320 |            |   | $   | 318 |       |   | $      | 42 |            |   | $   | 680   |       |   | $     | 1,058 |  |   | $    | (54  | ) |   | $    | (41  | ) |   | $     | 963   | 
|                                        |                                                        |                               |   |                       |     |            |   |     |     |       |   |        |    |            |   |     |       |       |   |       |       |  |   |     

A time deposit maturity analysis as of December 31, 2000 is presented in the following table.

|                                          |                     |          |        |          |  |   |        |        | 
|----------------------------------------- | ------------------- | -------- | ------ | -------- |  | - | ------ | ------ | 
|Time Deposit Maturity Analysis            |                     | Under    |        | $100,000
|As of December 31, 2000                   |                     | $100,000 |        | and over
|                                          |                     |          |        |         
|Due in three months or less               |                     | $        | 12,525 |          |  | $ | 5,430  |       
|                                         
|                                         
|                                         
|                                         
|Due over three months through six months  |                     |          | 11,202 |          |  |   | 6,920  |       
|                                         
|                                         
|                                         
|                                         
|Due over six months through twelve months |                     |          | 23,703 |          |  |   | 7,716  |       
|                                         
|                                         
|                                         
|                                         
|Due over twelve months                    |                     |          | 10,951 |          |  |   | 18,083 |       
|                                          |                     |          |        |          |  |  
|                                          | Total time deposits |          | $      | 58,381   |  |   | $      | 38,149 | 
|                                          |                     |          |        |          |  |  

13



---



The following table summarizes on a consolidated basis, investments as of
December 31, 2000 and 1999. The amortized cost of securities increased by
$3,217,000 or 37% ($11,980,00 for year-end 2000 compared to $8,763,000 for
year-end 1999) and the overall yield at year-end increased 19 bps (6.66% for
2000 compared to 6.47% for 1999). This increase was primarily due to a portion
of cash and cash equivalents at 1999 year-end being reinvested into longer term
and higher yielding investments during 2000.

Consolidated Investment Maturity Analysis
As of December 31, 2000 and 1999 (Taxable Equivalent Basis)
($ in 000s)

|                                       |       |   |                        |        |                  |  |      |      |           |   |     |     |  |  |      |      |  
|-------------------------------------- | ----- | - | ---------------------- | ------ | ---------------- |  | ---- | ---- | --------- | - | --- | --- |  |  | ---- | ---- | -
|                                       |       |   | December 31, 2000     
|                                       |       |   |                       
|                                       |       |   | Available for Sale (a)
|                                       |       |   |                       
|                                       |       |   | U.S. Treasury and     
|                                       |       |   | other government       |        | Federal Reserve 
|                                       |       |   | agencies, municipals,  |        | Bank and Federal
|                                       |       |   | corporations, and      |        | Home Loan Bank  
|                                       |       |   | commercial paper       |        | Stock (b)       
|                                       |       |   |                        |        |                 
|                                       |       |   | Amortized              |        |                  |  |      |      | Amortized
|                                       |       |   | Cost                   |        | Yield            |  | Cost |      | Yield    
|                                       |       |   |                        |        |                  |  |      |      |          
|Due in one year or less                |       | $ | 5,289                  |        |                  |  | 6.52 | %    |           | $ | 419 |     |  |  | 6.56 | %   
|                                      
|                                      
|                                      
|                                      
|Due after one year through five years  |       |   | 4,670                  |        |                  |  | 6.80 |      |           |   |    |     |  |  |     |     
|                                      
|                                      
|                                      
|                                      
|Due after five years through ten years |       |   | 852                    |        |                  |  | 6.96 |      |           |   |    |     |  |  |     |     
|                                      
|                                      
|                                      
|                                      
|Due after ten years                    |       |   | 1,170                  |        |                  |  | 6.58 |      |           |   |    |     |  |  |     |     
|                                       |       |   |                        |        |                  |  |      |      |           |   |     |     |  | 
|                                       | Total |   | $                      | 11,981 |                  |  |      | 6.66 | %         |   | $   | 419 |  |  |      | 6.56 | %
|                                       |       |   |                        |        |                  |  |      |      |           |   |     |     |  | 

|                                       |       |   |                        |       |                 |  |      |      |           |   |     |     |  |  |      |      |  
|-------------------------------------- | ----- | - | ---------------------- | ----- | --------------- |  | ---- | ---- | --------- | - | --- | --- |  |  | ---- | ---- | -
|                                       |       |   | December 31, 1999     
|                                       |       |   |                       
|                                       |       |   | Available for Sale (a)
|                                       |       |   |                       
|                                       |       |   | U.S. Treasury and     
|                                       |       |   | other government      
|                                       |       |   | agencies, municipals, 
|                                       |       |   | corporations, and      |       | Federal Reserve
|                                       |       |   | commercial paper       |       | Bank Stock (b) 
|                                       |       |   |                        |       |                
|                                       |       |   | Amortized              |       |                 |  |      |      | Amortized
|                                       |       |   | Cost                   |       | Yield           |  | Cost |      | Yield    
|                                       |       |   |                        |       |                 |  |      |      |          
|Due in one year or less                |       | $ | 2,490                  |       |                 |  | 6.19 | %    |           | $ | 294 |     |  |  | 6.00 | %   
|                                      
|                                      
|                                      
|                                      
|Due after one year through five years  |       |   | 4,720                  |       |                 |  | 6.58 |      |           |   |    |     |  |  |     |     
|                                      
|                                      
|                                      
|                                      
|Due after five years through ten years |       |   | 552                    |       |                 |  | 6.91 |      |           |   |    |     |  |  |     |     
|                                      
|                                      
|                                      
|                                      
|Due after ten years                    |       |   | 1,000                  |       |                 |  | 6.38 |      |           |   |    |     |  |  |     |     
|                                       |       |   |                        |       |                 |  |      |      |           |   |     |     |  | 
|                                       | Total |   | $                      | 8,762 |                 |  |      | 6.47 | %         |   | $   | 294 |  |  |      | 6.00 | %
|                                       |       |   |                        |       |                 |  |      |      |           |   |     |     |  | 



---

|(a) |  | There were no securities Held to Maturity as of December 31, 2000 and 1999. Expected
maturities will differ from contractual maturities. Issuers may have the right to call or
prepay obligations.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | The dividend yield on Federal Reserve Bank Stock has historically been 6.00% and the
dividend yield on Federal Home Loan Bank Stock has historically been approximately 8.00%.                    

14



---



Other Income Analysis

Other income decreased by $1,933,000 to $177,000 for the year 2000 resulting
primarily from the termination of an operating lease and sale of the related
operating lease equipment in December 1999. In 1999, the Company reported
$1,236,000 of operating lease rental income from this lease and realized a gain
on sale of the equipment of $500,000. Gain on sale of loans also decreased by
$198,000 due to less loans sold in 2000 as compared to 1999 and other income
increased by $1,000.

Other income of $2,110,000 for 1999 increased $1,523,000 over 1998, due
primarily to three areas. There was a $721,000 increase in rental income from
an operating lease acquired during 1998. There was also a $500,000 gain on the
above operating lease disposed of in December 1999. In addition, there was a
$264,000 gain on loans sold in 1999there were no loans sold in 1998. The
remaining $38,000 increase in other income for 1999 principally consisted of
loan servicing fees, service charges on deposit accounts and float income from
an outside vendor for cashiers checks sold.

Other Expense Analysis

In 2000, other expenses decreased by $215,000 to $3,463,000. Salaries and
employee benefits increased by $528,000 to $1,901,000 due primarily to a net of
7 additional employees added in 2000, and increases in commission and employee
insurance expense. Occupancy expense increased by $224,000 to $406,000 due to
additional overhead expenses relating to the new headquarters the Bank moved
into in December 1999 and the third branch which opened in January 2000.
However, depreciation of property on operating lease decreased by $974,000 due
to the sale of the operating lease equipment in December 1999. Other expenses
increased by a net $7,000. Federal income taxes decreased by $55,000 due
partially to tax exempt income in 2000there was no tax exempt income in 1999.

Other expense for 1999 was $3,678,000 which represents a $1,622,000 increase
over 1998. Salaries and employee benefits increased $463,000 due to a net of 9
additional employees being added during 1999, accrued bonuses, and 401(k)
match. Depreciation on property for the Banks operating lease acquired during
1998 increased $531,000. Occupancy and other equipment expense increased by
$159,000 due to additional office rental and equipment depreciation expense.
Professional fees increased by $134,000 mostly due to additional legal fees.
Other assets provision for 1999 was $120,000 net of asset recoveries due to
equipment repossessed and adjusted to market. There was no repossessed
equipment in 1998. Data processing fees and marketing expense went up $15,000
and $30,000, respectively, due to additional volume. Remaining other expenses
increased a net of $170,000 primarily due to additional Michigan single
business tax, telephone expense, FDIC assessment, office supplies and printing.

Liquidity and Capital Resources

The Companys current cash projections indicate adequate cash balances as of
December 31, 2000. The Bank has credit facilities with national lending
institutions to add funding capacity through overnight borrowings. Management
has also established a network of banks that can be used to sell or participate
a portion of its loan portfolio. These techniques allow the Bank to service
its business relationships and generate fee and servicing revenue.

The Companys liquidity remained adequate throughout 2000. As of December 31,
2000, the Bank had $12,652,000 in cash and cash equivalents including
$7,400,000 in federal funds sold and $3,981,000 in interest-bearing balances in
other banks which are immediately available assets. In addition, investment
securities with a total book value of $12,078,000 are all available for sale.
The Bank has also proven its ability to attract deposits and build a stable
deposit base from which to fund loans. In addition, during the third quarter
of 2000, the Bank became a member of the Federal Home Loan Bank of
Indianapolis, Indiana. The Bank is now able to utilize various funding
products available from the Federal Home Loan Bank in addition to deposits.

The Bank is subject to various regulatory capital requirements and as a de
novo or start-up bank, the minimum for the Tier 1 leverage ratio is 9.0%.
Normally, to be considered adequately-capitalized or well-capitalized, the
Bank must maintain a capital leverage ratio of 4.0% or 5.0%, respectively. The
Banks Tier 1 leverage ratios were 9.5% and 10.2% at December 31, 2000 and
1999, respectively. The Bank plans on maintaining at least a 9.0% Tier 1
leverage ratio throughout its de novo status and to remain well-capitalized
thereafter. Additional information concerning capital is found in the Notes to
Consolidated Financial Statements.

15



---



Item 7. Financial Statements.

The consolidated financial statements of the Company and its subsidiary,
together with the report thereon of Plante & Moran, LLP, included in this
report under this item are listed under Item 13 of this report. No
supplementary financial statement schedules are required to be filed with this
report.

Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

16



---



Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
             Exchange Act.

The information required by this Item is included in the Proxy Statement under
the captions Information about Directors and Nominees as Directors and
Section 16(a) Beneficial Ownership Reporting Compliance and is hereby
incorporated herein by reference.

Item 10. Executive Compensation.

The information required by this Item is included in the Proxy Statement under
the caption Compensation of Executive Officers and is hereby incorporated
herein by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The information required by this Item is included in the Proxy Statement under
the caption Stock Ownership of Certain Beneficial Owners and Management and
is hereby incorporated herein by reference.

Item 12. Certain Relationships and Related Transactions.

The information required by this Item is included in the Proxy Statement under
the caption Related Party Transactions and is hereby incorporated herein by
reference.

Item 13. Exhibits, List and Reports on Form 8-K.



|(a) |  | The following financial statements and financial statement schedules are
filed with this report:
|--- |  | ------------------------------------------------------------------------------------------------

|   |  |                                                                                                                  |  |        |    | 
|-- |  | ---------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|   |  |                                                                                                                  |  | Page  
|   |  |                                                                                                                  |  | Number
|   |  |                                                                                                                  |  |       
|1. |  | Financial Statements:                                                                                           
|  
|  
|  
|  
|   |  | Report of Independent Auditors                                                                                   |  |        | 19 | 
|  
|  
|  
|  
|   |  | Consolidated Balance Sheets at December 31, 2000 and 1999                                                        |  |        | 20 | 
|  
|  
|  
|  
|   |  | Consolidated Statements of Changes in Stockholders Equity for the
Years ended December 31, 2000, 1999 and  1998 |  |        | 21 | 
|  
|  
|  
|  
|   |  | Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998                       |  |        | 22 | 
|  
|  
|  
|  
|   |  | Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998                      |  |        | 23 | 
|  
|  
|  
|  
|   |  | Notes to Consolidated Financial Statements                                                                       |  |        | 24 | 
|  
|  
|  
|  
|2. |  | Financial Statement Schedules: None                                                                             



|(b) |  | Reports on Form 8-K.                                                                 
|--- |  | -------------------------------------------------------------------------------------
|   
|    |  | No current Reports on Form 8-K were filed during the quarter ended
December 31, 2000.

17



---



(c) The Exhibits required to be filed as part of this Form 10-K are the
following:

|            |  |                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                   
|3.1         |  | Restated Articles of Incorporation, as amended to date (previously filed
as Exhibit No. 3.1 to the Registrants Form SB-2 Registration Statement,
File No. 333-17317, and incorporated herein by reference)                       
|           
|           
|           
|           
|3.2         |  | Bylaws, as amended to date (previously filed as Exhibit No. 3.2 to the
Registrants Form SB-2 Registration Statement, File No. 333-17317, and
incorporated herein by reference)                                                   
|           
|           
|           
|           
|10.1*       |  | Michigan Heritage Bancorp, Inc. 1997 Non-Employee Director Stock Option
Plan (previously filed as Exhibit No. 10.1 to the Registrants Form SB-2
Registration Statement, File No. 333-17317, and incorporated herein by
reference)
|           
|           
|           
|           
|10.2*       |  | Michigan Heritage Bancorp, Inc. 1997 Employee Stock Option Plan
(previously filed as Exhibit No. 10.2 to the Registrants Form SB-2
Registration Statement, File No. 333-17317, and incorporated herein by
reference)             
|           
|           
|           
|           
|11          |  | Computation of Per Share Earnings (filed herewith)                                                                                                                                                                                



---

|* |  | Management contract or compensatory plan or arrangement.
|- |  | --------------------------------------------------------

18



---



To the Board of Directors and Stockholders
Michigan Heritage Bancorp, Inc.

We have audited the consolidated balance sheet of Michigan Heritage Bancorp,
Inc. and subsidiary as of December 31, 2000 and 1999 and the related
consolidated statements of changes in stockholders equity, operations, and cash
flows for each year in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of the
Corporations management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits
in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Michigan Heritage Bancorp, Inc. and subsidiary as of December 31, 2000 and 1999
and the consolidated results of their operations and their cash flows for each
year in the three-year period ended December 31, 2000, in conformity with
generally accepted accounting principles.

| | 
| | 
| | 

Auburn Hills, Michigan
January 18, 2001

19



---



Michigan Heritage Bancorp, Inc.

Consolidated Balance Sheet
(000s omitted, except per share data)

|                                       |                                               |                                                             |                                            |        |         |             |       |        |        |         |  | 
|-------------------------------------- | --------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------ | ------ | ------- | ----------- | ----- | ------ | ------ | ------- |  | 
|                                       |                                               |                                                             |                                            |        |         | December 31 |      
|                                       |                                               |                                                             |                                            |        |         |             |      
|                                       |                                               |                                                             |                                            |        |         | 2000        |       |        | 1999   |        
|                                       |                                               |                                                             |                                            |        |         |             |       |        |        |        
|Assets                                 |                                               |                                                             |                                            |       
|Cash and Cash Equivalents             
|                                      
|                                      
|                                      
|                                      
|                                       | Cash and due from banks                       |                                                             | $                                          | 1,271  |         |             | $     | 1,240  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Interest-bearing deposits with other banks    |                                                             |                                            | 3,981  |         |             |       | 4,148  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Federal funds sold                            |                                                             |                                            | 7,400  |         |             |       | 12,800 |       
|                                       |                                               |                                                             |                                            |        |         |            
|                                       |                                               |                                                             | Total cash and cash equivalents            |        |         | 12,652      |       |        |        | 18,188  | 
|                                      
|                                      
|                                      
|                                      
|Securities Available for Sale (Note 2) |                                               |                                                             | 12,078                                     |        |         |             | 8,707 |       
|                                      
|                                      
|                                      
|                                      
|Federal Reserve Bank Stock  At cost   |                                               |                                                             | 325                                        |        |         |             | 294   |       
|                                      
|                                      
|                                      
|                                      
|Federal Home Loan Bank Stock  At cost |                                               |                                                             | 94                                         |        |         |             |      |       
|                                      
|                                      
|                                      
|                                      
|Loans (Note 3)                        
|                                      
|                                      
|                                      
|                                      
|                                       | Commercial                                    |                                                             |                                            | 76,804 |         |             |       | 74,005 |       
|                                      
|                                      
|                                      
|                                      
|                                       | Direct financing leases (Note 5)              |                                                             |                                            | 1,833  |         |             |       | 948    |       
|                                      
|                                      
|                                      
|                                      
|                                       | Real estate                                   |                                                             |                                            | 14,334 |         |             |       | 5,094  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Installment                                   |                                                             |                                            | 301    |         |             |       | 166    |       
|                                      
|                                      
|                                      
|                                      
|                                       | Home equity                                   |                                                             |                                            | 1,865  |         |             |       | 1,657  |       
|                                       |                                               |                                                             |                                            |        |         |            
|                                       |                                               |                                                             | Total loans                                |        |         | 95,137      |       |        |        | 81,870  | 
|                                      
|                                      
|                                      
|                                      
|                                       | Less allowance for loan losses (Note 4)       |                                                             |                                            | (1,887 | )       |             |       | (1,987 | )     
|                                       |                                               |                                                             |                                            |        |         |            
|                                       |                                               |                                                             | Net loans                                  |        |         | 93,250      |       |        |        | 79,883  | 
|                                      
|                                      
|                                      
|                                      
|Bank Premises and Equipment (Note 6)   |                                               |                                                             | 842                                        |        |         |             | 763   |       
|                                      
|                                      
|                                      
|                                      
|Deferred Income Taxes (Note 8)         |                                               |                                                             | 412                                        |        |         |             | 464   |       
|                                      
|                                      
|                                      
|                                      
|Interest Receivable and Other Assets   |                                               |                                                             | 915                                        |        |         |             | 588   |       
|                                       |                                               |                                                             |                                            |        |         |            
|                                       |                                               |                                                             | Total assets                               |        | $       | 120,568     |       |        | $      | 108,887 | 
|                                       |                                               |                                                             |                                            |        |         |            
|Liabilities and Stockholders Equity   |                                               |                                                             |                                            |       
|                                      
|                                      
|                                      
|                                      
|Liabilities                           
|                                      
|                                      
|                                      
|                                      
|                                       | Deposits (Note 7):                           
|                                      
|                                      
|                                      
|                                      
|                                       |                                               | Interest-bearing                                            |                                            | $      | 104,832 |             |       | $      | 92,863 |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                               | Noninterest-bearing                                         |                                            |        | 1,828   |             |       |        | 3,091  |        
|                                       |                                               |                                                             |                                            |        |         |            
|                                       |                                               |                                                             | Total deposits                             |        |         | 106,660     |       |        |        | 95,954  | 
|                                      
|                                      
|                                      
|                                      
|                                       | Short-term borrowings                         |                                                             |                                            | 500    |         |             |       |       |       
|                                      
|                                      
|                                      
|                                      
|                                       | Interest payable and other liabilities        |                                                             |                                            | 1,085  |         |             |       | 1,215  |       
|                                       |                                               |                                                             |                                            |        |         |            
|                                       |                                               |                                                             | Total liabilities                          |        |         | 108,245     |       |        |        | 97,169  | 
|                                      
|                                      
|                                      
|                                      
|Stockholders Equity                  
|                                      
|                                      
|                                      
|                                      
|                                       | Preferred stock  No par value:              
|                                      
|                                      
|                                      
|                                      
|                                       |                                               | Authorized   500,000 shares                               
|                                      
|                                      
|                                      
|                                      
|                                       |                                               | Issued and outstanding  None                               |                                            |        |        |             |       |        |       |        
|                                      
|                                      
|                                      
|                                      
|                                       | Common stock  No par value (Note 12):       
|                                      
|                                      
|                                      
|                                      
|                                       |                                               | Authorized   4,500,000 shares                             
|                                      
|                                      
|                                      
|                                      
|                                       |                                               | Issued and outstanding   1,488,764 shares in 1999 and 2000 |                                            |        | 13,730  |             |       |        | 13,730 |        
|                                      
|                                      
|                                      
|                                      
|                                       | Accumulated deficit                           |                                                             |                                            | (1,471 | )       |             |       | (1,975 | )     
|                                      
|                                      
|                                      
|                                      
|                                       | Accumulated other comprehensive income (loss) |                                                             |                                            | 64     |         |             |       | (37    | )     
|                                       |                                               |                                                             |                                            |        |         |            
|                                       |                                               |                                                             | Total stockholders equity                 |        |         | 12,323      |       |        |        | 11,718  | 
|                                       |                                               |                                                             |                                            |        |         |            
|                                       |                                               |                                                             | Total liabilities and stockholders equity |        | $       | 120,568     |       |        | $      | 108,887 | 
|                                       |                                               |                                                             |                                            |        |         |            

See Notes to Consolidated
      Financial Statements.

20



---



Michigan Heritage Bancorp, Inc.

Consolidated Statement of Changes in Stockholders Equity
(000s omitted, except per share data)

|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |     |       |               |   |        |      |     |      |  
|--------------------------- | ----------------------------- | ------------------------------ | -------------------------- | - | ----------- | - | ------ | ------- | - | - | ----------- | ---- | - | ------------- | --- | ----- | ------------- | - | ------ | ---- | --- | ---- | -
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |     |       | Accumulated   |  
|                            |                               |                                |                            |   | Common      |   |        |         |   |   |             |      |   |               |     | Other |               |   | Total  |     
|                            |                               |                                |                            |   | Shares      |   |        | Capital |   |   | Accumulated |      |   | Comprehensive |     |       | Stockholders' |  
|                            |                               |                                |                            |   | Outstanding |   |        | Stock   |   |   | Deficit     |      |   | Income (Loss) |     |       | Equity        |  
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |     |       |               |  
|Balance  January 1, 1998   |                               |                                | 1,150,000                  |   |             | $ | 10,815 |         |   | $ | (670        | )    |   | $             |    |       |               | $ | 10,145 |     
|                           
|                           
|                           
|                           
|Comprehensive loss:        
|                           
|                           
|                           
|                           
|                            | Net loss                      |                                |                            |  |             |   |        |        |   |   |             | (113 | ) |               |     |      |               |   |        | (113 | )  
|                           
|                           
|                           
|                           
|                            | Change in net unrealized gain
|                           
|                           
|                           
|                           
|                            |                               | on securities available for   
|                           
|                           
|                           
|                           
|                            |                               | sale, net of tax effect of $5  |                            |   |            |   |        |         |  |   |             |      |  |               |     |       | 9             |   |        |      | 9   |     
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |     |       |               |   |       
|                            |                               |                                | Total comprehensive loss   |   |             |   |        |         |   |   |             |      |   |               |     |       |               |   |        |      |     | (104 | )
|                           
|                           
|                           
|                           
|Stock dividend (Note 12)    |                               |                                | 114,999                    |   |             |   | 1,667  |         |   |   | (1,667      | )    |   |               |    |       |               |   |       |     
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |    
|Balance  December 31, 1998 |                               |                                | 1,264,999                  |   |             |   | 12,482 |         |   |   | (2,450      | )    |   |               | 9   |       |               |   | 10,041 |     
|                           
|                           
|                           
|                           
|Comprehensive income:      
|                           
|                           
|                           
|                           
|                            | Net income                    |                                |                            |  |             |   |        |        |   |   |             | 475  |   |               |     |      |               |   |        | 475  |    
|                           
|                           
|                           
|                           
|                            | Change in net unrealized loss
|                           
|                           
|                           
|                           
|                            |                               | on securities available for   
|                           
|                           
|                           
|                           
|                            |                               | sale, net of tax effect of $24 |                            |   |            |   |        |         |  |   |             |      |  |               |     |       | (46           | ) |        |      | (46 | )   
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |     |       |               |   |       
|                            |                               |                                | Total comprehensive income |   |             |   |        |         |   |   |             |      |   |               |     |       |               |   |        |      |     | 429  |  
|                           
|                           
|                           
|                           
|Issuance of common stock    |                               |                                | 223,765                    |   |             |   | 1,248  |         |   |   |            |      |   |               |    |       |               |   | 1,248  |     
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |    
|Balance  December 31, 1999 |                               |                                | 1,488,764                  |   |             |   | 13,730 |         |   |   | (1,975      | )    |   |               | (37 | )     |               |   | 11,718 |     
|                           
|                           
|                           
|                           
|Comprehensive income:      
|                           
|                           
|                           
|                           
|                            | Net income                    |                                |                            |  |             |   |        |        |   |   |             | 504  |   |               |     |      |               |   |        | 504  |    
|                           
|                           
|                           
|                           
|                            | Change in net unrealized gain
|                           
|                           
|                           
|                           
|                            |                               | on securities available for   
|                           
|                           
|                           
|                           
|                            |                               | sale, net of tax effect of $52 |                            |   |            |   |        |         |  |   |             |      |  |               |     |       | 101           |   |        |      | 101 |     
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |     |       |               |   |       
|                            |                               |                                | Total comprehensive income |   |             |  |        |         |   |  |             |      |   |              |     |       |               |  |        |      |     | 605  |  
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |    
|Balance  December 31, 2000 |                               |                                | 1,488,764                  |   |             | $ | 13,730 |         |   | $ | (1,471      | )    |   | $             | 64  |       |               | $ | 12,323 |     
|                            |                               |                                |                            |   |             |   |        |         |   |   |             |      |   |               |    

See Notes to Consolidated
      Financial Statements.

21



---



Michigan Heritage Bancorp, Inc.

Consolidated Statement of Operations
(000s omitted, except per share data)

|                                                          |                                             |                                                 |                       |       |                        |       |       |       |       |       |       |     |       |       | 
|--------------------------------------------------------- | ------------------------------------------- | ----------------------------------------------- | --------------------- | ----- | ---------------------- | ----- | ----- | ----- | ----- | ----- | ----- | --- | ----- | ----- | 
|                                                          |                                             |                                                 |                       |       | Year Ended December 31 |      
|                                                          |                                             |                                                 |                       |       |                        |      
|                                                          |                                             |                                                 |                       |       | 2000                   |       |       | 1999  |       |       | 1998  |    
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |       |       |       |    
|Interest Income                                          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Interest and fees on loans                      |                       | $     | 8,203                  |       |       | $     | 7,403 |       |       | $   | 5,051 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Interest and dividends on investments  Taxable |                       |       | 839                    |       |       |       | 321   |       |       |     | 685   |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Interest on tax-exempt securities               |                       |       | 27                     |       |       |       | 1     |       |       |     |      |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Interest on federal funds sold                  |                       |       | 408                    |       |       |       | 409   |       |       |     | 224   |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Interest on deposits with other banks           |                       |       | 211                    |       |       |       | 180   |       |       |     | 146   |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Interest on direct financing leases             |                       |       | 107                    |       |       |       | 72    |       |       |     |      |      
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|                                                          |                                             |                                                 | Total interest income |       |                        | 9,795 |       |       |       | 8,386 |       |     |       | 6,106 | 
|                                                         
|                                                         
|                                                         
|                                                         
|Interest Expense  Interest on deposits                   |                                             |                                                 | 5,712                 |       |                        |       | 4,983 |       |       |       | 3,666 |    
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|Interest Income  Before provision for loan losses        |                                             |                                                 | 4,083                 |       |                        |       | 3,403 |       |       |       | 2,440 |    
|                                                         
|                                                         
|                                                         
|                                                         
|Provision for Loan Losses (Note 4)                        |                                             |                                                 | 60                    |       |                        |       | 1,072 |       |       |       | 1,349 |    
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|Net Interest Income                                       |                                             |                                                 | 4,023                 |       |                        |       | 2,331 |       |       |       | 1,091 |    
|                                                         
|                                                         
|                                                         
|                                                         
|Other Income                                             
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Service charges on deposit accounts             |                       |       | 111                    |       |       |       | 110   |       |       |     | 72    |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Operating lease rental income                   |                       |       |                       |       |       |       | 1,236 |       |       |     | 515   |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Gain on sale of loans                           |                       |       | 66                     |       |       |       | 264   |       |       |     |      |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Gain on sale of property on operating lease     |                       |       |                       |       |       |       | 500   |       |       |     |      |      
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|                                                          |                                             |                                                 | Total other income    |       |                        | 177   |       |       |       | 2,110 |       |     |       | 587   | 
|                                                         
|                                                         
|                                                         
|                                                         
|Other Expenses                                           
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Salaries and employee benefits              |                                                 |                       | 1,901 |                        |       |       | 1,373 |       |       |       | 910 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Occupancy of bank premises (Note 9)         |                                                 |                       | 406   |                        |       |       | 182   |       |       |       | 82  |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Processing                                  |                                                 |                       | 89    |                        |       |       | 60    |       |       |       | 45  |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Marketing                                   |                                                 |                       | 172   |                        |       |       | 145   |       |       |       | 115 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Equipment expense                           |                                                 |                       | 229   |                        |       |       | 177   |       |       |       | 118 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Depreciation of property on operating lease |                                                 |                       |      |                        |       |       | 974   |       |       |       | 443 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Professional fees                           |                                                 |                       | 263   |                        |       |       | 289   |       |       |       | 155 |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other assets provision                      |                                                 |                       |      |                        |       |       | 120   |       |       |       |    |      
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          | Other expenses                              |                                                 |                       | 403   |                        |       |       | 358   |       |       |       | 188 |      
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|                                                          |                                             |                                                 | Total other expenses  |       |                        | 3,463 |       |       |       | 3,678 |       |     |       | 2,056 | 
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|Income (Loss)  Before income taxes and cumulative effect
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | of change in accounting principle               |                       |       | 737                    |       |       |       | 763   |       |       |     | (378  | )    
|                                                         
|                                                         
|                                                         
|                                                         
|Income Tax Expense (Benefit) (Note 8)                     |                                             |                                                 | 233                   |       |                        |       | 288   |       |       |       | (331  | )  
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|Net Income (Loss)  Before cumulative effect of          
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | change in accounting principle                  |                       |       | 504                    |       |       |       | 475   |       |       |     | (47   | )    
|                                                         
|                                                         
|                                                         
|                                                         
|Cumulative Effect of Expensing Organizational Costs -    
|                                                         
|                                                         
|                                                         
|                                                         
|                                                          |                                             | Net of tax benefit of $34                       |                       |       |                       |       |       |       |      |       |       |     | (66   | )    
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|Net Income (Loss)                                         |                                             | $                                               | 504                   |       |                        | $     | 475   |       |       | $     | (113  | )  
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|Basic Earnings (Loss) per Share (Note 17)                 |                                             | $                                               | 0.34                  |       |                        | $     | 0.36  |       |       | $     | (0.09 | )  
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      
|Diluted Earnings (Loss) per Share (Note 17)               |                                             | $                                               | 0.34                  |       |                        | $     | 0.36  |       |       | $     | (0.09 | )  
|                                                          |                                             |                                                 |                       |       |                        |       |       |       |      

See Notes to Consolidated
      Financial Statements.

22



---



Michigan Heritage Bancorp, Inc.

Consolidated Statement of Cash Flows
(000s omitted, except per share data)

|                                                     |                                                                                     |                |                                                                       |         |                        |         |        |         |   |       |       |         |   |         |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | -------------- | --------------------------------------------------------------------- | ------- | ---------------------- | ------- | ------ | ------- | - | ----- | ----- | ------- | - | ------- | -
|                                                     |                                                                                     |                |                                                                       |         | Year Ended December 31 |        
|                                                     |                                                                                     |                |                                                                       |         |                        |        
|                                                     |                                                                                     |                |                                                                       |         | 2000                   |         |        | 1999    |   |       | 1998  |        
|                                                     |                                                                                     |                |                                                                       |         |                        |         |        |         |   |       |       |        
|Cash Flows from Operating Activities                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income (loss)                                                                   |                | $                                                                     | 504     |                        |         | $      | 475     |   |       | $     | (113    | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income (loss) to net cash from
operating activities:  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Depreciation and amortization                                         |         |                        | 234     |        |         |   | 1,139 |       |         |   | 545     |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Provision for loan losses                                             |         |                        | 60      |        |         |   | 1,072 |       |         |   | 1,349   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Gain on sale of operating lease equipment                             |         |                        |        |        |         |   | (500  | )     |         |   |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Deferred income taxes                                                 |         |                        |        |        |         |   | 150   |       |         |   | (580    | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Cumulative effect of change in accounting principle                   |         |                        |        |        |         |   |      |       |         |   | 66      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Amortization and accretion of securities                              |         |                        | (82     | )      |         |   | (139  | )     |         |   | (83     | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Changes in assets and liabilities:                                   
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | (Increase) decrease in accrued interest receivable
and other assets   |         |                        | (327    | )      |         |   | 28    |       |         |   | (229    | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Increase (decrease) in accrued interest payable
and other liabilities |         |                        | (130    | )      |         |   | 393   |       |         |   | 257     |  
|                                                     |                                                                                     |                |                                                                       |         |                        |         |        |         |  
|                                                     |                                                                                     |                | Net cash provided by operating activities                             |         |                        | 259     |        |         |   | 2,618 |       |         |   | 1,212   |  
|                                                    
|                                                    
|                                                    
|                                                    
|Cash Flows from Investing Activities                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from maturities of available-for-sale securities                           |                |                                                                       | 7,340   |                        |         |        | 23,000  |   |       |       | 16,000  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of available-for-sale securities                                           |                |                                                                       | (10,476 | )                      |         |        | (23,641 | ) |       |       | (18,935 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from maturities of held-to-maturity securities                             |                |                                                                       |        |                        |         |        |        |   |       |       | 8,600   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of federal home loan bank stock                                            |                |                                                                       | (94     | )                      |         |        |        |   |       |       |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of federal reserve stock                                                   |                |                                                                       | (31     | )                      |         |        | (58     | ) |       |       |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Increase in loans                                                                   |                |                                                                       | (13,427 | )                      |         |        | (1,170  | ) |       |       | (48,996 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of operating lease equipment                                               |                |                                                                       |        |                        |         |        |        |   |       |       | (2,775  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sales of operating lease equipment                                    |                |                                                                       |        |                        |         |        | 1,858   |   |       |       |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Premises and equipment expenditures                                                 |                |                                                                       | (313    | )                      |         |        | (475    | ) |       |       | (171    | )
|                                                     |                                                                                     |                |                                                                       |         |                        |         |        |         |  
|                                                     |                                                                                     |                | Net cash used in investing activities                                 |         |                        | (17,001 | )      |         |   | (486  | )     |         |   | (46,277 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Cash Flows from Financing Activities                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net increase (decrease) in interest-bearing and noninterest-bearing
demand accounts |                |                                                                       | (3,666  | )                      |         |        | 3,953   |   |       |       | 7,448   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net increase in time certificates                                                   |                |                                                                       | 14,372  |                        |         |        | 4,347   |   |       |       | 39,478  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from short-term borrowings                                                 |                |                                                                       | 500     |                        |         |        |        |   |       |       | 1,750   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments on short-term borrowings                                                   |                |                                                                       |        |                        |         |        | (1,750  | ) |       |       |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from public stock offering                                                 |                |                                                                       |        |                        |         |        | 1,248   |   |       |       |        |  
|                                                     |                                                                                     |                |                                                                       |         |                        |         |        |         |  
|                                                     |                                                                                     |                | Net cash provided by financing activities                             |         |                        | 11,206  |        |         |   | 7,798 |       |         |   | 48,676  |  
|                                                     |                                                                                     |                |                                                                       |         |                        |         |        |         |  
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                     |                | (5,536                                                                | )       |                        |         | 9,930  |         |   |       | 3,611 |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash
and Cash Equivalents  Beginning of year        |                                                                                     |                | 18,188                                                                |         |                        |         | 8,258  |         |   |       | 4,647 |        
|                                                     |                                                                                     |                |                                                                       |         |                        |         |        |         |  
|Cash and Cash Equivalents  End of year              |                                                                                     | $              | 12,652                                                                |         |                        | $       | 18,188 |         |   | $     | 8,258 |        
|                                                     |                                                                                     |                |                                                                       |         |                        |         |        |         |  
|Supplemental Cash Flow and Noncash Information      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Cash paid for:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Interest                                                              |         | $                      | 5,445   |        |         | $ | 4,874 |       |         | $ | 3,656   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     |                | Income taxes                                                          |         |                        | 203     |        |         |   | 90    |       |         |   | 230     |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Stock dividend (Note 12)                                                            |                |                                                                       |        |                        |         |        |        |   |       |       | 1,667   |  

See Notes to Consolidated
      Financial Statements.

23



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 1  Summary of Significant Accounting Policies



| |  |  | Basis of Presentation  The accounting and reporting policies of
Michigan Heritage Bancorp, Inc. and its subsidiary conform to
generally accepted accounting principles. Management is required to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual
results could differ from those estimates and assumptions. The 000s
have been omitted in tabular presentations.                                                                                                                                                                                
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Principles of Consolidation  The consolidated financial statements
include the accounts of Michigan Heritage Bancorp, Inc. (the
Corporation) and its wholly owned subsidiary, Michigan Heritage
Bank. All significant intercompany accounts and transactions have been
eliminated upon consolidation.                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | Nature of Operations  Michigan Heritage Bank (the Bank) conducts
full-service commercial and consumer banking and provides other
financial products and services through its main office to communities
in Wayne and Oakland counties. The Bank has a lending concentration to
companies who operate hospitals. Loans to these companies were 19
percent and 15 percent of total loans at December 31, 2000 and 1999,
respectively.                                                                                                                                                                                                    
|
| |  |  | Cash Equivalents  Cash equivalents include cash on hand and amounts
due from banks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | Securities  Securities are classified as held to maturity when
management has the intent and ability to hold to maturity.
Held-to-maturity securities are reported at amortized cost. All other
securities are classified as available-for-sale securities and are
reported at fair value, with unrealized gains and losses, net of
related deferred income taxes, included in other comprehensive income
in stockholders equity.                                                                                                                                                                                                       
|
| |  |  | Loan Interest and Fee Income  Loans are generally reported at the
principal amount outstanding. Interest on loans is accrued and
credited to income based on the principal amount outstanding. The
accrual of interest on loans is discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to
meet payments as they become due. Upon such discontinuance, all unpaid
interest accrued is reversed. Interest accruals are generally resumed
when all delinquent principal and/or interest has been brought current
or the loan becomes both well-secured and in the process of
collection.

24



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 1  Summary of Significant Accounting Policies (Continued)



| |  |  | Lease Financing  The Bank uses the finance method of accounting for
direct lease contracts. Under this method of accounting, a receivable
is recorded for the present value of lease payments due and estimated
residual values. Lease income, represented by the excess of the total
contract receivable plus estimated equipment residual value over the
cost of the equipment, is recorded over the term of the lease at a
level rate of return on the unrecovered net investment.                                                                                         
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Operating Lease  Lease income is recognized straight-line over the
term of the lease as payments are due. Depreciation on leased assets
is computed using the straight-line method over the lease term to the
Banks estimate of the residual value of the property at the end of
the lease.                                                                                                                                                                                                                                                                                  
|
| |  |  | Allowance for Possible Loan Losses  The allowance for possible loan
losses is maintained at a level considered by management to be
adequate to absorb losses inherent in existing loans and loan
commitments. The adequacy of the allowance is based on evaluations
that take into consideration such factors as prior loss experience,
changes in the nature and volume of the portfolio, overall portfolio
quality, loan concentrations, specific impaired, or problem loans and
commitments, and current economic conditions that may affect the
borrowers ability to pay.
|
| |  |  | Premises and Equipment  Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation, computed
on the straight-line method, is charged to operations over the useful
lives of the properties. Leasehold improvements are amortized over the
terms of their respective leases or the estimated useful lives of the
improvements, whichever is shorter.                                                                                                                                                                              
|
| |  |  | Short-term Borrowings  The Bank includes federal funds purchased in
short-term borrowings. Federal funds purchased generally mature in
one to four days.                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | Earnings per Share  Earnings per share are based on the weighted
average number of shares outstanding in each period and is
retroactively adjusted for stock dividends. Fully diluted earnings per
share are based on weighted average shares outstanding assuming the
exercise of the dilutive stock options. The effects of unexercised
stock options in 2000, 1999, and 1998 are not dilutive and have not
been considered.                                                                                                                                                

25



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 1  Summary of Significant Accounting Policies (Continued)



| |  |  | Stock Options  The Corporation has two stock option plans (see Note
10). Options granted are accounted for using the intrinsic value
method, under which compensation expense is recorded at the amount by
which the market price of the underlying stock at the grant date
exceeds the exercise price of an option. Under the Corporations
plans, the exercise price on all of the options granted equals or
exceeds the fair value of the stock at the grant date. Accordingly, no
compensation cost is recorded as a result of stock options awarded
under the plans.                                                                                                                                                                                                                                                          
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Other Comprehensive Income (Loss)  Accounting principles generally
require that recognized revenue, expenses, gains, and losses be
included in net income. Certain changes in assets and liabilities,
however, such as unrealized gains and losses on available-for-sale
securities, are reported as a direct adjustment to the equity section
of the balance sheet. Such items, along with net income, are
components of comprehensive income. Accumulated other comprehensive
income (loss) at December 31, 2000 and 1999 is comprised solely of
unrealized gains (losses) on available-for-sale securities, net of
related income taxes.                                                                                                                                                                                        
|
| |  |  | Accounting Change  In the fourth quarter of the year ended December
31, 1998, the Corporation adopted Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-up Activities. This SOP requires that
the costs of start-up activities, including organization costs, should
be expensed as incurred. The adoption of this SOP resulted in the
Corporation recording a pretax charge of $100,000 and is reflected as
a reduction in other assets.                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | Recent Accounting Pronouncements  In June 1998, Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities(SFAS 133), was issued. SFAS 133
requires all derivative instruments to be recorded on the balance
sheet at estimated fair value. Changes in the fair value of derivative
instruments are to be recorded each period in either current earnings
or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, on the type
of hedge transaction. SFAS 133 is effective for the year 2001. The
Corporation is currently evaluating the impact of SFAS 133. At
present, the Corporation does not believe it will have a material
effect on the consolidated financial position or operating results.
|
| |  |  | Reclassifications  Certain prior year amounts have been reclassified
to conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

26



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 2  Securities



| |  |  | The amortized cost and estimated market value of investment securities
are as follows:
| |  |  | --------------------------------------------------------------------------------------

|                               |                              |                                |       |       |           |        |  |            |       |    |            |       |   |        |           |       |       |        | 
|------------------------------ | ---------------------------- | ------------------------------ | ----- | ----- | --------- | ------ |  | ---------- | ----- | -- | ---------- | ----- | - | ------ | --------- | ----- | ----- | ------ | 
|                               |                              |                                |       |       | 2000      |       
|                               |                              |                                |       |       |           |       
|                               |                              |                                |       |       |           |        |  |            | Gross |    |            | Gross |   |        | Estimated |      
|                               |                              |                                |       |       | Amortized |        |  | Unrealized |       |    | Unrealized |       |   | Market |          
|                               |                              |                                |       |       | Cost      |        |  | Gains      |       |    | Losses     |       |   | Value  |          
|                               |                              |                                |       |       |           |        |  |            |       |    |            |       |   |        |          
|Available-for-sale securities:
|                              
|                              
|                              
|                              
|                               | U.S. Treasury securities and
|                              
|                              
|                              
|                              
|                               |                              | obligations of U.S. government
|                              
|                              
|                              
|                              
|                               |                              | corporations and agencies      |       | $     | 6,740     |        |  | $          | 20    |    |            | $     |  |        |           | $     | 6,760 |       
|                              
|                              
|                              
|                              
|                               | Municipal notes              |                                |       | 2,397 |           |        |  | 55         |       |    |            |      |   |        |           | 2,452 |      
|                              
|                              
|                              
|                              
|                               | Corporate bonds              |                                |       | 2,844 |           |        |  | 22         |       |    |            |      |   |        |           | 2,866 |      
|                               |                              |                                |       |       |           |        |  |            |       |    |            |      
|                               |                              |                                | Total |       | $         | 11,981 |  |            | $     | 97 |            |       | $ |       |           |       | $     | 12,078 | 
|                               |                              |                                |       |       |           |        |  |            |       |    |            |      

|                               |                              |                                |       |       |           |       |  |            |       |   |            |       |    |        |           |       |       |       | 
|------------------------------ | ---------------------------- | ------------------------------ | ----- | ----- | --------- | ----- |  | ---------- | ----- | - | ---------- | ----- | -- | ------ | --------- | ----- | ----- | ----- | 
|                               |                              |                                |       |       | 1999      |      
|                               |                              |                                |       |       |           |      
|                               |                              |                                |       |       |           |       |  |            | Gross |   |            | Gross |    |        | Estimated |      
|                               |                              |                                |       |       | Amortized |       |  | Unrealized |       |   | Unrealized |       |    | Market |          
|                               |                              |                                |       |       | Cost      |       |  | Gains      |       |   | Losses     |       |    | Value  |          
|                               |                              |                                |       |       |           |       |  |            |       |   |            |       |    |        |          
|Available-for-sale securities:
|                              
|                              
|                              
|                              
|                               | U.S. Treasury securities and
|                              
|                              
|                              
|                              
|                               |                              | obligations of U.S. government
|                              
|                              
|                              
|                              
|                               |                              | corporations and agencies      |       | $     | 6,229     |       |  | $          |      |   |            | $     | 52 |        |           | $     | 6,177 |      
|                              
|                              
|                              
|                              
|                               | Municipal notes              |                                |       | 1,031 |           |       |  |           |       |   |            | 2     |    |        |           | 1,029 |      
|                              
|                              
|                              
|                              
|                               | Corporate bonds              |                                |       | 1,502 |           |       |  |           |       |   |            | 1     |    |        |           | 1,501 |      
|                               |                              |                                |       |       |           |       |  |            |       |   |            |      
|                               |                              |                                | Total |       | $         | 8,762 |  |            | $     |  |            |       | $  | 55     |           |       | $     | 8,707 | 
|                               |                              |                                |       |       |           |       |  |            |       |   |            |      

27



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 2  Securities (Continued)



| |  |  | The amortized cost and estimated market value of securities at
December 31, 2000, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities. Issuers may have
the right to call or prepay obligations with or without call or
prepayment penalties.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |       |   |                    |        |  |              |       |        | 
|-------------------------------------- | ----- | - | ------------------ | ------ |  | ------------ | ----- | ------ | 
|                                       |       |   | Available-for-Sale |       
|                                       |       |   |                    |       
|                                       |       |   | Amortized          |        |  | Estimated    |      
|                                       |       |   | Cost               |        |  | Market Value |      
|                                       |       |   |                    |        |  |              |      
|Due in one year or less                |       | $ | 5,289              |        |  | $            | 5,302 |       
|                                      
|                                      
|                                      
|                                      
|Due after one year through five years  |       |   | 4,670              |        |  |              | 4,740 |       
|                                      
|                                      
|                                      
|                                      
|Due after five years through ten years |       |   | 852                |        |  |              | 872   |       
|                                      
|                                      
|                                      
|                                      
|Due after ten years                    |       |   | 1,170              |        |  |              | 1,164 |       
|                                       |       |   |                    |        |  |             
|                                       | Total |   | $                  | 11,981 |  |              | $     | 12,078 | 
|                                       |       |   |                    |        |  |             



| |  |  | Securities having a carrying and market value of $990,000 and
$990,000, respectively, were pledged at December 31, 2000 for purposes
required by law.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

Note 3  Loans



| |  |  | Certain directors and executive officers of the Corporation were loan
customers of the subsidiary bank during 2000. Such loans were made in
the ordinary course of business and do not involve more than a normal
risk of collectibility. The outstanding loan balance for these persons
at December 31, 2000 and 1999 amounted to $212,000 and $0,
respectively. During 2000, $263,000 of new loans were made and
repayments totaled $51,000.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 3  Loans (Continued)



| |  |  | Final loan maturities and rate sensitivity of the loan portfolio at
December 31, 2000 are as follows:
| |  |  | -----------------------------------------------------------------------------------------------------

|                                 |       |   |            |        |  |             |        |        |            |   |       |       |  |   |        |        | 
|-------------------------------- | ----- | - | ---------- | ------ |  | ----------- | ------ | ------ | ---------- | - | ----- | ----- |  | - | ------ | ------ | 
|                                 |       |   | Within One |        |  | One to Five |        |        | After Five |  
|                                 |       |   | Year       |        |  | Years       |        |        | Years      |   |       | Total | 
|                                 |       |   |            |        |  |             |        |        |            |   |       |       | 
|Commercial                       |       | $ | 35,813     |        |  | $           | 38,467 |        |            | $ | 2,524 |       |  | $ | 76,804 |       
|                                
|                                
|                                
|                                
|Direct financing lease           |       |   | 283        |        |  |             | 1,550  |        |            |   |      |       |  |   | 1,833  |       
|                                
|                                
|                                
|                                
|Real estate                      |       |   | 5,020      |        |  |             | 4,905  |        |            |   | 4,409 |       |  |   | 14,334 |       
|                                
|                                
|                                
|                                
|Installment                      |       |   | 15         |        |  |             | 286    |        |            |   |      |       |  |   | 301    |       
|                                
|                                
|                                
|                                
|Home equity                      |       |   | 687        |        |  |             | 1,168  |        |            |   | 10    |       |  |   | 1,865  |       
|                                 |       |   |            |        |  |             |        |        |            |   |       |      
|                                 | Total |   | $          | 41,818 |  |             | $      | 46,376 |            |   | $     | 6,943 |  |   | $      | 95,137 | 
|                                 |       |   |            |        |  |             |        |        |            |   |       |      
|Loans at fixed interest rates    |       | $ | 29,030     |        |  | $           | 38,888 |        |            | $ | 225   |       |  | $ | 68,143 |       
|                                
|                                
|                                
|                                
|Loans at variable interest rates |       |   | 12,788     |        |  |             | 7,488  |        |            |   | 6,718 |       |  |   | 26,994 |       
|                                 |       |   |            |        |  |             |        |        |            |   |       |      
|                                 | Total |   | $          | 41,818 |  |             | $      | 46,376 |            |   | $     | 6,943 |  |   | $      | 95,137 | 
|                                 |       |   |            |        |  |             |        |        |            |   |       |      

Note 4  Allowance for Possible Loan Losses



| |  |  | A summary of the activity in the allowance for possible loan losses
(ALL) is as follows:
| |  |  | ----------------------------------------------------------------------------------------

|                                |  |      |       |   |      |   |       |  
|------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                |  | 2000 |       |   | 1999 |  
|                                |  |      |       |   |      |  
|Balance  Beginning of year     |  | $    | 1,987 |   |      | $ | 1,816 |  
|                               
|                               
|                               
|                               
|Provision charged to operations |  |      | 60    |   |      |   | 1,072 |  
|                               
|                               
|                               
|                               
|Loan losses                     |  |      | (160  | ) |      |   | (969  | )
|                               
|                               
|                               
|                               
|Loan loss recoveries            |  |      |      |   |      |   | 68    |  
|                                |  |      |       |   |      |  
|Balance  End of year           |  | $    | 1,887 |   |      | $ | 1,987 |  
|                                |  |      |       |   |      |  
|As a percent of total loans     |  |      | 1.98  | % |      |   | 2.43  | %
|                                |  |      |       |   |      |  



| |  |  | The Corporation considers a loan impaired when it is probable that all
interest and principal will not be collected in accordance with the
contractual terms of the loan agreement. Consistent with this
definition, all nonaccrual and reduced rate loans (with the exception
of residential mortgages and consumer loans) are considered impaired.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 4  Allowance for Possible Loan Losses (Continued)



| |  |  | The recorded investment in impaired loans was $265,000 and $113,000 at
December 31, 2000 and 1999, respectively. The average recorded
investment in impaired loans during 2000 was $101,000. The average
recorded investment in impaired loans during 1999 was $810,000.
Included in the impaired loan total were $101,000 ($100,000 in 1999)
of impaired loans for which the specific allowance for possible loan
losses was $124,000 and $63,000 at December 31, 2000 and 1999,
respectively.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 5  Direct Financing Leases



| |  |  | The following lists the components of the net investment in direct
financing leases:
| |  |  | ------------------------------------------------------------------------------------

|                                                            |                                           |   |       |       |  |      |      |     | 
|----------------------------------------------------------- | ----------------------------------------- | - | ----- | ----- |  | ---- | ---- | --- | 
|                                                            |                                           |   | 2000  |       |  | 1999 |     
|                                                            |                                           |   |       |       |  |      |     
|Minimum lease payments receivable                           |                                           | $ | 1,923 |       |  | $    | 998  |    
|                                                           
|                                                           
|                                                           
|                                                           
|Estimated residual values of leased
property (unguaranteed) |                                           |   | 523   |       |  |      | 211  |    
|                                                           
|                                                           
|                                                           
|                                                           
|Less unearned income                                        |                                           |   | (613  | )     |  |      | (261 | )  
|                                                            |                                           |   |       |       |  |     
|                                                            | Net investment in direct
financing leases |   | $     | 1,833 |  |      | $    | 948 | 
|                                                            |                                           |   |       |       |  |     



| |  |  | The following is a schedule by years of minimum future rentals on
direct financing leases as of December 31, 2000:
| |  |  | ------------------------------------------------------------------------------------------------------------------

|     |  |  |       |  |  |   |       | 
|---- |  |  | ----- |  |  | - | ----- | 
|2001 |  |  |       |  |  | $ | 402   | 
|    
|    
|    
|    
|2002 |  |  |       |  |  |   | 402   | 
|    
|    
|    
|    
|2003 |  |  |       |  |  |   | 401   | 
|    
|    
|    
|    
|2004 |  |  |       |  |  |   | 401   | 
|    
|    
|    
|    
|2005 |  |  |       |  |  |   | 317   | 
|     |  |  |       |  |  |   |      
|     |  |  | Total |  |  | $ | 1,923 | 
|     |  |  |       |  |  |   |      

30



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 6  Bank Premises and Equipment



| |  |  | Bank premises and equipment at December 31, 2000 and 1999 consisted of
the following:
| |  |  | -------------------------------------------------------------------------------------

| |                               |                     |   |       |       |  |      |     |       | 
| | ----------------------------- | ------------------- | - | ----- | ----- |  | ---- | --- | ----- | 
| |                               |                     |   | 2000  |       |  | 1999 |    
| |                               |                     |   |       |       |  |      |    
| | Buildings and improvements    |                     | $ | 376   |       |  | $    | 174 |      
|
|
|
|
| | Furniture and equipment       |                     |   | 1,035 |       |  |      | 929 |      
| |                               |                     |   |       |       | 
|
|
|
|
| |                               | Total               |   |       | 1,411 |  |      |     | 1,103 | 
|
|
|
|
| | Less accumulated depreciation |                     |   | 569   |       |  |      | 340 |      
| |                               |                     |   |       |       | 
| |                               | Net carrying amount |   | $     | 842   |  |      | $   | 763   | 
| |                               |                     |   |       |       | 

Note 7 - Deposits



| |  |  | The following is a summary of the distribution of deposits at December
31, 2000 and 1999:
| |  |  | -----------------------------------------------------------------------------------------

|                             |                     |                   |                        |       |        |         |       |       |        |        | 
|---------------------------- | ------------------- | ----------------- | ---------------------- | ----- | ------ | ------- | ----- | ----- | ------ | ------ | 
|                             |                     |                   |                        |       | 2000   |         |       | 1999  |       
|                             |                     |                   |                        |       |        |         |       |       |       
|Noninterest-bearing  Demand |                     | $                 | 1,828                  |       |        | $       | 3,091 |      
|                             |                     |                   |                        |       |        |        
|                            
|                            
|                            
|                            
|Interest-bearing:           
|                            
|                            
|                            
|                            
|                             | NOW accounts        |                   | $                      | 5,527 |        |         | $     | 4,884 |       
|                            
|                            
|                            
|                            
|                             | Savings             |                   |                        | 28    |        |         |       | 12    |       
|                            
|                            
|                            
|                            
|                             | Money market demand |                   |                        | 2,747 |        |         |       | 5,809 |       
|                            
|                            
|                            
|                            
|                             | Time:              
|                            
|                            
|                            
|                            
|                             |                     | $100,000 and over |                        |       | 38,149 |         |       |       | 22,426 |       
|                            
|                            
|                            
|                            
|                             |                     | Under $100,000    |                        |       | 58,381 |         |       |       | 59,732 |       
|                             |                     |                   |                        |       |        |        
|                             |                     |                   | Total interest-bearing |       | $      | 104,832 |       |       | $      | 92,863 | 
|                             |                     |                   |                        |       |        |        

31



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 7  Deposits (Continued)



| |  |  | The remaining maturities of time deposits at December 31, 2000 are as
follows:
| |  |  | ------------------------------------------------------------------------------

|     |  |  |       |  |  |           |        |  |              |   |        | 
|---- |  |  | ----- |  |  | --------- | ------ |  | ------------ | - | ------ | 
|     |  |  |       |  |  | Under     |        |  | $100,000 and |  
|     |  |  |       |  |  | $ 100,000 |        |  | Over         |  
|     |  |  |       |  |  |           |        |  |              |  
|2001 |  |  |       |  |  | $         | 47,430 |  |              | $ | 20,066 | 
|    
|    
|    
|    
|2002 |  |  |       |  |  |           | 9,385  |  |              |   | 15,395 | 
|    
|    
|    
|    
|2003 |  |  |       |  |  |           | 672    |  |              |   | 2,288  | 
|    
|    
|    
|    
|2004 |  |  |       |  |  |           | 760    |  |              |   | 400    | 
|    
|    
|    
|    
|2005 |  |  |       |  |  |           | 134    |  |              |   |       | 
|     |  |  |       |  |  |           |        |  |              |  
|    
|    
|    
|    
|     |  |  | Total |  |  | $         | 58,381 |  |              | $ | 38,149 | 
|     |  |  |       |  |  |           |        |  |              |  

Note 8  Income Taxes



| |  |  | Michigan Heritage Bancorp, Inc. and its subsidiary file a consolidated
federal income tax return. The following is a summary of the provision
for income taxes for the years ended December 31:
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           |                                    |   |      |     |  |      |     |     |      |   |      |      |  
|------------------------------------------ | ---------------------------------- | - | ---- | --- |  | ---- | --- | --- | ---- | - | ---- | ---- | -
|                                           |                                    |   | 2000 |     |  | 1999 |     |     | 1998 |  
|                                           |                                    |   |      |     |  |      |     |     |      |  
|Current                                    |                                    | $ | 233  |     |  | $    | 138 |     |      | $ | 230  |     
|                                          
|                                          
|                                          
|                                          
|Deferred (credit)                          |                                    |   |     |     |  |      | 150 |     |      |   | (595 | )   
|                                           |                                    |   |      |     |  |      |     |     |     
|                                           | Total income tax expense (benefit) |   |      | 233 |  |      |     | 288 |      |   |      | (365 | )
|                                          
|                                          
|                                          
|                                          
|Less amount allocated to cumulative effect |                                    |   |     |     |  |      |    |     |      |   | 34   |     
|                                           |                                    |   |      |     |  |      |     |     |     
|                                           | Net income tax expense (benefit)   |   | $    | 233 |  |      | $   | 288 |      |   | $    | (331 | )
|                                           |                                    |   |      |     |  |      |     |     |     



| |  |  | The following is a reconciliation of the statutory federal income tax
expense (benefit) to the effective tax expense (benefit) for the years
ended December 31:
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  |                                  |   |      |     |  |      |     |     |      |   |      |      |  
|--------------------------------- | -------------------------------- | - | ---- | --- |  | ---- | --- | --- | ---- | - | ---- | ---- | -
|                                  |                                  |   | 2000 |     |  | 1999 |     |     | 1998 |  
|                                  |                                  |   |      |     |  |      |     |     |      |  
|Income tax at statutory rate      |                                  | $ | 251  |     |  | $    | 259 |     |      | $ | (129 | )   
|                                 
|                                 
|                                 
|                                 
|Change in the valuation allowance |                                  |   |     |     |  |      |    |     |      |   | (225 | )   
|                                 
|                                 
|                                 
|                                 
|Other                             |                                  |   | (18  | )   |  |      | 29  |     |      |   | 23   |     
|                                  |                                  |   |      |     |  |      |     |     |     
|                                  | Net income tax expense (benefit) |   | $    | 233 |  |      | $   | 288 |      |   | $    | (331 | )
|                                  |                                  |   |      |     |  |      |     |     |     



| |  |  | Deferred income taxes are provided for the temporary differences
between the financial reporting bases and the tax bases of the
Corporations assets and liabilities. The source of such temporary
differences and the resulting net tax expense (benefit) are as
follows:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 8  Income Taxes (Continued)

|                                |                                      |   |      |   |  |      |    |     |      |   |      |      |  
|------------------------------- | ------------------------------------ | - | ---- | - |  | ---- | -- | --- | ---- | - | ---- | ---- | -
|                                |                                      |   | 2000 |   |  | 1999 |    |     | 1998 |  
|                                |                                      |   |      |   |  |      |    |     |      |  
|Net operating loss carryforward |                                      | $ |     |   |  | $    |   |     |      | $ | 62   |     
|                               
|                               
|                               
|                               
|Provision for loan loss         |                                      |   | 15   |   |  |      | 19 |     |      |   | (444 | )   
|                               
|                               
|                               
|                               
|Start-up costs                  |                                      |   | 8    |   |  |      | 8  |     |      |   | 8    |     
|                               
|                               
|                               
|                               
|Organization costs              |                                      |   | 8    |   |  |      | 8  |     |      |   | (27  | )   
|                               
|                               
|                               
|                               
|Accretion                       |                                      |   |     |   |  |      | 6  |     |      |   | (3   | )   
|                               
|                               
|                               
|                               
|Lease financing                 |                                      |   | 7    |   |  |      | 34 |     |      |   | 50   |     
|                               
|                               
|                               
|                               
|Depreciation                    |                                      |   | 9    |   |  |      | 40 |     |      |   |     |     
|                               
|                               
|                               
|                               
|Nonaccrual interest             |                                      |   | (33  | ) |  |      |   |     |      |   |     |     
|                               
|                               
|                               
|                               
|Other                           |                                      |   | (14  | ) |  |      | 35 |     |      |   | (16  | )   
|                               
|                               
|                               
|                               
|Decrease in valuation allowance |                                      |   |     |   |  |      |   |     |      |   | (225 | )   
|                                |                                      |   |      |   |  |      |    |     |     
|                                | Total deferred tax expense (benefit) |   | $    |  |  |      | $  | 150 |      |   | $    | (595 | )
|                                |                                      |   |      |   |  |      |    |     |     



| |  |  | The temporary differences that comprise deferred tax assets and
liabilities at December 31, 2000, 1999, and 1998 are as follows:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------

|                                            |                               |                                |   |      |      |   |      |     |      |      |   |     |     |  
|------------------------------------------- | ----------------------------- | ------------------------------ | - | ---- | ---- | - | ---- | --- | ---- | ---- | - | --- | --- | -
|                                            |                               |                                |   | 2000 |      |   | 1999 |     |      | 1998 |  
|                                            |                               |                                |   |      |      |   |      |     |      |      |  
|Deferred tax assets:                       
|                                           
|                                           
|                                           
|                                           
|                                            | Provision for loan loss       |                                | $ | 555  |      |   | $    | 570 |      |      | $ | 589 |    
|                                           
|                                           
|                                           
|                                           
|                                            | Start-up costs                |                                |   | 10   |      |   |      | 18  |      |      |   | 26  |    
|                                           
|                                           
|                                           
|                                           
|                                            | Organizational costs          |                                |   | 11   |      |   |      | 19  |      |      |   | 27  |    
|                                           
|                                           
|                                           
|                                           
|                                            | Unrealized loss on securities |                                |   |     |      |   |      | 19  |      |      |   |    |    
|                                           
|                                           
|                                           
|                                           
|                                            | Nonaccrual interest           |                                |   | 33   |      |   |      |    |      |      |   |    |    
|                                           
|                                           
|                                           
|                                           
|                                            | Other                         |                                |   | 14   |      |   |      |    |      |      |   | 18  |    
|                                            |                               |                                |   |      |      |   |      |     |     
|                                            |                               | Total deferred tax assets      |   |      | 623  |   |      |     | 626  |      |   |     | 660 |  
|                                           
|                                           
|                                           
|                                           
|Valuation allowance for deferred tax assets |                               |                                |  |      |      |   |     |     |      |      |  |    
|                                           
|                                           
|                                           
|                                           
|Deferred tax liabilities:                  
|                                           
|                                           
|                                           
|                                           
|                                            | Accretion                     |                                |   | (17  | )    |   |      | (17 | )    |      |   | (11 | )  
|                                           
|                                           
|                                           
|                                           
|                                            | Lease financing               |                                |   | (91  | )    |   |      | (84 | )    |      |   | (50 | )  
|                                           
|                                           
|                                           
|                                           
|                                            | Unrealized gain on securities |                                |   | (33  | )    |   |      |    |      |      |   | (5  | )  
|                                           
|                                           
|                                           
|                                           
|                                            | Depreciation                  |                                |   | (49  | )    |   |      | (40 | )    |      |   |    |    
|                                           
|                                           
|                                           
|                                           
|                                            | Other                         |                                |   | (21  | )    |   |      | (21 | )    |      |   | (4  | )  
|                                            |                               |                                |   |      |      |   |      |     |     
|                                            |                               | Total deferred tax liabilities |   |      | (211 | ) |      |     | (162 | )    |   |     | (70 | )
|                                            |                               |                                |   |      |      |   |      |     |     
|                                            |                               | Net deferred tax asset         |   | $    | 412  |   |      | $   | 464  |      |   | $   | 590 |  
|                                            |                               |                                |   |      |      |   |      |     |     

33



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 9   Operating Lease



| |  |  | The Corporation has entered into lease commitments for office
buildings. Rental expense charged to operations was $323,000 and
$89,000 for the years ended December 31, 2000 and 1999, respectively.
The future minimum lease payments are as follows:
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  |   |     | 
|---- |  | - | --- | 
|2001 |  | $ | 326 | 
|    
|    
|    
|    
|2002 |  |   | 304 | 
|    
|    
|    
|    
|2003 |  |   | 281 | 
|    
|    
|    
|    
|2004 |  |   | 281 | 
|    
|    
|    
|    
|2005 |  |   | 284 | 

Note 10  Stock Option Plans



| |  |  | The Corporation has two stock option plans. Options may be granted to
certain directors and employees at not less than the market price of
the Corporations stock on the date of the grant. The options granted
are exercisable immediately, or vest over one to three years. Under
the director plan, a maximum of 66,000 options to purchase shares may
be granted that expire in seven years, subject to certain cancellation
provisions related to service. Under the employee plan, a maximum of
44,000 options to purchase shares may be granted that expire in 10
years, subject to certain cancellation provisions related to
employment. At December 31, 2000, 9,900 shares under the director and
3,400 shares under the employee plan were available for future option
grants.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The following table summarizes stock option transactions and
the related average exercise prices for the last three years.
| |  |  | --------------------------------------------------------------------------------------------------------------------------

|                           |                         |  |        |        |  |          |          |      |        |  |        |          |  |          |        |      |  |          |        |        |          |  |       |      | 
|-------------------------- | ----------------------- |  | ------ | ------ |  | -------- | -------- | ---- | ------ |  | ------ | -------- |  | -------- | ------ | ---- |  | -------- | ------ | ------ | -------- |  | ----- | ---- | 
|                           |                         |  | 2000   |        |  | 1999     |          |      | 1998   | 
|                           |                         |  |        |        |  |          |          |      |        | 
|                           |                         |  |        |        |  |          | Weighted |      |        |  |        |          |  | Weighted |        |      |  |          |        |        | Weighted | 
|                           |                         |  | Number |        |  | Average  |          |      | Number |  |        | Average  |  |          | Number |      |  | Average  |       
|                           |                         |  | of     |        |  | Exercise |          |      | of     |  |        | Exercise |  |          | of     |      |  | Exercise |       
|                           |                         |  | Shares |        |  | Price    |          |      | Shares |  |        | Price    |  |          | Shares |      |  | Price    |       
|                           |                         |  |        |        |  |          |          |      |        |  |        |          |  |          |        |      |  |          |       
|Options outstanding at    
|                          
|                          
|                          
|                          
|                           | beginning of year       |  |        | 96,700 |  |          | $        | 9.14 |        |  |        | 96,700   |  |          | $      | 9.14 |  |          |        | 93,500 |          |  | $     | 9.10 | 
|                          
|                          
|                          
|                          
|Options granted            |                         |  |       |        |  |          |         |      |        |  |       |          |  |          |       |      |  |          | 3,200  |        |          |  | 10.24 |     
|                          
|                          
|                          
|                          
|Options exercised          |                         |  |       |        |  |          |         |      |        |  |       |          |  |          |       |      |  |          |       |        |          |  |      |     
|                          
|                          
|                          
|                          
|Options forfeited          |                         |  |       |        |  |          |         |      |        |  |       |          |  |          |       |      |  |          |       |        |          |  |      |     
|                           |                         |  |        |        |  |          |          |      |        |  |        |          |  |          |        |      |  |          |       
|                          
|                          
|                          
|                          
|Options outstanding at end
|                          
|                          
|                          
|                          
|                           | of year                 |  |        | 96,700 |  |          |          | 9.14 |        |  |        | 96,700   |  |          |        | 9.14 |  |          |        | 96,700 |          |  |       | 9.14 | 
|                          
|                          
|                          
|                          
|Exercisable at end of year |                         |  | 89,875 |        |  |          | 9.11     |      |        |  | 83,775 |          |  |          | 9.11   |      |  |          | 69,025 |        |          |  | 9.10  |     
|                          
|                          
|                          
|                          
|Weighted average estimated
|                          
|                          
|                          
|                          
|                           | fair value of options  
|                          
|                          
|                          
|                          
|                           | granted during the year |  |        |        |  |          |          | N/A  |        |  |        |          |  |          |        | N/A  |  |          |        |        |          |  | $     | 4.35 | 

34



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 10  Stock Option Plans (Continued)



| |  |  | The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. The following weighted
average assumptions were used to estimate the fair value of the
options granted for the following:
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |  |      |     |  |      |  |     |      |  |  |      |  
|----------------------------- |  | ---- | --- |  | ---- |  | --- | ---- |  |  | ---- | -
|                              |  | 2000 |     |  | 1999 |  |     | 1998 | 
|                              |  |      |     |  |      |  |     |      | 
|Dividend yield                |  |      | N/A |  |      |  | N/A |      |  |  |     |  
|                             
|                             
|                             
|                             
|Expected average life (years) |  |      | N/A |  |      |  | N/A |      |  |  | 10.0 |  
|                             
|                             
|                             
|                             
|Volatility                    |  |      | N/A |  |      |  | N/A |      |  |  | 30   | %
|                             
|                             
|                             
|                             
|Risk-free interest rate       |  |      | N/A |  |      |  | N/A |      |  |  | 5.8  | %



| |  |  | At December 31, 2000, options outstanding have exercise prices between
$9.09 and $10.35 per share and a weighted average remaining
contractual life of 4.4 years.                                                                                                                                                                         
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Corporation accounts for its option plans using the intrinsic
value method. The table below displays pro forma amounts for net loss
and net loss per common share assuming the fair value method of
accounting had been used, which reflects additional compensation cost
for option grants based on the value of the options granted:

|            |  |        |     |  |       |      |      |         |  |   |      |  |  |       |     |  |         |   |      |  |  |   |      | 
|----------- |  | ------ | --- |  | ----- | ---- | ---- | ------- |  | - | ---- |  |  | ----- | --- |  | ------- | - | ---- |  |  | - | ---- | 
|            |  |        |     |  |       | 2000 |      |         |  |   |      |  |  |       |     |  | 1999    |  
|            |  |        |     |  |       |     
|            |  | Net    |     |  | Basic |      |      | Diluted |  |   | Net  |  |  | Basic |     |  | Diluted |  
|            |  | Income |     |  | EPS   |      |      | EPS     |  |   | Loss |  |  | EPS   |     |  | EPS     |  
|            |  |        |     |  |       |      |      |         |  |   |      |  |  |       |     |  |         |  
|As reported |  | $      | 504 |  |       | $    | 0.34 |         |  | $ | 0.34 |  |  | $     | 475 |  |         | $ | 0.36 |  |  | $ | 0.36 | 
|           
|           
|           
|           
|Pro forma   |  |        | 487 |  |       |      | 0.33 |         |  |   | 0.33 |  |  |       | 432 |  |         |   | 0.33 |  |  |   | 0.33 | 



| |  |  | The effect of unexercised stock options is antidilutive and has not
been considered in the diluted EPS calculation.
| |  |  | -------------------------------------------------------------------------------------------------------------------

Note 11  Employee Benefit Plans



| |  |  | The Bank has a 401(k) plan that is a defined contribution savings plan
for employees. Employer contributions are discretionary and are
determined annually by the Board of Directors. Employer contributions
were $22,000 and $14,000 for the years ended December 31, 2000 and
1999, respectively.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 12  Common Stock



| |  |  | In April 1998, the Corporation declared a 10 percent stock dividend.
Accordingly, all applicable per share amounts for periods presented
have been retroactively adjusted to reflect the transaction.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 13  Financial Instruments



| |  |  | Fair Values of Financial Instruments  The carrying amounts and
estimated fair values of financial instruments are presented below.
Certain assets, the most significant being premises and equipment, do
not meet the definition of a financial instrument and are excluded
from this disclosure. Similarly, deposit base and other customer
relationship intangibles are not considered financial instruments and
are not discussed below. Accordingly, this fair value information is
not intended to, and does not, represent the underlying value of the
Corporation. Many of the assets and liabilities subject to disclosure
requirements are not actively traded, requiring fair values to be
estimated by management. These estimates necessarily involve the use
of judgment about a wide variety of factors, including, but not
limited to, relevancy of market prices of comparable instruments,
expected future cash flows and appropriate discount rates.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|             |                       |  |          |         |  |            |   |         |          |  |   |            |  |  |   |        | 
|------------ | --------------------- |  | -------- | ------- |  | ---------- | - | ------- | -------- |  | - | ---------- |  |  | - | ------ | 
|             |                       |  | 2000     |         |  | 1999       |  
|             |                       |  |          |         |  |            |  
|             |                       |  | Carrying |         |  | Estimated  |   |         | Carrying |  |   | Estimated  | 
|             |                       |  | Amount   |         |  | Fair Value |   |         | Amount   |  |   | Fair Value | 
|             |                       |  |          |         |  |            |   |         |          |  |   |            | 
|Assets:     
|            
|            
|            
|            
|             | Cash and equivalents  |  | $        | 12,652  |  |            | $ | 12,652  |          |  | $ | 18,188     |  |  | $ | 18,188 | 
|            
|            
|            
|            
|             | Securities            |  |          | 12,497  |  |            |   | 12,497  |          |  |   | 9,001      |  |  |   | 9,001  | 
|            
|            
|            
|            
|             | Loans                 |  |          | 93,250  |  |            |   | 90,770  |          |  |   | 79,883     |  |  |   | 78,179 | 
|            
|            
|            
|            
|             | Interest receivable   |  |          | 704     |  |            |   | 704     |          |  |   | 502        |  |  |   | 502    | 
|            
|            
|            
|            
|Liabilities:
|            
|            
|            
|            
|             | Deposits              |  |          | 106,660 |  |            |   | 107,043 |          |  |   | 95,954     |  |  |   | 95,674 | 
|            
|            
|            
|            
|             | Short-term borrowings |  |          | 500     |  |            |   | 500     |          |  |   |           |  |  |   |       | 
|            
|            
|            
|            
|             | Interest payable      |  |          | 627     |  |            |   | 627     |          |  |   | 360        |  |  |   | 360    | 



| |  |  | The terms and short-term nature of certain assets and liabilities
result in their carrying amounts approximating fair values. These
include cash and due from banks, interest-bearing deposits in banks,
federal funds sold, federal funds purchased, and accrued interest
receivable and payable. The following methods and assumptions were
used by Michigan Heritage Bancorp, Inc. to estimate the fair values of
the remaining classes of financial instruments:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 13  Financial Instruments (Continued)



| |  |  | Securities are valued based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.                                                                                                                                                                                                                                                                                                                                           
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | For variable rate loans that reprice frequently, fair values are based
on carrying amounts, as adjusted for estimated credit losses. The fair
values for other loans are estimated using discounted cash flow
analyses and employ interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality.                                                                                                                                                                                       
|
| |  |  | The fair values of demand deposits, savings accounts, and money market
deposits are, by definition, equal to the amount payable on demand.
The fair values of fixed rate time deposits are estimated by
discounting cash flows using interest rates currently being offered on
certificates with similar maturities.                                                                                                                                                                                                                
|
| |  |  | The fair values of loan commitments and standby letters of credit,
valued on the basis of fees currently charged for commitments for
similar loan terms to new borrowers with similar credit profiles, are
not considered material.                                                                                                                                                                                                                                                                                                 
|
| |  |  | Off-balance-sheet Items  The Bank is party to financial instruments
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend
credit and financial guarantees. These instruments involve, to varying
degrees, elements of credit and interest rate risk that are not
recognized in the consolidated balance sheet.                                                                 
|
| |  |  | Commitments to extend credit are agreements to lend to a customer as
long as there are no violations of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Fees from
issuing these commitments to extend credit are recognized over the
period to maturity. Since a portion of the commitments is expected to
expire without being drawn upon, the total commitments do not
necessarily represent future cash requirements.
|
| |  |  | The Bank evaluates each customers creditworthiness on a case-by-case
basis. The amount of collateral obtained upon extension of credit is
based on managements credit evaluation of the customer.                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and
financial guarantees written is represented by the contractual
notional amount of those items. The Bank generally requires collateral
to support such financial instruments in excess of the contractual
notional amount of those instruments.                                                                                                                                           

37



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 13  Financial Instruments (Continued)



| |  |  | The Bank had outstanding loan origination commitments and guarantees
written aggregating $30,800,000 and $17,300,000 at December 31, 2000
and 1999, respectively, on which $16,650,000 and $10,300,000,
respectively, were outstanding at year end and were included in the
consolidated balance sheet.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 14  Restrictions on Dividends



| |  |  | Dividends paid by the Corporation would be provided by dividends from
its subsidiary bank. However, certain restrictions exist regarding the
ability of the Bank to transfer funds to the Corporation in the form
of cash dividends, loans or advances. The approval of the Banks
respective primary regulator is required for the Corporations
subsidiary bank to pay dividends in excess of regulatory limitations.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 15  Regulatory Matters



| |  |  | The Bank is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and discretionary
actions by regulators that could have a direct material effect on the
Banks financial statements. Under capital adequacy guidelines, the
Bank must meet specific capital guidelines that involve quantitative
measures of the Banks assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices.    
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Normally, to be considered adequately capitalized, the Bank must
maintain a total capital ratio of 4.0 percent. As of December 31,
2000, the most recent notification from the Banks regulators
categorized the Bank as well-capitalized under the regulatory
framework. The regulations define well-capitalized levels of total
capital, Tier 1 and Tier 1 leverage as 10.0 percent, 6.0 percent and
5.0 percent, respectively. There are no conditions or events since
that notification that management believes have changed the Banks
capital category.

38



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 15  Regulatory Matters (Continued)



| |  |  | Capital and risk-based capital and leverage ratios for the Bank are
shown below:
| |  |  | --------------------------------------------------------------------------------

|                   |                                          |  |        |        |  |       |  |      |  
|------------------ | ---------------------------------------- |  | ------ | ------ |  | ----- |  | ---- | -
|                   |                                          |  | Amount |        |  | Ratio | 
|                   |                                          |  |        |        |  |       | 
|December 31, 2000:
|                  
|                  
|                  
|                  
|                   | Total capital (to risk-weighted assets)  |  | $      | 12,401 |  |       |  | 12.6 | %
|                  
|                  
|                  
|                  
|                   | Tier 1 capital (to risk-weighted assets) |  |        | 11,161 |  |       |  | 11.3 | %
|                  
|                  
|                  
|                  
|                   | Tier 1 capital (to average assets)       |  |        | 11,161 |  |       |  | 9.5  | %
|                  
|                  
|                  
|                  
|December 31, 1999:
|                  
|                  
|                  
|                  
|                   | Total capital (to risk-weighted assets)  |  |        | 11,670 |  |       |  | 13.4 | %
|                  
|                  
|                  
|                  
|                   | Tier 1 capital (to risk-weighted assets) |  |        | 10,576 |  |       |  | 12.2 | %
|                  
|                  
|                  
|                  
|                   | Tier 1 capital (to average assets)       |  |        | 10,576 |  |       |  | 10.2 | %

Note 16  Parent-only Financial Statements



| |  |  | The following condensed financial information presents the financial
condition of Michigan Heritage Bancorp, Inc. (the Parent) only,
along with the results of its operations and its cash flows. The
Parent has recorded its investment in the Bank at cost, less the
undistributed income (loss) of the Bank since it was formed. The
Parent recognizes undistributed earnings (losses) of the Bank as a
noninterest income (expense). The Parent-only financial information
should be read in conjunction with the Corporations consolidated
financial statements.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 16  Parent-only Financial Statements (Continued)



| |  |  | The condensed balance sheet at December 31 is as follows:
| |  |  | ---------------------------------------------------------

|                                     |                                            |                                            |        |       |        |      |        |       |        |  |  | 
|------------------------------------ | ------------------------------------------ | ------------------------------------------ | ------ | ----- | ------ | ---- | ------ | ----- | ------ |  |  | 
|                                     |                                            |                                            |        |       |        | 2000 |        |       | 1999   | 
|                                     |                                            |                                            |        |       |        |      |        |       |        | 
|Assets                               |                                            |                                            |        |      
|                                    
|                                    
|                                    
|                                    
|Cash and Cash Equivalents           
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and deposits at subsidiary bank       |                                            | $      | 40    |        |      | $      | 13    |       
|                                    
|                                    
|                                    
|                                    
|                                     | Interest-bearing deposits with other banks |                                            |        | 1,017 |        |      |        | 1,040 |       
|                                     |                                            |                                            |        |       |        |     
|                                    
|                                    
|                                    
|                                    
|                                     |                                            | Total cash and cash equivalents            |        |       | 1,057  |      |        |       | 1,053  | 
|                                    
|                                    
|                                    
|                                    
|Investment in Subsidiary             |                                            |                                            | 11,226 |       |        |      | 10,625 |      
|                                    
|                                    
|                                    
|                                    
|Interest Receivable and Other Assets |                                            |                                            | 40     |       |        |      | 40     |      
|                                     |                                            |                                            |        |       |        |     
|                                     |                                            | Total assets                               |        | $     | 12,323 |      |        | $     | 11,718 | 
|                                     |                                            |                                            |        |       |        |     
|Liabilities and Stockholders Equity |                                            |                                            |        |      
|                                    
|                                    
|                                    
|                                    
|Liabilities                          |                                            | $                                          |       |       |        | $    |       |      
|                                    
|                                    
|                                    
|                                    
|Stockholders Equity                 |                                            |                                            | 12,323 |       |        |      | 11,718 |      
|                                     |                                            |                                            |        |       |        |     
|                                     |                                            | Total liabilities and stockholders equity |        | $     | 12,323 |      |        | $     | 11,718 | 
|                                     |                                            |                                            |        |       |        |     

40



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 16  Parent-only Financial Statements (Continued)



| |  |  | The condensed statement of operations for the years ended December 31,
2000 and 1999 is as follows:
| |  |  | ---------------------------------------------------------------------------------------------------

|                                               |                  |   |     |      |  |   |      |    |  | 
|---------------------------------------------- | ---------------- | - | --- | ---- |  | - | ---- | -- |  | 
|                                               |                  |   |     | 2000 |  |   | 1999 |   
|                                               |                  |   |     |      |  |   |      |   
|Operating Income  Interest on deposits       
|                                              
|                                              
|                                              
|                                              
|                                               | with other banks |   | $   | 64   |  |   | $    | 35 | 
|                                              
|                                              
|                                              
|                                              
|Operating Expense                              |                  |   | 58  |      |  |   | 33   |   
|                                               |                  |   |     |      |  |  
|                                              
|                                              
|                                              
|                                              
|Income  Before income taxes, equity in income
|                                              
|                                              
|                                              
|                                              
|                                               | of subsidiary    |   |     | 6    |  |   |      | 2  | 
|                                              
|                                              
|                                              
|                                              
|Income Tax Expense                             |                  |   | 2   |      |  |   | 1    |   
|                                               |                  |   |     |      |  |  
|Income  Before equity in income of subsidiary |                  |   | 4   |      |  |   | 1    |   
|                                              
|                                              
|                                              
|                                              
|Equity in Income of Subsidiary                 |                  |   | 500 |      |  |   | 474  |   
|                                               |                  |   |     |      |  |  
|Net Income                                     |                  | $ | 504 |      |  | $ | 475  |   
|                                               |                  |   |     |      |  |  

41



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 16  Parent-only Financial Statements (Continued)



| |  |  | The condensed statement of cash flows for the years ended December 31,
2000 and 1999 is as follows:
| |  |  | ---------------------------------------------------------------------------------------------------

|                                                  |             |                                            |                                 |                                           |     |      |       |     |        |   |      |  
|------------------------------------------------- | ----------- | ------------------------------------------ | ------------------------------- | ----------------------------------------- | --- | ---- | ----- | --- | ------ | - | ---- | -
|                                                  |             |                                            |                                 |                                           |     | 2000 |       |     | 1999   |  
|                                                  |             |                                            |                                 |                                           |     |      |       |     |        |  
|Cash Flows from Operating Activities             
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |             | Net income                                 |                                 | $                                         | 504 |      |       | $   | 475    |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |             | Adjustments to reconcile net income to net
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |             |                                            | cash from operating activities:
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |             |                                            |                                 | Equity in income of subsidiary            |     |      | (500  | )   |        |   | (474 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |             |                                            |                                 | Net change in other assets                |     |      |      |     |        |   | 226  |  
|                                                  |             |                                            |                                 |                                           |     |     
|                                                  |             |                                            |                                 | Net cash provided by operating activities |     |      | 4     |     |        |   | 227  |  
|                                                 
|                                                 
|                                                 
|                                                 
|Cash Flows from Investing Activities  Investment
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |             | in bank subsidiary                         |                                 |                                           |    |      |       |     | (1,496 | )
|                                                 
|                                                 
|                                                 
|                                                 
|Cash Flows from Financing Activities  Proceeds  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |             | from public stock offering                 |                                 |                                           |    |      |       |     | 1,248  |  
|                                                  |             |                                            |                                 |                                           |     |     
|Net Increase (Decrease) in Cash and Cash         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Equivalents |                                            |                                 | 4                                         |     |      |       | (21 | )     
|                                                 
|                                                 
|                                                 
|                                                 
|Cash and Cash Equivalents  Beginning of year     |             |                                            | 1,053                           |                                           |     |      | 1,074 |    
|                                                  |             |                                            |                                 |                                           |     |     
|Cash and Cash Equivalents  End of year           |             | $                                          | 1,057                           |                                           |     | $    | 1,053 |    
|                                                  |             |                                            |                                 |                                           |     |     

42



---



Michigan Heritage Bancorp, Inc.

Notes to Consolidated Financial Statements
December 31, 2000 and 1999

Note 17  Earnings per Share



| |  |  | Basic earnings per share data is the amount of earnings for the period
available to each share of common stock outstanding during the
reporting period. Diluted earnings per share reflects the earnings
available to each share of common stock outstanding during the
reporting period adjusted for dilutive potential common shares for
stock options outstanding. In 2000 and 1999, outstanding stock options
have not been included in the calculation of diluted weighted average
shares outstanding because they would be antidilutive.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                           |                                           |   |           |      |      |      |           |      |   |      |           |       |   |       |  
|------------------------------------------------------------------------------------------ | ----------------------------------------- | - | --------- | ---- | ---- | ---- | --------- | ---- | - | ---- | --------- | ----- | - | ----- | -
|                                                                                           |                                           |   |           |      | 2000 |      |           | 1999 |   |      | 1998      |      
|                                                                                           |                                           |   |           |      |      |      |           |      |   |      |           |      
|Net income (loss) before cumulative effect                                                
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | of change in accounting principle         |   | $         | 504  |      |      | $         | 475  |   |      | $         | (47   | )
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Cumulative effect of expensing                                                            
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | organizational costs  Net of tax        
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | benefit of $34                            |   |           |     |      |      |           |     |   |      |           | (66   | )
|                                                                                           |                                           |   |           |      |      |      |           |      |  
|Net income (loss)                                                                          |                                           | $ | 504       |      |      | $    | 475       |      |   | $    | (113      | )    
|                                                                                           |                                           |   |           |      |      |      |           |      |  
|Average common shares outstanding                                                          |                                           |   | 1,488,764 |      |      |      | 1,309,966 |      |   |      | 1,265,000 |      
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Income (loss) per share before cumulative                                                 
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | effect of change in accounting principle:
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                           |   | Basic     |      | $    | 0.34 |           |      | $ | 0.36 |           |       | $ | (0.04 | )
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                           |   | Diluted   |      |      | 0.34 |           |      |   | 0.36 |           |       |   | (0.04 | )
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Cumulative effect per share of expensing
organizational costs  Net of tax
benefit of $34:
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                           |   | Basic     |      |      |     |           |      |   |     |           |       |   | (0.05 | )
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           |                                           |   | Diluted   |      |      |     |           |      |   |     |           |       |   | (0.05 | )
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Net income (loss) per share:                                                              
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Basic                                     |   |           | 0.34 |      |      |           | 0.36 |   |      |           | (0.09 | )
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Diluted                                   |   |           | 0.34 |      |      |           | 0.36 |   |      |           | (0.09 | )

43



---






SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 5, 2001.

| |                                                            
| | -----------------------------------------------------------
| | MICHIGAN HERITAGE BANCORP, INC                             
|
|
| | By: /s/  Anthony S. Albanese
Anthony S. Albanese, President

In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities indicated on March 5, 2001.

|                                             |  |                                                      
|-------------------------------------------- |  | -----------------------------------------------------
|Signature                                    |  | Capacity                                             
|                                             |  |                                                      
|                                            
|                                            
|/s/  Richard Zamojski
Richard Zamojski       |  | Chairman and Director (principal executive officer)  
|                                            
|/s/  Anthony S. Albanese
Anthony S. Albanese |  | President and Director (principal operating officer) 
|                                            
|/s/  Darryle J. Parker
Darryle J. Parker     |  | Treasurer and Secretary (principal financial officer)
|                                            
|/s/  H. Perry Driggs
H. Perry Driggs         |  | Vice-Chairman and Director                           
|                                            
|/s/  Lewis N. George
Lewis N. George         |  | Director                                             
|                                            
|/s/  Phillip R. Harrison
Phillip R. Harrison |  | Director                                             
|                                            
|/s/  Frank A. Scerbo
Frank A. Scerbo         |  | Director                                             
|                                            
|/s/  Philip Sotiroff
Philip Sotiroff         |  | Director                                             

44



---



|            |  |                                  
|----------- |  | ---------------------------------
|Exhibit No. |  | Description                      
|            |  |                                  
|11          |  | Computation of Earnings Per Share

45