##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20429Form 10-Q

(Mark One)

| |  |                                                                                          
| |  | -----------------------------------------------------------------------------------------
| |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 
| |  | For the quarterly period ended March 31, 2002                                            
|
| |  | TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| |  | For the transition period from _____________ to _____________                            

STURGIS BANCORP, INC.

---

MICHIGAN
(State of incorporation or organization)

|                      |  |                                     
|--------------------- |  | ------------------------------------
|0-49613               |  | 38-3609814                          
|                      |  |                                     
|(Commission File No.) |  | (I.R.S. Employer Identification No.)

113-125 E. Chicago Road, Sturgis, Michigan 49091

---

(616) 651-9345

---

STURGIS BANCORP, INC. IS THE SUCCESSOR ISSUER TO STURGIS BANK &

---

---

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange of 1934
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.

YesX  No.

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

|                              |  |  |                               | 
|----------------------------- |  |  | ----------------------------- | 
|Class                         |  |  | Outstanding at March 31, 2002
|                              |  |  |                              
|Common Stock, $1.00 par value |  |  | 2,986,334                    

Transitional Small Business Disclosure Format (check one);  Yes   No X

-1-



---

TABLE OF CONTENTS



|                              |                                                                                               |                                                                                                            |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS:                                                                
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONMARCH 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001.
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOMETHREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED).       
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSTHREE MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED).   
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.                                                     
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES                                                                
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES

INDEX

|           |  |                                                                                                              |          |   
|---------- |  | ------------------------------------------------------------------------------------------------------------ | -------- | --
|           |  |                                                                                                              | Page No.
|           |  |                                                                                                              |         
|Part I.    |  | Financial Information                                                                                        |          | 3 
|Item 1.    |  | Financial Statements:                                                                                        |          |   
|          
|           |  | Condensed Consolidated Statements
of Financial Condition  March 31, 2002 (Unaudited)
and December 31, 2001. |          | 4 
|          
|           |  | Condensed Consolidated Statements
of Income  Three Months Ended
March 31, 2002 and 2001 (Unaudited).        |          | 5 
|          
|           |  | Condensed Consolidated Statements
of Cash Flows  Three Months Ended
March 31, 2002 and 2001 (Unaudited).    |          | 6 
|          
|           |  | Notes To Condensed Consolidated
Financial Statements.                                                        |          | 7 
|          
|Item 2.    |  | Managements Discussion and Analysis
of Financial Condition and Results
of Operations.                       |          | 16
|          
|Item 3.    |  | Quantitative and Qualitative Disclosures
about Market Risk.                                                  |          | 21
|          
|Part II.   |  | Other Information                                                                                            |          |   
|Item 1.    |  | Legal Proceedings                                                                                            |          | 23
|          
|Item 2.    |  | Changes in Securities                                                                                        |          | 23
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                             |          | 23
|          
|Signatures |  |                                                                                                              |          | 25

-2-



---



##### Table of Contents






PART I. FINANCIAL INFORMATION

Throughout this Form 10-Q, Sturgis Bancorp, Inc. will be referred to as Bancorp
and Sturgis Bank and Trust Company and its subsidiaries will be referred to as
the Bank. Bancorp is a financial holding company under the Bank Holding
Company Act of 1956, as amended. The Bank is a wholly owned subsidiary of
Bancorp.

-3-



---



##### Table of Contents









ITEM 1. FINANCIAL
STATEMENTS                
                        
                                
                                

STURGIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

|                                          |                                                                                                                                                                |                     |                                            |            |             |             |             |            |              |             |  | 
|----------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------------------------------ | ---------- | ----------- | ----------- | ----------- | ---------- | ------------ | ----------- |  | 
|                                          |                                                                                                                                                                |                     |                                            |            |             | March 31,   |             |            | December 31, |            
|                                          |                                                                                                                                                                |                     |                                            |            |             | 2002        |             |            | 2001         |            
|                                          |                                                                                                                                                                |                     |                                            |            |             |             |             |            |              |            
|                                          |                                                                                                                                                                |                     |                                            |            |             | (Unaudited) |             |            |              |             | 
|ASSETS                                    |                                                                                                                                                                |                     |                                            |            |             |             |             |           
|Cash and due from banks                   |                                                                                                                                                                | $                   | 10,648,360                                 |            |             | $           | 10,629,027  |           
|Interest-bearing deposits in banks        |                                                                                                                                                                |                     | 27,286,421                                 |            |             |             | 15,042,616  |           
|Securities  Available-for-sale           |                                                                                                                                                                |                     | 1,526,567                                  |            |             |             | 259,735     |           
|Securities  Held-to-maturity             |                                                                                                                                                                |                     | 5,138,971                                  |            |             |             | 3,904,413   |           
|Federal Home Loan Bank stock, at cost     |                                                                                                                                                                |                     | 4,115,400                                  |            |             |             | 4,115,400   |           
|Loans held for sale                       |                                                                                                                                                                |                     | 980,700                                    |            |             |             | 4,414,906   |           
|Loans, net                                |                                                                                                                                                                |                     | 210,244,287                                |            |             |             | 219,113,940 |           
|Real estate owned                         |                                                                                                                                                                |                     | 485,648                                    |            |             |             | 451,173     |           
|Bank owned life insurance                 |                                                                                                                                                                |                     | 6,091,726                                  |            |             |             | 6,002,959   |           
|Accrued interest receivable               |                                                                                                                                                                |                     | 1,686,808                                  |            |             |             | 1,724,681   |           
|Investment in limited partnership         |                                                                                                                                                                |                     | 219,580                                    |            |             |             | 224,080     |           
|Premises and equipment, net               |                                                                                                                                                                |                     | 6,352,063                                  |            |             |             | 6,370,160   |           
|Goodwill, net of accumulated amortization |                                                                                                                                                                |                     | 5,109,419                                  |            |             |             | 5,109,419   |           
|Originated mortgage servicing rights      |                                                                                                                                                                |                     | 1,599,817                                  |            |             |             | 1,281,208   |           
|Other assets                              |                                                                                                                                                                |                     | 1,106,124                                  |            |             |             | 1,145,555   |           
|                                          |                                                                                                                                                                |                     |                                            |            |             |            
|                                          |                                                                                                                                                                |                     | Total assets                               |            | $           | 282,591,891 |             |            | $            | 279,789,272 | 
|                                          |                                                                                                                                                                |                     |                                            |            |             |            
|LIABILITIES AND STOCKHOLDERS EQUITY      |                                                                                                                                                                |                     |                                            |            |             |             |             |           
|Liabilities:                              |                                                                                                                                                                |                     |                                            |            |             |             |             |           
|                                          | Deposit accounts:                                                                                                                                              |                     |                                            |            |             |             |             |            |             
|                                          |                                                                                                                                                                | Noninterest-bearing |                                            | $          | 9,937,226   |             |             | $          | 9,335,727    |            
|                                          |                                                                                                                                                                | Interest-bearing    |                                            |            | 178,987,548 |             |             |            | 168,266,933  |            
|                                          | Borrowings from Federal Home Loan Bank                                                                                                                         |                     |                                            | 60,332,160 |             |             |             | 70,076,863 |             
|                                          | Deferred federal income taxes                                                                                                                                  |                     |                                            | 262,917    |             |             |             | 248,333    |             
|                                          | Accrued interest payable                                                                                                                                       |                     |                                            | 942,869    |             |             |             | 993,783    |             
|                                          | Other liabilities                                                                                                                                              |                     |                                            | 4,227,031  |             |             |             | 2,370,699  |             
|                                          |                                                                                                                                                                |                     |                                            |            |             |            
|                                          |                                                                                                                                                                |                     | Total liabilities                          |            |             | 254,689,751 |             |            |              | 251,292,338 | 
|Stockholders equity:                     |                                                                                                                                                                |                     |                                            |            |             |             |             |           
|                                          | Common stock  $1 par value: Authorized 4,000,000 shares
Issued and outstanding  2,986,334 shares at March 31,
2002 and 3,101,534 shares at December 31, 2001 |                     |                                            | 2,986,334  |             |             |             | 3,101,534  |             
|                                          | Additional paid-in capital                                                                                                                                     |                     |                                            | 19,503,847 |             |             |             | 20,435,912 |             
|                                          | Retained earnings                                                                                                                                              |                     |                                            | 5,411,959  |             |             |             | 4,959,488  |             
|                                          |                                                                                                                                                                |                     |                                            |            |             |            
|                                          |                                                                                                                                                                |                     | Total stockholders equity                 |            |             | 27,902,140  |             |            |              | 28,496,934  | 
|                                          |                                                                                                                                                                |                     |                                            |            |             |            
|                                          |                                                                                                                                                                |                     | Total liabilities and stockholders equity |            | $           | 282,591,891 |             |            | $            | 279,789,272 | 
|                                          |                                                                                                                                                                |                     |                                            |            |             |            

-4-



---



##### Table of Contents






STURGIS BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

|                                 |                                                     |                                                |           |                    |           |   |           |           |           | 
|-------------------------------- | --------------------------------------------------- | ---------------------------------------------- | --------- | ------------------ | --------- | - | --------- | --------- | --------- | 
|                                 |                                                     |                                                |           | Three Months Ended |          
|                                 |                                                     |                                                |           | March 31,          |          
|                                 |                                                     |                                                |           |                    |          
|                                 |                                                     |                                                |           | 2002               |           |   | 2001      |          
|                                 |                                                     |                                                |           |                    |           |   |           |          
|                                 |                                                     |                                                |           | (Unaudited)        |          
|Interest income                  |                                                     | $                                              | 4,406,049 |                    |           | $ | 5,046,848 |          
|Interest expense                 |                                                     |                                                | 2,134,949 |                    |           |   | 2,799,226 |          
|                                 |                                                     |                                                |           |                    |           |  
|                                 | Net interest income                                 |                                                |           | 2,271,100          |           |   |           | 2,247,622 |          
|Provision for loan losses        |                                                     |                                                | 580,132   |                    |           |   | 75,000    |          
|                                 |                                                     |                                                |           |                    |           |  
|                                 | Net interest income after provision for loan losses |                                                |           | 1,690,968          |           |   |           | 2,172,622 |          
|Noninterest income:              |                                                     |                                                |           |                    |           |   |           |          
|                                 | Service charges and other fees                      |                                                |           | 369,100            |           |   |           | 420,056   |          
|                                 | Commission income                                   |                                                |           | 209,996            |           |   |           | 194,463   |          
|                                 | Mortgage banking activities                         |                                                |           | 584,642            |           |   |           | 183,797   |          
|                                 | Trust fee income                                    |                                                |           | 157,538            |           |   |           | 145,245   |          
|                                 | Increase in cash surrender value of life insurance  |                                                |           | 88,767             |           |   |           |          |          
|                                 | Other income                                        |                                                |           | 4,669              |           |   |           | 8,155     |          
|                                 |                                                     |                                                |           |                    |           |  
|                                 |                                                     | Total noninterest income                       |           |                    | 1,414,712 |   |           |           | 951,716   | 
|Other expenses:                  |                                                     |                                                |           |                    |           |   |           |          
|                                 | Salaries and employee benefits                      |                                                |           | 1,115,583          |           |   |           | 1,051,476 |          
|                                 | Office occupancy and equipment                      |                                                |           | 313,450            |           |   |           | 368,361   |          
|                                 | Deposit insurance premiums                          |                                                |           | 8,155              |           |   |           | 8,628     |          
|                                 | Deposit account expenses                            |                                                |           | 48,336             |           |   |           | 61,174    |          
|                                 | Service bureau expense                              |                                                |           | 158,053            |           |   |           | 136,876   |          
|                                 | Professional fees and services                      |                                                |           | 87,124             |           |   |           | 74,866    |          
|                                 | Amortization of intangibles                         |                                                |           |                   |           |   |           | 142,958   |          
|                                 | Other                                               |                                                |           | 424,096            |           |   |           | 433,886   |          
|                                 |                                                     |                                                |           |                    |           |  
|                                 |                                                     | Total other expenses                           |           |                    | 2,154,797 |   |           |           | 2,278,225 | 
|                                 |                                                     | Income before provision for federal income tax |           |                    | 950,883   |   |           |           | 846,113   | 
|Provision for federal income tax |                                                     |                                                | 278,884   |                    |           |   | 277,175   |          
|                                 |                                                     |                                                |           |                    |           |  
|                                 |                                                     | Net income                                     |           | $                  | 671,999   |   |           | $         | 568,938   | 
|                                 |                                                     |                                                |           |                    |           |  
|Basic earnings per share         |                                                     | $                                              | 0.22      |                    |           | $ | 0.18      |          
|Diluted earnings per share       |                                                     | $                                              | 0.22      |                    |           | $ | 0.18      |          
|Dividends declared per share     |                                                     | $                                              | 0.07      |                    |           | $ | 0.06      |          

-5-



---



##### Table of Contents






STURGIS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                |                                                          |                                            |            |                    |            |   |            |             |             |  
|------------------------------- | -------------------------------------------------------- | ------------------------------------------ | ---------- | ------------------ | ---------- | - | ---------- | ----------- | ----------- | -
|                                |                                                          |                                            |            | Three Months Ended |           
|                                |                                                          |                                            |            | March 31           |           
|                                |                                                          |                                            |            |                    |           
|                                |                                                          |                                            |            | 2002               |            |   | 2001       |            
|                                |                                                          |                                            |            |                    |            |   |            |            
|                                |                                                          |                                            |            | (Unaudited)        |           
|OPERATING ACTIVITIES:           |                                                          |                                            |            |                    |            |   |            |            
|                                | Net Income                                               |                                            |            | 671,999            |            |   |            | 568,938     |            
|                                | Depreciation                                             |                                            |            | 147,022            |            |   |            | 182,667     |            
|                                | Amortization of goodwill                                 |                                            |            |                   |            |   |            | 142,959     |            
|                                | Amort/accretion on securities                            |                                            |            | (12,788            | )          |   |            | 1,716       |            
|                                | Gain on sale of loans                                    |                                            |            | (285,705           | )          |   |            | (73,484     | )          
|                                | Proceeds from the sale of loans held for sale            |                                            |            | 26,221,116         |            |   |            | 8,422,225   |            
|                                | Loans originated for sale                                |                                            |            | (22,501,205        | )          |   |            | (9,266,741  | )          
|                                | Loss on sale of fixed assets                             |                                            |            |                   |            |   |            | 77,074      |            
|                                | Loss of equity of limited partnership                    |                                            |            | 4,500              |            |   |            | 4,500       |            
|                                | Income from bank owned life insurance                    |                                            |            | (88,767            | )          |   |            |            |            
|                                | Provision for loan losses                                |                                            |            | 580,132            |            |   |            | 75,000      |            
|                                | Increase in accrued interest/other assets                |                                            |            | (275,780           | )          |   |            | (268,996    | )          
|                                | Increase in other liabilities                            |                                            |            | 1,644,657          |            |   |            | 1,215,348   |            
|                                |                                                          |                                            |            |                    |            |   |           
|                                |                                                          | NET CASH PROVIDED BY OPERATING ACTIVITIES: |            |                    | 6,105,181  |   |            |             | 1,081,206   |  
|INVESTING ACTIVITIES:           |                                                          |                                            |            |                    |            |   |            |            
|                                | Net increase in interest-bearing deposits in banks       |                                            |            | (12,243,805        | )          |   |            | (13,590,001 | )          
|                                | Proceeds from maturities of securities held-to-maturity  |                                            |            | 85,000             |            |   |            | 150,000     |            
|                                | Purchases of securities held-to-maturity                 |                                            |            | (1,400,000         | )          |   |            |            |            
|                                | Principal reductions of mortgage-backed securities       |                                            |            | 93,230             |            |   |            | 59,864      |            
|                                | Purchase of Federal Home Loan Bank stock                 |                                            |            |                   |            |   |            | (617,900    | )          
|                                | Purchases of available for sale securities               |                                            |            | (1,269,253         | )          |   |            | 101,183     |            
|                                | Net decrease in loans                                    |                                            |            | 8,289,521          |            |   |            | 974,536     |            
|                                | Purchase of premises and equipment                       |                                            |            | (128,925           | )          |   |            | (116,383    | )          
|                                | Proceeds from sale of fixed assets                       |                                            |            |                   |            |   |            | 275,000     |            
|                                |                                                          |                                            |            |                    |            |   |           
|                                |                                                          | NET CASH USED IN INVESTING ACTIVITIES:     |            |                    | (6,574,232 | ) |            |             | (12,763,701 | )
|FINANCING                       |                                                          |                                            |            |                    |            |   |            |            
|                                | Net increase in demand, now and savings account deposits |                                            |            | 12,180,247         |            |   |            | 3,660,372   |            
|                                | Net increase in time deposits                            |                                            |            | (858,133           | )          |   |            | 817,919     |            
|                                | Payments to FHLB                                         |                                            |            | (19,744,703        | )          |   |            | (11,103,505 | )          
|                                | Advances from FHLB                                       |                                            |            | 10,000,000         |            |   |            | 16,000,000  |            
|                                | Increase in advances for taxes and insurance             |                                            |            | 175,345            |            |   |            | 163,421     |            
|                                | Stock redemption                                         |                                            |            | (1,047,265         | )          |   |            |            |            
|                                | Cash dividends                                           |                                            |            | (217,107           | )          |   |            | (186,092    | )          
|                                |                                                          |                                            |            |                    |            |   |           
|                                |                                                          | NET CASH PROVIDED BY FINANCING ACTIVITIES: |            |                    | 488,384    |   |            |             | 9,352,115   |  
|                                |                                                          |                                            |            |                    |            |   |           
|NET INCREASE (DECREASE) IN CASH |                                                          |                                            | 19,333     |                    |            |   | (2,330,380 | )          
|BALANCE BEGINNING OF PERIOD:    |                                                          | $                                          | 10,629,027 |                    |            | $ | 11,697,647 |            
|                                |                                                          |                                            |            |                    |            |  
|BALANCE END OF PERIOD:          |                                                          | $                                          | 10,648,360 |                    |            | $ | 9,367,267  |            
|                                |                                                          |                                            |            |                    |            |  

-6-



---



##### Table of Contents






STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A: FINANCIAL STATEMENTS.

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of Management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Bancorps Annual Report on Form 10-K for the year ended
December 31, 2001.

Note B: ORGANIZATION AND ACCOUNTING POLICIES.

The following is a summary of the significant accounting policies followed in
the preparation of the consolidated financial statements of Sturgis Bancorp and
subsidiaries (individually and collectively referred to as Bancorp).

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
Bancorp have been prepared in accordance with generally accepted accounting
principles for interim financial information. Additionally, these financial
statements have been prepared in accordance with the instructions to Form 10-Q
and Article 10 of Regulations S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. The interim financial information
statements presented herein should be read in conjunction with the financial
statements included in the Registrants Annual Report on Form 10-K for the year
ended December 31, 2001. Operating results for the three months ended March
31, 2002 should not be considered indicative of the results for any future
period or the year ending December 31, 2002.

Organization

Bancorp is chartered as a financial holding company. Bancorps primary asset
is Sturgis Bank & Trust Company (Bank), a Michigan savings bank. The Bank,
as a state-chartered stock savings bank and as a member of the Federal Home
Loan Bank System (FHLB), is required to maintain an investment in the capital
stock of the FHLB.

The Federal Deposit Insurance Corporation (FDIC) insures deposit accounts
within certain limitations. A premium is required by the FDIC for the insurance of
such accounts.

-7-



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued.

Note B: ORGANIZATION AND ACCOUNTING POLICIES, Continued.

Principles of Consolidation

The consolidated financial statements include the accounts of Bancorp, the Bank
and all wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.

The allowance for loan losses is a material estimate that is particularly
susceptible to change in the near term. While management uses available
information to recognize losses on loans, future additions to the allowance or
write-downs may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such agencies
could require Bancorp to recognize additions to the allowance or write-downs
based on their judgment of information available to them at the time of their
examination.

Securities

Debt securities that management has the positive intent and ability to hold to
maturity are classified as held to maturity and recorded at amortized cost.
Securities not classified as held to maturity or trading are classified as
available for sale and recorded at fair value, with unrealized gains and
losses excluded from earnings and reported as other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value
of held to maturity and available for sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
Gains and losses on the sale of securities are recorded on the trade date.

Loans

Substantially all of Bancorps loan activity is with customers located in
southwestern and southcentral lower Michigan with a major concentration in
single-family residential lending.

Generally, loans are collateralized by real estate. Bancorp expects loans to
be repaid from cash flow or proceeds from the sale of selected assets of the
borrower. Bancorps policy for requiring collateral is dependent upon
managements credit evaluation of the borrower.

-8-



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued.

Note B: ORGANIZATION AND ACCOUNTING POLICIES, Continued.

Interest on loans is accrued and credited to income based upon the principal
amount outstanding. The accrual of interest income is generally discontinued
when a loan becomes 90 days past due as to principal or interest or when, in
the opinion of management, full collection of principal or interest is
unlikely. When a loan is in non-accrual status, interest income is recognized
only to the extent of cash received and when the full collection of principal
is not in doubt. Management may elect to continue the accrual of interest when
the estimated fair value of collateral is sufficient to cover the principal
balance and accrued interest.

Loan origination fees and certain direct loan origination costs are deferred
and the net amount amortized as an adjustment of the related loan yield over
the contractual life of the loans. Amortization of deferred amounts is
suspended when a loan becomes non-accrual.

Loans Held for Sale

The Bank sells a portion of its mortgage loan production into the secondary
market. Loans held for sale are carried at the lower of cost or market until
sold. Whenever loan cost exceeds market value on a net aggregate basis, a
valuation allowance is recorded.

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
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.

Office Properties and Equipment

Office properties and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed on the straight-line method based on
the estimated useful lives of the related assets.

Real Estate Owned

Real estate owned includes properties acquired through foreclosure proceedings
or by acceptance of a deed in lieu of foreclosure. Real estate owned is
recorded at the lower of its cost (including unpaid accrued interest) or the
estimated fair market value (as determined by recent appraisals) less estimated
selling costs. Any write-down of the loan balance to estimated fair market
value (less estimated selling costs) when the property is foreclosed is charged
to the allowance for loan losses. Subsequent market write-downs, operating
expenses and gains or losses on disposition of real estate owned are charged to
current earnings.

-9-



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued.

Note B: ORGANIZATION AND ACCOUNTING POLICIES, Continued.

Investment In Limited Partnership

First Michiana Development Corporation, a wholly-owned subsidiary of the Bank,
has an investment in a Michigan limited partnership, which is structured to
generate low-income housing tax credits. The investment is accounted for using
the equity method whereby Bancorp annually records its proportionate share of
partnership losses as an adjustment to the carrying value of the investment.

Goodwill

Until adoption of FAS 142 in January of 2002, goodwill was amortized using
accelerated methods over fifteen years. Beginning in January of 2002, the Bank
no longer amortizes goodwill in accordance with FAS 142. On an ongoing basis,
management assesses the recoverability of the goodwill. If an assessment of the
goodwill indicates that its recoverability is impaired, a charge to expense is
recorded for the amount of the impairment.

Mortgage Servicing Rights

Servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. Capitalized servicing
rights are reported in other assets and are amortized into noninterest income
in proportion to, and over the period of, the estimated future net servicing
income of the underlying financial assets. Servicing assets are evaluated for
impairment based upon the fair value of the rights as compared to amortized
cost. Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. Fair value is determined
using prices for similar assets with similar characteristics, when available,
or based upon discounted cash flows using market-based assumptions. Impairment
is recognized through a valuation allowance for an individual stratum, to the
extent that fair value is less than the capitalized amount for the stratum.
There was no valuation allowance associated with capitalized servicing rights
at March 31, 2002 or December 31, 2001.

Federal Income Taxes

Deferred tax assets and liabilities are recognized for temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized.

-10-



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued.

Note B: ORGANIZATION AND ACCOUNTING POLICIES, Continued.

Bancorp has qualified under provisions of the Internal Revenue Code, which
permits it to deduct from taxable income a provision for bad debts in excess of
such provision charged to income in the consolidated financial statements.
Accordingly, retained earnings at March 31, 2002 includes approximately
$918,000 for which no provision for federal income taxes has been made.
Unrecognized deferred taxes on this amount is approximately $312,000. If, in
the future, this portion of retained earnings is used for any purpose other
than to absorb bad debt losses, federal income taxes would be imposed at the
then applicable rates.

Statement of Cash Flows

For the purposes of the consolidated statements of cash flows, Bancorp
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.

|                                            |                                   |                                        |              |  |                    |           |  |              |         |           |      |  |         |            |  |  |         |            | 
|------------------------------------------- | --------------------------------- | -------------------------------------- | ------------ |  | ------------------ | --------- |  | ------------ | ------- | --------- | ---- |  | ------- | ---------- |  |  | ------- | ---------- | 
|                                            |                                   |                                        |              |  | Three Months Ended |           |  | Year Ended   |        
|                                            |                                   |                                        |              |  | March 31,          |           |  | December 31, |        
|                                            |                                   |                                        |              |  |                    |           |  |              |        
|                                            |                                   |                                        |              |  | 2002               |           |  | 2001         |         |           | 2001 |  |         | 2000       | 
|                                            |                                   |                                        |              |  |                    |           |  |              |         |           |      |  |         |            | 
|Supplemental cash flow information:         |                                   |                                        |              |  |                    |           |  |              |         |           |      |  |         |            |  | 
|                                            | Cash paid during the periods for: |                                        |              |  |                    |           |  |              |         |           |      |  |         |            |  |  |        
|                                            |                                   |                                        | Interest     |  | $                  | 2,185,863 |  |              | $       | 2,776,520 |      |  | $       | 10,436,770 |  |  | $       | 10,449,594 | 
|                                            |                                   |                                        | Income taxes |  |                    |          |  |              |         | 260,000   |      |  |         | 1,730,136  |  |  |         | 386,000    | 
|Noncash investing and financing activities: |                                   |                                        |              |  |                    |           |  |              |         |           |      |  |         |            |  | 
|                                            |                                   | Loans transferred to real estate owned |              |  | 148,854            |           |  |              | 138,955 |           |      |  | 847,550 |            |  |  | 352,274 |           
|                                            |                                   | Tax benefit of stock options exercised |              |  |                   |           |  |              |        |           |      |  |        |            |  |  | 4,010   |           

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding. Accordingly, for the
three month period ended March 31, 2002 the weighted average number of common
shares used in the computation of basic earnings per share was 3,066,356. The
weighted average number of common shares for the three month period ended March
31, 2001 was 3,101,534, respectively.

Diluted earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding plus the dilutive effect
of outstanding stock options. For the three month period ended March 31, 2002
the weighted average number of common shares used in the computation of diluted
earnings per share was 3,066,356. The weighted average number of common shares
for the three month period ended March 31, 2001 was 3,101,534.

-11-



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued.

Note B: ORGANIZATION AND ACCOUNTING POLICIES, Concluded.

Recent Accounting Pronouncements

In June 1998, Statement of Financial Accounting Standard No. 133 (FAS 133),
Accounting for Derivative Instruments and Hedging Activitieswas issued and
became effective for fiscal years beginning after June 2000. FAS 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The accounting for derivatives had no effect on Bancorp.

In June 2001, Statement of Financial Accounting Standards No. 142 (FAS 142),
Goodwill and Other Intangible Assetswas issued and is effective for fiscal
years beginning after December 15, 2001. Under FAS 142, identifiable intangible
assets that meet certain criteria will continue to be amortized over their
estimated useful lives. However, goodwill and non-identifiable intangible
assets will no longer be amortized. Instead, these assets will be evaluated for
impairment on an annual basis. If an asset is deemed to be impaired, the asset
will be written down through an adjustment to current earnings. As a result of
adopting FAS 142, Bancorp will no longer be amortizing goodwill.

-12-



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited), Continued.

Note C: LOANS RECEIVABLE, NET.

A summary of the balances of loans follows:

|                                |                                  |                                         |                       |             |             |             |             |              |             |             | 
|------------------------------- | -------------------------------- | --------------------------------------- | --------------------- | ----------- | ----------- | ----------- | ----------- | ------------ | ----------- | ----------- | 
|                                |                                  |                                         |                       |             | March 31,   |             |             | December 31, |            
|                                |                                  |                                         |                       |             | 2002        |             |             | 2001         |            
|                                |                                  |                                         |                       |             |             |             |             |              |            
|                                |                                  |                                         |                       |             | (Unaudited) |             |             |              |             |            
|Mortgage loans on real estate:  |                                  |                                         |                       |             |             |             |             |             
|                                | Residential 1-4 family           |                                         | $                     | 144,277,702 |             |             | $           | 151,766,803  |            
|                                | Commercial                       |                                         |                       | 36,025,454  |             |             |             | 34,872,863   |            
|                                | Construction loans  residential |                                         |                       | 3,993,774   |             |             |             | 7,931,916    |            
|                                | Construction loans  commercial  |                                         |                       | 420,636     |             |             |             | 440,000      |            
|                                |                                  |                                         |                       |             |             |             |            
|                                |                                  |                                         | 184,717,566           |             |             |             | 195,011,582 |             
|Commercial nonmortgage loans    |                                  |                                         | 13,337,522            |             |             |             | 12,906,602  |             
|Consumer and installment loans: |                                  |                                         |                       |             |             |             |             |             
|                                | Loans secured by deposits        |                                         |                       | 514,179     |             |             |             | 571,739      |            
|                                | Other consumer and installment   |                                         |                       | 13,891,489  |             |             |             | 15,299,376   |            
|                                |                                  |                                         |                       |             |             |             |            
|                                |                                  |                                         | 14,405,668            |             |             |             | 15,871,115  |             
|                                |                                  |                                         |                       |             |             |             |            
|                                |                                  | Subtotal                                |                       |             | 212,460,756 |             |             |              | 223,789,299 |            
|                                | Less:                            |                                         |                       |             |             |             |             |              |            
|                                |                                  | Allowance for possible loan losses      |                       |             | 1,507,705   |             |             |              | 1,300,000   |            
|                                |                                  | Unearned interest                       |                       |             | 23,482      |             |             |              | 26,013      |            
|                                |                                  | Undisbursed portion of loans in process |                       |             | 674,535     |             |             |              | 3,257,555   |            
|                                |                                  | Deferred loan fees                      |                       |             | 10,747      |             |             |              | 91,791      |            
|                                |                                  |                                         |                       |             |             |             |            
|                                |                                  |                                         | Loans receivable, net |             | $           | 210,244,287 |             |              | $           | 219,113,940 | 
|                                |                                  |                                         |                       |             |             |            

Note D: DEPOSITS.

Interest-bearing deposits are summarized as follows:

|                               |                   |                                 |            |             |             |   |              |            |             | 
|------------------------------ | ----------------- | ------------------------------- | ---------- | ----------- | ----------- | - | ------------ | ---------- | ----------- | 
|                               |                   |                                 |            | March 31,   |             |   | December 31, |           
|                               |                   |                                 |            | 2002        |             |   | 2001         |           
|                               |                   |                                 |            |             |             |   |              |           
|                               |                   |                                 |            | (Unaudited) |             |   |              |            |            
|Passbook and statement savings |                   | $                               | 39,610,753 |             |             | $ | 38,075,301   |           
|NOW accounts                   |                   |                                 | 59,450,217 |             |             |   | 49,406,921   |           
|Time:                          |                   |                                 |            |             |             |   |              |           
|                               | $100,000 and over |                                 |            | 14,328,464  |             |   |              | 15,096,975 |            
|                               | Under $100,000    |                                 |            | 65,598,114  |             |   |              | 65,687,736 |            
|                               |                   |                                 |            |             |             |  
|                               |                   | Total interest-bearing deposits |            | $           | 178,987,548 |   |              | $          | 168,266,933 | 
|                               |                   |                                 |            |             |             |  

-13-



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited), Continued.

Note E: ADVANCES FROM FEDERAL HOME LOAN BANK.

Advances from the Federal Home Loan Bank of Indianapolis (FHLB) are
collateralized by FHLB stock, all non-employee residential mortgage loans,
certain U.S. Treasury and agency securities and mortgage-backed securities
issued or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association or the Government National Mortgage Association.
Bancorp had no short-term advances at March 31, 2002. Total short-term
advances, including advances under a separate line of credit with the FHLB,
consisted of approximately $6,000,000 at December 31, 2001 at an interest rate
of 5.12% with an average balance for the year of approximately $9,468,255 and
an average interest rate of 5%.

In addition to advances received under a master Advances, Pledge and Security
Agreement with the FHLB, the Bank also has an available line of credit with
the FHLB that provides for additional funds of up to $5,000,000 at March 31,
2002 and expires in March, 2003. Advances outstanding under the line of credit
bear interest at a rate of approximately 50 basis points over the rate paid by
the FHLB on their time deposits (an effective rate of 2.15% and 1.82% at March
31, 2002 and December 31, 2001, respectively).

Bancorp had $60,332,160 and $64,076,863 in long-term advances from FHLB at
March 31, 2002 and December 31, 2001, respectively. Interest rates range from
4.20% to 7.34% with maturities ranging from June 2002 to February 2012.

Annual principal payments of FHLB long-term advances are as follows:

|                     |      |        |            |           |            | 
|-------------------- | ---- | ------ | ---------- | --------- | ---------- | 
|Twelve Months Ending |      |        |            |          
|March 31,            |      | Amount |           
|                     |      |        |           
|                     | 2003 |        | $          | 6,187,907 |           
|                     | 2004 |        |            | 6,838,079 |           
|                     | 2005 |        |            | 2,960,102 |           
|                     | 2006 |        |            | 3,346,072 |           
|                     | 2007 |        |            |          |           
|2008 and thereafter  |      |        | 41,000,000 |          
|                     |      |        |           
|                     |      | Total  |            | $         | 60,332,160 | 
|                     |      |        |           

-14-



---



##### Table of Contents



STURGIS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited),
Concluded

Note F: CASH DIVIDENDS

Bancorp paid a cash dividend of $.07 per share on its issued and outstanding
common stock on March 29, 2002 to shareholders of record as of February 28,
2002. Total dividends paid on March 29, 2002 were $217,107.

Note G: PURCHASE OF MCKILLEN FINANCIAL SERVICES

In January 2000, Oakleaf Financial Service, Inc. (a wholly-owned subsidiary of
the Bank), previously SFB Agency, acquired McKillen Financial Services in a
business combination accounted for as a purchase. McKillen Financial Services
is primarily engaged in providing investment advisory services. The total cost
of the acquisition was $475,000, which, since no tangible assets were
purchased, has been allocated to goodwill.

Note H: EMPLOYEE BENEFIT PLANS

The Bank has a Defined Contribution Plan and Trust/401(k). The plan permits
eligible employees to contribute a percentage of their compensation with the
Bank contributing 25% of the employees pre-tax contribution, not to exceed 10%
of the employees total compensation, as defined in the agreement. The plan
also permits the Bank to make discretionary contributions.

-15-



---



##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This report contains statements that constitute forward-looking statements.
These statements appear in several places in this report and include statements
regarding intent, belief, outlook, objectives, efforts, estimates or
expectations of Bancorp, primarily with respect to future events and the future
financial performance of the Bancorp. Any such forward-looking statements are
not guarantees of future events or performance and involve risks and
uncertainties, and actual results may differ materially from those in the
forward-looking statement. Factors that could cause a difference between an
ultimate actual outcome and a preceding forward-looking statement include, but
are not limited to, changes in interest rates and interest rate relationships;
demand for products and services; the degree of competition by traditional and
non-traditional competitors; changes in banking laws and regulations; changes
in tax laws; changes in prices, levies, and assessments; the impact of
technological advances; government and regulatory policy changes; the outcome
of any pending and future litigation and contingencies; trends in consumer
behavior and ability to repay loans; and changes of the world, national and
local economies. The Bancorp undertakes no obligation to update, amend or
clarify forward-looking statements as a result of new information, future
events, or otherwise.

Financial Condition

Assets.Bancorps total assets at March 31, 2002 were $282.6 million
compared to $279.8 million at December 31, 2001, an increase of $2.8 million or
1.0%.

Loans held for sale.The decrease of $3.4 million in loans held for sale
from December 31, 2001 to March 31, 2002 is due the slower pace of loan sale
activity on those dates. Loans held for sale typically are sold within two
weeks of origination.

Loans.Bancorps net loans decreased to $210.2 million at March 31, 2002
from $219.1 million at December 31, 2001. This decrease was due to unusually
high mortgage loan refinances. Adjustable-rate mortgage loans were refinanced
into fixed-rate mortgages to lock in low rates. Bancorp sells long-term,
fixed-rate, residential mortgages in the secondary market, so the net loans
decreased. The composition of Bancorps loan portfolio continued to shift from
residential mortgages to commercial mortgages. The commercial mortgage
portfolio increased to $36.0 million, or 17.0% of gross loans, at March 31,
2002, compared to $34.9 million, or 15.6% of gross loans, at December 31, 2001.
During the first three months of 2002 and 2001, Bancorp sold residential
originations of fixed-rate mortgages with terms of 10 years or greater from its
portfolio into the secondary market. The demand for fixed-rate mortgage loans
was higher in 2002 than 2001 due to lower interest rates during the three
months ended March 31, 2002. The proceeds from the sale of loans (fixed-rate,
residential mortgages) were $26.2 million and $8.4 million for the three months
ended March 31, 2002 and 2001, respectively. The mortgage loans originated for
sale ($22.5 million during the three months ended March 31, 2002 and $9.3
million during the three months ended March 31, 2001) were primarily funded by
the secondary mortgage market sales. Management does not anticipate heavy
refinance and sale activity to continue throughout the remainder of 2002. At
March 31, 2002, outstanding loan commitments were $8.7 million and $13.4
million on fixed and variable-rate loans, respectively. The Bank will fund
these loan commitments with interest-bearing deposits, other short-term
investments, maturing assets, and additional FHLB borrowings, if needed. The
decision to sell fixed-rate mortgages with original


-16-Table of Contentsmaturities of 10 years or greater protects Bancorp from the interest rate risk
inherent in holding these longer fixed-rate loans and provides a source of
liquidity to fund loan demand.Mortgage loans serviced for others increased by $17.3 million to $150.4
million at March 31, 2002 from $133.1 million at December 31, 2001. The entire
servicing portfolio consists of loans originated by the Bank and sold in the
secondary mortgage market with servicing retained by Bancorp. Bancorp has not
purchased any mortgage servicing rights.Interest-bearing Deposits in Banks.Interest-bearing deposits in banks
were $27.3 million at March 31, 2002, compared to $15.0 million at December 31,
2001, an increase of $12.3 million. During the three months ended March 31,
2002, the strong refinancing (caused by lower residential mortgage rates)
provided funds for increased overnight investments at FHLB. In addition,
Bancorp invested in $100,000 certificates of deposit in several domestic
financial institutions. These certificates of deposit were funded with
increases in deposit accounts and other maturing investments.Securities Available-for-sale.Securities available-for-sale were $1.5
million at March 31, 2002, compared to $259,735 at December 31, 2001, an
increase of $1.2 million. This increase is primarily due to Bancorps purchase
of shares in a mutual fund investing in adjustable-rate mortgages.Securities Held-to-Maturity.Investment securities consisting of U.S.
Treasury and agency securities, municipal obligations, and mortgage-backed
securities were $5.1 million at March 31, 2002 compared to $3.9 million at
December 31, 2001, an increase of $1.2 million. This increase was due to the
purchase of municipal securities.Goodwill, net of Accumulated Amortization.Goodwill, net of accumulated
amortization was $5.1 million at March 31, 2002 and at December 31, 2001.
Because the Bank adopted FAS 142 effective January 2002, the Bank recognized no
amortization expense for the three months ended March 31, 2002. The Bank
recorded amortization expense of $142,959 for the three months ended March 31,
2001.Deposit and Borrowed Funds.Deposits were $188.9 million at March 31, 2002
compared to $177.6 million at December 31, 2001, an increase of $11.3 million
or 6.4%. The increase is primarily in interest-bearing checking accounts, which
include municipal accounts. Municipal account balances typically increase
during the first three months of the year due to tax collections.The Bank has an available line of credit with FHLB, which provides for
advances up to $5.0 million and matures on March 1, 2003. All borrowings from
FHLB are collateralized by FHLB stock and substantially all mortgage loans.
There were no advance on the line of credit at March 31, 2002 or December 31,
2001.Long-term advances were $60.3 million at March 31, 2002 compared to $64.1
million at December 31, 2001 a decrease of $3.8 million. Bancorp had no
short-term advances at March 31, 2002, compared to $6.0 million at December 31,
2001.The Banks certificates of deposit decreased from $80.8 million at
December 31, 2001 to $79.9 million at March 31, 2002.
Bancorp has been
replacing its certificates of deposit with borrowings from FHLB, as needed.
The Bank will continue to manage the rates offered on its time deposits and use
borrowed funds when that strategy enhances net interest income.-17-Table of ContentsLiquidityBancorp maintains certain levels of liquid assets (the most liquid of
which are cash and cash equivalents and investment securities) in order to meet
demands from loan commitments, savings withdrawals and other obligations.
Bancorp manages liquidity by maintaining a portion of its liquid assets in
overnight accounts and by keeping various maturities in its portfolio of
investment securities. The primary sources of liquidity are loan repayments
and sales, maturing investments, deposit accounts, and FHLB borrowings.Cash flow changes from the three months ended March 31, 2001 to March 31,
2002 are primarily due to the stronger mortgage banking activities. The $5.0
million increase in cash provided by operating activities is in loan sales and
loans originated for sale. The $7.3 million decrease in cash used in investing
activities is due to loan refinances. The $8.7 million decrease in cash
provided by financing activities is due to the use of deposit growth and loan
refinances to decrease borrowings from FHLB.Bancorps liquidity ratio (liquid assets to net withdrawable deposits plus
short-term borrowings) was 20.69% at March 31, 2002 and 12.97% at December 31,
2001.Capital ResourcesThe stockholders equity of Bancorp was $27.9 million at March 31, 2002
compared to $28.5 million at December 31, 2001, a decrease of $594,794 or 2.1%.
During January 2002, the Board of Bancorp approved a program to repurchase up
to 10 percent of Bancorps issued and outstanding common stock in the open
market and in privately negotiated transactions. Through April 22, 2002,
Bancorp has redeemed 131,470 shares at a total redemption price of
approximately $1.2 million. The program authorizes purchases of an additional
178,683 shares at market prices. If purchased at the closing price of March
31, 2002, the additional repurchase would be approximately $1.6 million.The Federal Reserve Board (FRB) has adopted risk-based capital
guidelines applicable to Bancorp. These guidelines require that financial
holding companies, such as Bancorp, maintain capital commensurate with both on
and off balance sheet credit risks of their operations. Under the guidelines,
a financial holding company must have a minimum ratio of total capital to
risk-weighted assets of 8.0%.In addition, a financial holding company must maintain a minimum ratio of
Tier 1 capital equal to 4.0% of risk-weighted assets. Tier 1 capital includes
common stockholders equity, qualifying perpetual preferred stock and minority
interest in equity accounts of consolidated subsidiaries less goodwill.As a supplement to the risk-based capital requirements, the FRB has also
adopted leverage capital ratio requirements. The leverage ratio requirements
establish a minimum ratio of Tier 1 capital to total assets, less goodwill, of
3% for the most highly rated financial holding companies. All other financial
holding companies are required to maintain additional Tier 1 capital yielding a
leverage ratio of 4%-5%, depending on the particular circumstances and risk
profile of the institution.-18-Table of ContentsThe following table summarizes Bancorps capital ratios:

|                 |                |  |                |   |  |                   |      |   | 
|---------------- | -------------- |  | -------------- | - |  | ----------------- | ---- | - | 
|                 |                |  | March 31, 2002 |   |  | December 31, 2001 |     
|                 |                |  |                |   |  |                   |     
|Equity to assets |                |  | 9.9            | % |  |                   | 10.2 | % | 
|Tier 1 leverage  |                |  | 8.5            | % |  |                   | 8.6  | % | 
|Risk-based:      | Tier 1 Capital |  | 12.3           | % |  |                   | 12.6 | % | 
|                 | Total Capital  |  | 13.1           | % |  |                   | 13.3 | % | 

Results of Operations

Bancorp reported net income of $671,999 or $0.22 per share for the three
months ended March 31, 2002 compared to net income of $568,938 or $0.18 per
share for the three months ended March 31, 2001.

Net Interest Income

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31,
2001. Net interest income increased $23,478 to $2.3 million from $2.2 million.
This small change, approximately 1%, indicates the success of Managements
Asset/Liability program. Bancorp was able to maintain relatively stable net
interest income despite several interest rate reductions throughout 2001.

Provision for Loan Losses

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31,
2001.The provision for loan losses was $580,132 for the quarter ended March
31, 2002 and $75,000 for the quarter ended March 31, 2001. The increase is due
to the depressed economy which has increased past due and classified loans, and
Bancorps gradually changing portfolio to include more commercial loans. The
provision for loan losses was based upon managements assessment of relevant
factors, including types and amounts of non-performing loans, historical and
anticipated loss experience on such types of loans, and current and projected
economic conditions.

Noninterest Income

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31,
2001.Noninterest income was $1.4 million for the three months ended March 31,
2002 compared to $1.0 million for the three months ended March 31, 2001, an
increase of $462,994 or 48.6%. The major component of this increase was
mortgage banking activities, net of amortization of originated mortgage
servicing rights. Income from mortgage banking activities (net) was $584,642
for the three months ended March 31, 2002 and $183,797 for the three months
ended March 31, 2001. This increase is due to the increase in loan sales,
caused by the lower interest rates on fixed-rate residential mortgages.
Management does not anticipate the heavy refinance and sale activity to
continue throughout the remainder of 2002.

Noninterest Expense

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31,
2001. Noninterest expense was $2.2 million for the three months ended March
31, 2002 compared to $2.3 million for the three months ended March 31, 2001, a
decrease of $123,428. The primary

-19-



---



##### Table of Contents



component of this decrease was amortization of intangibles. Amortization
expense was not recognized in 2002, due to adoption of FAS 142. Amortization
expense for the three months ended March 31, 2001 was $142,959. The largest
component of noninterest expense is salaries and employee benefits. The
increase of $64,107 in salaries and employee benefits is due to salary
adjustments and cost of living increases, which took effect January 2002.

-20-



---



##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information concerning quantitative and qualitative disclosures about
market risk contained under the captions Asset/Liability Management and
Effect of Interest Rate Fluctuations on pages 13 through 17 (inclusive) of
Sturgis Bank & Trusts Annual Report to Shareholders for the year ended
December 31, 2001 is herein incorporated by reference. Such Annual Report was
previously filed as Exhibit 13.1 to Sturgis Bank & Trusts Annual Report on
Form 10-K for the year ended December 31, 2001. This Form 10-K was filed by
Sturgis Bancorp, Inc. as the successor issuer to Sturgis Bank & Trust Company
pursuant to paragraph (g) of Rule 12g-3 under the Securities Exchange Act of
1934.

Copies of the Banks filings with the FDIC under the Securities Exchange Act of
1934 can be obtained from Sturgis Bank & Trust Company by contacting Leonard L.
Eishen at Sturgis Bank & Trust Company, 113-125 E. Chicago Road, Sturgis,
Michigan 49091, telephone number (616) 651-9345 or, for a nominal fee, from Ms.
Marcia Fields at the FDIC, telephone number (202) 898-8913 or fax number (202)
898-3909. Filings of Bancorp can be obtained from Bancorp by contacting
Leonard L. Eishen at Sturgis Bancorp, Inc., 113-125 E. Chicago Road, Sturgis,
Michigan 49091, telephone number (616) 651-9345 or through the Securities and
Exchange Commission Edgar System at www.sec.gov.

Asset/Liability Management

The primary component of Bancorps earnings is net interest income.
Bancorps asset/liability management strategy is to maximize net interest
income over time by reducing the impact of fluctuating interest rates. This is
accomplished by matching the mix and maturities of its assets and liabilities.
At the same time Bancorps asset/liability strategies for managing interest
rate risk must also accommodate customer demands for particular types of
deposit and loan products. Bancorp uses various asset/liability management
techniques in an attempt to maintain a profitable mix of financial assets and
liabilities, provide deposit and loan products that meet the needs of its
market area, and maintain control over interest rate risk resulting from
changes in interest rates.

Strategies employed by Bancorp to manage the rate sensitivity of its
assets include origination of adjustable rate mortgage and consumer loans and
purchase of adjustable rate and short-term fixed rate investments. Bancorp
also attempts to reduce the rate sensitivity of its liabilities by emphasizing
core deposits, which are less sensitive to changes in interest rates,
attracting longer term certificates of deposits when the market permits, and
using long term Federal Home Loan Bancorp advances when such rates are
competitive. Management will continue to monitor the impact of its borrowings
and lending policies on Bancorps sensitivity to interest rate fluctuations.

Bancorp faces market risk to the extent that both earnings and the fair
values of its financial instruments are affected by changes in interest rates.
Bancorp manages this risk with static GAP analysis and simulation modeling.
Throughout the first three months of 2002, the results of these measurement
techniques were within Bancorps policy guidelines. Bancorp does not believe
that there have been material changes in the nature of Bancorps primary market
risk exposures, including the categories of market risk to which Bancorp is
exposed and the particular markets that present the primary risk of loss to
Bancorp. As of the date of this Form 10-Q Quarterly Report, Bancorp does not
know of or expect any material change in the general nature of its primary
market risk exposure in the near term.

-21-



---



##### Table of Contents



The methods by which Bancorp manages its primary market risk exposures, as
described in the sections of its annual report incorporated by reference in
response to this item, have not changed materially during the current year. As
of the date of this Form 10-Q Quarterly Report, Bancorp does not expect to
change those methods in the near term. However, Bancorp may change those
methods in the future to adapt to changes in circumstances or to implement new
techniques.

Bancorps market risk exposure is mainly comprised of its vulnerability to
interest rate risk. Prevailing interest rates and interest rate relationships
in the future will be primarily determined by market factors, which are outside
of Bancorps control. All information provided in response to this item
consists of forward-looking statements. Reference is made to the section
captioned Forward Looking Statements at the end of Managements Discussion
and Analysis of Financial Condition and Results of Operations in this Form 10-Q
Quarterly Report for a discussion of the limitations on Bancorps
responsibility for such statements.

-22-



---



##### Table of Contents















PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material legal proceedings other than the ordinary routine
proceedings of Bancorp.

ITEM 2. CHANGES IN SECURITIES

The information contained in the section captioned Market Information in the
2001 Annual Report to Stockholders is incorporated herein by reference. Such
Annual Report was previously filed as Exhibit 13.1 to Sturgis Bank & Trusts
Annual Report on Form 10-K for the year ended December 31, 2001. This Form
10-K was filed by Sturgis Bancorp, Inc. as the successor issuer to Sturgis Bank
& Trust Company pursuant to paragraph (g) of Rule 12g-3 under the Securities
Exchange Act of 1934. In addition to the information incorporated by
reference, there have been no sales of unregistered securities by Bancorp
during the three months ended March 31, 2002.

ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(b)  Reports on Form 8-K

During the first quarter of 2002, there was one report filed on Form 8-K, on
February 4, 2002, announcing the deemed registration of the Bancorp stock under
Section 12(g) of the Securities Exchange Act of 1934 pursuant to Rule 12g-3(a).

(c)  Exhibit Listing

|               |  |             |      |  |  |                                                                         
|-------------- |  | ----------- | ---- |  |  | ------------------------------------------------------------------------
|Exhibit Number |  | Description
|               |  |             | 2.1  |  |  | Plan of Reorganization and Merger Agreement (1)                         
|               |  |             |      |  |  |                                                                         
|               |  |             | 2.2  |  |  | Consolidation Agreement (1)                                             
|               |  |             |      |  |  |                                                                         
|               |  |             | 3.1  |  |  | Articles of Incorporation of Sturgis Bancorp, Inc. (1)                  
|               |  |             |      |  |  |                                                                         
|               |  |             | 3.2  |  |  | Bylaws of Sturgis Bancorp, Inc. (1)                                     
|               |  |             |      |  |  |                                                                         
|               |  |             | 10.1 |  |  | Sturgis Federal Savings Bank Non-Employee Director Stock Option
Plan (2)
|               |  |             |      |  |  |                                                                         
|               |  |             | 10.2 |  |  | Sturgis Federal Savings Bank Director Stock Option Plan (2)             
|               |  |             |      |  |  |                                                                         
|               |  |             | 10.3 |  |  | Sturgis Federal Savings Bank Employee Stock Option Plan (3)             
|               |  |             |      |  |  |                                                                         
|               |  |             | 10.4 |  |  | Employment Agreement with Leonard L. Eishen (4)                         
|               |  |             |      |  |  |                                                                         
|               |  |             | 10.5 |  |  | Employment Agreement with Eric L. Eishen (4)                            
|               |  |             |      |  |  |                                                                         
|               |  |             | 10.6 |  |  | Employment Agreement with Brian P. Hoggatt (4)                          
|               |  |             |      |  |  |                                                                         
|               |  |             | 10.7 |  |  | Employment Agreement with David E. Watters (4)                          

-23-



---



##### Table of Contents



| |  |  |      |  |  |                                                
| |  |  | ---- |  |  | -----------------------------------------------
| |  |  | 10.8 |  |  | Employment Agreement with Ronald W. Scheske (4)
| |  |  |      |  |  |                                                
| |  |  | 13.1 |  |  | Annual Report to Stockholders (5)              
| |  |  |      |  |  |                                                
| |  |  | 21   |  |  | Subsidiaries of Registrant (5)                 
| |  |  |      |  |  |                                                
| |  |  | 23   |  |  | Consents of Independent Auditors (5)           



| | (1) | Incorporated by reference to the Proxy Statement dated November 21,
2001 of Sturgis Bank & Trust Company.                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------
| | (2) | Incorporated by reference to 1994 Form 10-KSB of Sturgis Federal
Savings Bank, the predecessor of Sturgis Bank & Trust Company.
| | (3) | Incorporated by reference to 1995 Form 10-KSB of Sturgis Federal
Savings Bank, the predecessor of Sturgis Bank & Trust Company.
| | (4) | Incorporated by reference to Form 10-Q for Sturgis Bank & Trust
Company for the quarter ended June 30, 2001.                   
| | (5) | Incorporated by reference to 2001 Form 10-K for Sturgis Bancorp,
Inc.                                                          

-24-



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|     |  |              |  |                                                          | 
|---- |  | ------------ |  | -------------------------------------------------------- | 
|     |  |              |  | STURGIS BANCORP, INC.
(Registrant)                       | 
|    
|Date |  | May 13, 2002 |  | Leonard L. Eishen, President
and Chief Executive Officer | 
|    
|Date |  | May 13, 2002 |  | Brian P. Hoggatt, Secretary/Treasurer                    | 

-25-