<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                           --------------------------

                                    FORM 10-K

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 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.
             (Exact name of registrant as specified in its charter)

                                    MICHIGAN
                    (State of incorporation or organization)

            0-49613                                     38-3609814
     (Commission File No.)                (IRS - Employer Identification Number)

                   113-125 E. Chicago Road, Sturgis, MI 49091
              (Address of Registrant's principal executive offices)

                                 (269) 651-9345
               Registrant's telephone number, including area code

           Securities Registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities Registered pursuant to Section 12(g) of the Act:

                                  Common Stock

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

                                       1
<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information statement
incorporated by reference in Part III of this From 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of common stock held by non-affiliates of the
registrant as of March 17, 2003 was $24,933,083.

The number of shares outstanding of the registrant's common stock as of March
17, 2003 was 2,808,535.

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

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders dated March 25, 2003 to be
delivered to stockholders are incorporated by reference into Part II.

Portions of the definitive Proxy Statement dated March 28, 2003 to be delivered
to stockholders in connection with the Annual Meeting of Shareholders to be held
on April 29, 2003 are incorporated by reference into Part III.


                                       2
<PAGE>

PART I.

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 the Company, primarily with respect to future events and the
future financial performance of the Company. 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 accounting principles; 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 Company undertakes no
obligation to update, amend or clarify forward-looking statements as a result of
new information, future events, or otherwise.

                                ITEM 1. BUSINESS

BACKGROUND

         On December 11, 2001, the shareholders of Sturgis Bank & Trust Company
(the "Bank") approved the reorganization of the Bank to become a wholly owned
subsidiary of Sturgis Bancorp, Inc. (the "Company"), a financial holding
company. The Company is a financial holding company under the Bank Holding
Company Act of 1956, as amended. This reorganization was effective January 1,
2002. As a result, historical information in this Form 10-K for periods before
the January 1, 2002 effective date relate to the Bank. Throughout this Form 10-K
Sturgis Bancorp, Inc. will be referred to as the Company and Sturgis Bank &
Trust Company will be referred to as the Bank.

THE BANK AND THE COMPANY

         For 2002, the Bank was a state-chartered savings bank located in
Sturgis, Michigan. The Bank began operations in 1905 as a state chartered
savings and loan association and in 1988 converted to a federally chartered
stock savings bank. In 1999, the Bank was approved by the State of Michigan to
become a Michigan savings bank. The principal business of the Bank is to accept
savings deposits from the general public and make single family mortgage loans
and to a lesser extent, consumer and commercial loans. The Bank established a
trust department in 1997 and expanded its commercial loan department in 1998.
The Bank conducts business from its main office in Sturgis, Michigan and 9
full-service branch offices located in Bronson, Centreville, Climax, Coldwater,
Colon, South Haven, Sturgis, Three Rivers and White Pigeon, Michigan. The Bank
also operates one limited services branch in Sturgis, Michigan.


                                       3
<PAGE>

         The Bank maintains a website at www.sturgisbank.com. On this site, we
make available free of charge our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and other reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after it electronically files such material with, or furnishes it
to, the Securities and Exchange Commission.

         The Bank's market area covers all of St. Joseph County and parts of
Cass, Branch, Calhoun, Van Buren, Allegan, Hillsdale and Kalamazoo Counties. St.
Joseph County has a population of approximately 64,422 with the two main areas
of population concentrated in Sturgis and Three Rivers with approximate
populations of 11,285 and 7,328, respectively. Bronson, Centreville, Climax,
Coldwater, Colon, South Haven and White Pigeon have approximate populations
ranging from 1,200 to 10,000. Most individuals within the Bank's market area
live within 25 miles of their places of employment.

         St. Joseph County has a stable economy, which, the Bank believes, is in
large part due to its business diversity. It is a rural county that has a large
agricultural base but also has a diverse industrial base. Some of the larger
manufacturers in the area produce truck bodies, infant formula, machine tools,
plastic products, paper board, mirrored acrylic, pressure sensitive labels,
orthotic devices, automotive transmissions, and other automotive parts and
accessories. There are numerous tool and die as well as mold shops, both large
and small.

         Based upon Michigan Department of Career Development-Labor Market
Information Office records, Michigan had an unemployment rate of 5.9% and St.
Joseph County had a rate of 5.2% as of December 2002. Based upon Bureau of Labor
Statistics data, the United States had an unemployment rate of 6.0% as of
December 2002.


QUARTERLY FINANCIAL DATA

                        Interest       Net Interest       Net          Earnings
    Quarter Ended        Income           Income         Income        Per Share
--------------------------------------------------------------------------------
March 31, 2001         $5,046,847      $2,247,622       $568,940        $0.18
June 30, 2001           5,184,735       2,431,923        783,967         0.25
Sept. 30, 2001          4,962,617       2,424,973        779,485         0.25
Dec. 31, 2001           4,744,268       2,432,537        655,545         0.22
March 31, 2002          4,406,049       2,271,101        671,999         0.22
June 30, 2002           4,293,422       2,254,847        606,285         0.20
Sept. 30, 2002          4,416,668       2,261,340        717,688         0.25
Dec. 31, 2002           4,294,553       2,209,304        794,415         0.28


RECENT DEVELOPMENTS

         During January 2002, the Board of Directors of the Company, the parent
company of the Bank, approved a program to repurchase up to 10% of the Company's
issued and outstanding common stock in the open market and in privately


                                       4
<PAGE>

negotiated transactions. Through December 31, 2002, the Company has redeemed
301,999 shares at a total redemption price of $3,005,294.

LENDING ACTIVITIES

         GENERAL. The Bank primarily concentrates its lending activities in the
origination of residential mortgage loans. At the present time, the lending
activities include four principal areas: mortgage loans on residential
properties, mortgage loans on commercial properties, commercial nonmortgage
loans and consumer loans.

         RESIDENTIAL LENDING. In the mortgage lending area, the current activity
of the Bank is primarily mortgage lending on one-to-four family residential
properties. The types of mortgage loans offered by the Bank are:

                  1) one and three-year adjustable rate mortgage loans whose
         rates and monthly payments are adjusted based on the movement of a
         predetermined index. When these loans become due, they are repaid,
         renewed or converted to another type of mortgage loan. If the borrower
         chooses to renew or convert these loans, they may do so at the then
         current rate and term;

                  2) fixed-rate, fixed-term loans. A majority of long term loans
         are written in anticipation of their resale in the secondary market;
         and

                  3) second mortgage equity loans, written as a line of credit,
         typically, up to 90% of collateral value, including the first mortgage.
         Interest rates are floating based on the Wall Street Journal prime
         lending rate.

         The Bank's mortgage loans are offered at competitive rates on
amortization terms of up to 30 years. The Bank generally provides escrow
accounts for payment of property taxes and insurance with monthly mortgage
payments including the escrow payment.

         Mortgage loans are generally made on one-to-four family units, and will
be considered on units of larger size. Most conventional loans made by the Bank
are for single-family homes.

         Conventional mortgage loans are normally offered for up to 95% of the
lesser of appraised value or purchase price. Where a loan is made in excess of
80% of appraised value, the borrower is normally required to obtain private
mortgage insurance coverage or a similar guarantee. High ratio loans are usually
limited to owner-occupied residences. The Bank also offers mortgages through the
Farmers Home Administration Guarantee Program.

         It is the general practice of the Bank to renew balloon mortgages as
they come due with the use of a modification rider. The mortgage is modified to
the interest rate currently offered by the Bank for new mortgages of similar
terms. The Bank may deny a renewal for any reason, such as a history of
delinquency and/or deterioration of the loan's collateral, or liquidity needs of
the Bank.

         LOAN ORIGINATION AND PROCESSING. The Bank originates real estate loans
primarily in south central and southwestern Michigan. To a limited extent the


                                       5
<PAGE>

Bank also originates real estate loans in northeastern Indiana. Mortgage,
consumer loans and commercial loans come from a number of sources, including
depositors, current borrowers, walk-in customers, advertisement, real estate
brokers, builders and direct solicitation of retail and commercial businesses.

         The Bank believes it maintains a relatively conservative posture with
regard to the loan amount in relationship to the appraised value of any
particular property. Generally, residential loans are originated at an amount
between 80% and 90% of appraised value. Loans on multifamily and commercial
properties typically have a maximum loan-to-value ratio of 75%.

         The residential loans made by the Bank range from three to 30 years and
the commercial real estate loans generally range from three to 15 years.
Borrowers may refinance or prepay their loans without penalty. Residential loans
usually remain outstanding an average of 7 years based on historical data of
prepayments.

         The Bank's mortgage lending is subject to loan origination procedures
prescribed by the Board of Directors. Independent fee appraisers appraise real
estate securing loans made by the Bank. Each approved loan application typically
requires a recent appraisal. In connection with loans on new construction, the
appraisal is subject to a re-certification of value at the time of completion. A
detailed loan application is obtained to determine the borrower's financial
ability to repay. The significant items on these applications are verified
through the use of credit reports, financial statements and confirmations.
Depending upon the size and type of loan, the application is reviewed and
approval is determined by the loan officer, the loan committees, or the entire
Board of Directors by applying the underwriting standards established in
policies approved by the Board of Directors.

         In most cases the Bank requires title insurance insuring the Bank's
lien on the mortgaged real estate. Borrowers must also obtain hazard insurance
coverage naming the Bank as lien holder prior to closing. When required by
federal regulations, flood insurance must also be obtained. Borrowers may be
required to advance funds on a monthly basis together with each payment of
principal and interest to a mortgage loan escrow account, from which the Bank
makes disbursements for items such as real estate taxes and private mortgage
insurance premiums.

         PURCHASE AND SALE OF LOANS. The Bank's residential loan strategy is
primarily to originate loans that are eligible for sale in the secondary
mortgage market. The Bank retains servicing rights to enhance its portfolio. The
Bank may sell newly originated loans when it believes that the sale of these
loans is advantageous.

         The Bank originates and services all closed-end residential mortgages
through Oak Mortgage, LLC, a subsidiary jointly-owned by the Bank and Oakleaf
Financial Services, Inc. (also a subsidiary of the Bank).

         Loans are sold on a non-recourse basis to the Federal Home Loan
Mortgage Corporation at a minimum yield of .25% to the Bank as servicing income,
plus an applicable premium. Loan servicing fee income in 2002 was $394,186 or
7.31% of noninterest income. Loan servicing fee income as a percentage of net
interest income for the years ended December 31, 2002, 2001, and 2000 was 4.38%,


                                       6
<PAGE>

2.99%, and 2.81%, respectively.

         The Bank has the authority to purchase and sell mortgage loans and
mortgage participations. From time to time, the Bank purchases mortgage-backed
securities guaranteed or insured by the Small Business Administration, Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation, or
the Government National Mortgage Association. Principal mortgage-backed
securities carry a variable rate feature.

         At December 31, 2002, 2.3%, or $4.8 million, of the Bank's net loan
portfolio was serviced by others.

         An asset is recorded on the balance sheet for mortgage servicing
rights. At December 31, 2002 and 2001 the balance was $1,501,922 and $1,281,208,
respectively.

         When loans are sold, the Bank retains responsibility for servicing the
loans. Gains or losses on such sales are recognized at the time of the sale,
with servicing value assigned based on market rates for mortgage loan servicing.

         LOAN COMMITMENTS. In making one-to-four-family home mortgage loans, the
Bank charges the applicant a non-refundable application fee. The interest rate
on such loans is normally the prevailing rate at the time the loan application
is approved.

         The Bank also issues individual loan commitments on existing homes
including the refinancing of existing home loans. Commitments on adjustable rate
loans are usually issued at current market rates and fees. On fixed-rate loans,
the rate is set at the borrower's acceptance of the commitment. The commitment
usually extends for 30 days. Loans to be sold in the secondary market are sold
immediately and fees are collected from the borrower to cover any penalty in the
event the loan is not closed and cannot be delivered to the buyer. Certain fixed
rate, short-term mortgages (mostly less than 10 years) are retained in the
Bank's portfolio. Commitments, fees, rates and other terms of commercial and
multifamily residential loans are individually negotiated.

         The proportion of the total value of commitments derived from any
particular category of loans varies from time to time and depends upon market
conditions. As of December 31, 2002, the Bank had commitments of $17.9 million
and $9.8 million on variable rate and fixed rate loans, respectively. The source
of funds to meet these commitments is substantially the sale of mortgage loans
in the secondary market and FHLB advances.

         ONE-TO-FOUR UNIT FAMILY RESIDENTIAL LENDING. One-to-four family
owner-occupied residential lending is the major portion of the Bank's lending
activity. The balances of one-to-four unit residential loans decreased from
$151.8 million, or 69.26% of net loans receivable, as of December 31, 2001 to
$127.8 million, or 60.26% of net loans receivable, as of December 31, 2002. This
decrease is primarily due to the sale of fixed-rate loans refinanced from the
Bank's loan portfolio during 2002.

         ONE-TO-FOUR UNIT RESIDENTIAL CONSTRUCTION LENDING. The Bank's
construction loans are made to finance construction of owner-occupied,
single-family residences. Most construction loans are made to the homeowner. The
Bank also finances a limited number of speculation construction projects of


                                       7
<PAGE>

select contractors, which are sold upon completion. Construction loans are
generally on an interest-only basis with terms of 6 months or less, and are
primarily concentrated within a 50-mile radius of the Bank's main office. Loan
proceeds are disbursed in increments as construction progresses. The amount of
each disbursement is based on the construction cost estimate of an inspector who
inspects the project in connection with each disbursement request.

         Residential construction loans, net of $2.3 million of loans in
process, aggregated $5.8 million as of December 31, 2002, representing 2.72% of
the Bank's net loan portfolio.

         CONSUMER LENDING. The Bank originates consumer loans to the general
public. These loans are generally for personal, family or household purposes,
such as the financing of home improvements and automobiles. The Bank also offers
consumer loans to its depositors secured by their savings, passbook or
certificate accounts. The underwriting standards employed by the Bank for
consumer loans consider the applicant's payment history and the financial
ability to pay the proposed loan. The stability of the applicant's monthly
income is determined by verification of gross monthly income from private
employment and verifiable secondary income. Although the applicant's credit
worthiness is important, the underwriting process includes a comparison of the
value of the security, if any, in relation to the proposed loan amount. As of
December 31, 2002, the Bank had $11.9 million in consumer nonmortgage loans
outstanding. The Bank's consumer loans represent 5.62% of the Bank's net loan
portfolio.

          The Bank offers overdraft checking account loans with the limits set
on an individual basis depending on the account holder's ability to repay and
credit record.

         Auto and personal loans are usually secured by collateral. Most loan
payments are due on a monthly basis. The repayment term on consumer loans made
by the Bank generally ranges from one to 10 years. The Bank does not engage in
any indirect lending.

         COMMERCIAL LENDING. Commercial loans are available to purchase
commercial real estate, for working capital or to purchase equipment. The
amortization schedules for real estate and equipment purchase loans are matched
to the useful life of the collateral pledged to secure the loan. Pricing for
conventional real estate and equipment loans are generally fixed for a maximum
of three to five years, or have a variable rate that is tied to the prime rate
as published in the Wall Street Journal. At December 31, 2002, the Bank's
commercial real estate, net commercial construction loans and nonmortgage
commercial loans represented 23.79%, 1.66% and 7.11% of the Bank's net loan
portfolio, respectively.

         As of December 31, 2002, approximately $50.4 million, or 23.79% of the
Bank's total loan portfolio, net, consisted of real estate loans secured by
income-producing properties. The Bank's income-producing property loans include
permanent loans secured by apartments and other business properties primarily
within St. Joseph County. The Bank's largest outstanding income-producing
property loan totaled $4.3 million as of December 31, 2002. The Bank has not
experienced any substantial losses from its income-producing property portfolio.
The Bank's regulatory maximum loan to one borrower is $5.8 million.

         Independent appraisals are normally performed for loans secured by
income producing property. The Bank currently invests in loans equal to 75% of
the lesser of the appraised value or the purchase price of the property.


                                       8
<PAGE>

The Bank's Board of Director's underwriting policies consider the terms of the
loan, the credit worthiness and experience of the borrower, the location and
quality of the collateral, the debt service coverage ratio and the past
performance of the project.

         Income-producing property loans present a higher level of risk than
loans secured by one-to-four-family residences. This increase in risk is due to
several factors, including the concentration of principal in a limited number of
loans and borrowers, the effects of general economic conditions and the
increased difficulty of evaluating, monitoring and liquidating these types of
loans.

         Working capital loans are normally secured by accounts receivable and
inventory. Working capital loans are usually priced at a variable rate that is
tied to the prime rate, with a one year maturity. The Bank offers business
operating lines of credit to assist with short-term cash flow needs. These
short-term loans normally have variable rates and are tied to the prime rate,
and normally mature in one year. As of December 31, 2002, the Bank had $15.1
million in commercial nonmortgage loans outstanding.

ASSET QUALITY AND CREDIT RISK MANAGEMENT

         The Bank's primary lending activity is mortgages on single-family,
owner occupied homes. The Bank also offers commercial loans. Most commercial
loans are secured by real estate. However, the borrower's ability to repay the
loan is generally dependent on the success of their business. Consumer loans are
also more risky because they may not be collateralized or the collateral
securing these loans may decrease in value more rapidly than residential real
estate. The Bank has adopted a Commercial Lending Policy and a Consumer Loan
Policy that attempt to minimize risk on these loans. The Bank's policies set
maximum loan authorities, identify employee positions authorized to originate
loans, and establish audit and underwriting standards for each type of loan
offered by the Bank.

         Credit risk refers to the potential for losses on assets due to
borrowers' defaults and the decline in the value of collateral. The Bank's Asset
Classification and Internal Loan Review Policy requires audits of loan files to
determine adherence to loan policies and procedures, early identification of
problem assets, review of negative results to detect weaknesses in the Bank's
policy, and reports to the Board of Directors regarding the status and quality
of assets. The policy also establishes an asset classification and loan loss
reserve system.

         Commercial loans are graded on an 8-point scale. Grades of 6-8 are
considered classified as substandard, doubtful, or loss. Allowances for loan
losses are established on substandard loans ranging from 5% on single-family
residential mortgage loans to 100% on substantially delinquent unsecured loans.
Any unsecured loan is considered a loss when it is delinquent 120 days.


                                       9
<PAGE>

LOAN PORTFOLIO COMPOSITION

         The following table sets forth information concerning the composition
of the Bank's loan portfolio (including loans held for sale) in dollar amounts
and in percentages by type of loan and type of security on the dates indicated.

<TABLE>
<CAPTION>
                                                                                 At December 31,
                                                   ----------------------------------------------------------------------------
                                                             2002                     2001                      2000
                                                             ----                     ----                      ----
                                                   ------------------------- ------------------------ -------------------------
                                                      Amount       Percent      Amount      Percent       Amount      Percent
                                                   ------------------------- ------------------------ -------------------------
<S>                                                 <C>              <C>      <C>             <C>       <C>             <C>
Mortgage loans:
     Loans on existing property                     $175,248,436     82.65%   $176,552,922    80.58%    $172,857,255    77.32%
     Insured or guaranteed real estate loans           9,970,426      4.70%     11,027,824     5.03%      11,631,417     5.20%
     Residential participations purchased              4,826,883      2.28%      7,421,180     3.39%       9,984,544     4.47%
     Nonresidential participations purchased               9,002      0.00%          9,654     0.00%          10,253     0.00%
Nonmortgage loans:
     Commercial nonmortgage loans                     15,072,501      7.11%     12,906,602     5.89%      12,780,883     5.72%
     Commercial nonmtg participations purchased          -            0.00%        -           0.00%        -            0.00%
     Student loans                                         2,450      0.00%          7,462     0.00%          20,784     0.01%
     Deposit account loans                               569,566       .27%        571,740     0.26%         420,711     0.19%
     Home improvement loans                              355,107       .17%        714,386     0.33%       1,478,183     0.66%
     Other consumer loans                             10,997,094      5.18%     14,577,529     6.65%      16,690,110     7.46%
                                                   -------------- ---------- -------------- --------- -------------------------
          Total loans                                217,051,465    102.36%    223,789,299   102.13%     225,874,140   101.03%
Less -
     Loans in process                                  3,167,369      1.49%      3,257,555     1.49%       1,212,498     0.54%
     Deferred loan fees                                 (96,216)     -0.05%         91,791     0.04%         248,782     0.11%
     Unearned interest                                    16,925      0.01%         26,013     0.01%          35,043     0.02%
     Allowance for loan losses                         1,920,037      0.91%      1,300,000     0.59%         803,744     0.36%
                                                   -------------- ---------- -------------- --------- -------------------------
          Loans receivable, net                     $212,043,350    100.00%   $219,113,940   100.00%    $223,574,073   100.00%
                                                   ============== ========== ============== ========= =========================
The conventional real estate loans are
  secured as follows:
     One to four family residential                 $130,770,464     61.67%   $154,399,203    70.47%    $164,967,395    73.79%
     Commercial and multifamily residential           54,276,167     25.60%     35,937,018    16.40%      27,216,007    12.17%
                                                   -------------- ---------- -------------- --------- -------------------------
          Total conventional real estate loans      $185,016,631     87.27%   $190,336,221    86.87%    $192,183,402    85.96%
                                                   ============== ========== ============== ========= =========================

                                                                    At December 31,
                                                                    ---------------
                                                             1999                     1998
                                                             ----                     ----
                                                      Amount       Percent      Amount      Percent
                                                   ------------------------- ------------------------
Mortgage loans:
     Loans on existing property                     $155,336,051     75.31%   $128,194,980    71.87%
     Insured or guaranteed real estate loans          14,716,720      7.13%     13,938,560     7.81%
     Residential participations purchased             12,097,185      5.86%     15,052,062     8.44%
     Nonresidential participations purchased              10,764      0.01%         11,363     0.01%
Nonmortgage loans:
     Commercial nonmtg. Loans                         11,673,025      5.66%      7,125,317     3.99%
     Commercial nonmtg participations purchased          -            0.00%      2,250,000     1.26%
     Student loans                                        27,287      0.01%         36,024     0.02%
     Deposit account loans                               164,713      0.08%        199,664     0.11%
     Home improvement loans                            1,859,281      0.90%      3,074,908     1.72%
     Other consumer loans                             14,238,471      6.90%     12,646,758     7.09%
                                                   -------------- ---------- -------------- ---------
          Total loans                                210,123,497    101.87%    182,529,636   102.33%
Less -
     Loans in process                                  2,732,760      1.32%      2,770,482     1.55%
     Deferred loan fees                                  353,041      0.17%        646,559     0.36%
     Unearned interest                                    42,674      0.02%         53,848     0.03%
     Allowance for loan losses                           730,000      0.35%        686,896     0.39%
                                                   -------------- ---------- -------------- ---------
          Loans receivable, net                     $206,265,022    100.00%   $178,371,852   100.00%
                                                   ============== ========== ============== =========
The conventional real estate loans are
  secured as follows:
     One to four family residential                 $157,716,099     76.46%   $139,858,013    78.41%
     Commercial and multifamily residential           20,586,146      9.98%     13,181,168     7.39%
                                                   -------------- ---------- -------------- ---------
          Total conventional real estate loans      $178,302,245     86.44%   $153,039,181    85.80%
                                                   ============== ========== ============== =========
</TABLE>
                                       10
<PAGE>

The following table presents information regarding scheduled principal
repayments of commercial and construction loans as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                Year 1        >1-5 Years      >5 Years          Total
                                                            ---------------------------------------------------------------
<S>                                                             <C>            <C>             <C>            <C>
Commercial nonmortgage loans
   Fixed                                                        $ 2,602,632    $ 2,648,880     $   124,873    $  5,376,385
   Adjustable                                                     4,911,055      2,245,899       2,539,162       9,696,116
                                                            ---------------------------------------------------------------
      Total commercial nonmortgage loans                        $ 7,513,687    $ 4,894,779     $ 2,664,035    $ 15,072,051

Real estate - construction, net                                   9,290,923       -               -              9,290,923


         The following table shows real estate loan origination and purchase
activity amounts of the Bank for the periods indicated:

      Loans originated for                                                     YEAR ENDED DECEMBER 31,
        the purpose of:                                               2002               2001               2000
                                                                      ----               ----               ----
           Construction                                          $  14,547,550       $  13,658,233      $  5,363,180
           Purchase / refinance                                     88,905,714          71,172,560        54,936,618
           Sale                                                    110,327,411          77,333,342        14,356,352
                Total real estate                              ---------------------------------------------------------
                     loans originated                              213,780,675         162,164,135        74,656,150

      Loans sold                                                  (108,718,408)        (74,319,076)      (13,883,962)
      Loan principal reductions                                   (110,019,102)        (87,316,948)      (48,449,439)

      Increase (decrease)  in real estate loans                ---------------------------------------------------------
        receivable (before net items)                            $  (4,956,835)      $     528,111      $ 12,322,749
                                                               =========================================================
</TABLE>

INTEREST RATES AND FEE INCOME

         The Bank earns interest income from its lending activities. Interest
rates are effected primarily by market and general economic conditions and such
other factors as monetary policies of the Federal government, including the
Federal Reserve Board, the general supply of money in the economy, legislative
tax policies, governmental budgetary matters and the Bank's cost of funds.

         The Bank also earns income from fees in the form of origination fees,
late charges, checking account fees and fees for other miscellaneous services.

         Income from loan origination and commitment fees and other fees are
volatile sources of income varying with the volume and type of loans and
commitments made and purchased, and with competitive and economic conditions.
Loan origination fees and points collected, net of direct origination costs, are
deferred for financial reporting purposes in accordance with Statement of
Financial Accounting Standards No. 91 "Accounting for Nonrefundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases."


                                       11
<PAGE>

NONPERFORMING LOANS

         GENERAL. The Competitive Equality Banking Act of 1987 ("CEBA") mandated
certain requirements for the accounting and reporting of slow paying loans. CEBA
requires the Bank to classify all assets, make general and specific allowances
for possible loan losses, generate internal loan classifications, create a
special mention category, and appraise all real estate owned.

         Classifications under CEBA are consistent with classification systems
of other federal banking agencies.

         The Bank makes provisions for loan losses in accordance with the
changes in the credit risk of the loan portfolio. The provisions are based on
the historic loss experience of the Bank, adjusted for the increasing credit
risk inherent in the growing commercial loans. The Bank makes general provisions
by loan category; residential mortgages, nonresidential mortgages, commercial
loans, home equity loans, second mortgages, consumer loans and deposit account
loans. Commercial loans and nonresidential mortgages are graded on an 8-point
scale, based on the credit quality. Loan grades are reviewed annually. The grade
of the loan determines the allowance for losses. Loans graded 6 or higher are
assigned a specific reserve, determined by management's assessment of risk.

         The Bank maintains general reserves against possible loan losses,
calculated as a percentage of total loans based on historic loss experience. The
following table provides an analysis of the allowance for loan losses:

<TABLE>
<CAPTION>
                                                                              For the year ended December 31,
                                                          2002             2001            2000            1999           1998
                                                          -----            ----            ----            ----           ----
<S>                                                  <C>              <C>              <C>             <C>            <C>
Balance at the beginning of the period               $ 1,300,000      $   803,744      $  730,000      $  686,896     $  692,787
Charge-offs:
     Residential mortgages                               448,217          226,230         117,403          15,000        123,309
     Commercial mortgages                                121,053           42,900               -               -              -
     Construction loans - residential                          -                -               -               -              -
     Construction loans - commercial                           -                -               -               -              -
     Commercial nonmortgage loans                        130,718          175,675          25,061               -              -
     Loans secured by deposits                                 -                -               -               -              -
     Other consumer and installment loans                250,118          162,412         188,219         127,890         77,831
                                                    -----------------------------------------------------------------------------
          Total charge-offs                              950,106          607,217         330,683         142,890        201,140
Recoveries
     Residential mortgages                                     -           21,344          54,261           3,000         16,081
     Commercial mortgages                                  2,966                -               -               -              -
     Construction loans - residential                          -                -               -               -              -
     Construction loans - commercial                           -                -               -               -              -
     Commercial nonmortgage loans                         16,548            3,021           2,044               -              -
     Loans secured by deposits                                 -                -               -               -              -
     Other consumer and installment loans                 55,713           22,914          39,122          78,994          5,255
                                                    -----------------------------------------------------------------------------
          Total recoveries                                75,227           47,279          95,427          81,994         21,336
Net charge-offs                                          874,879          559,938         235,256          60,896        179,804
Provision for loan losses                              1,494,916        1,056,194         309,000         104,000        173,913
                                                    -----------------------------------------------------------------------------
Balance at the end of the period                     $ 1,920,037      $ 1,300,000      $  803,744      $  730,000     $  686,896
                                                    =============================================================================
Ratio of net charge-offs during the period to
     Average loans outstanding during the period           0.40%            0.25%           0.11%           0.03%          0.10%

Allowance for loan losses to total loans                   0.88%            0.58%           0.36%           0.35%          0.39%
Nonperforming assets to total assets                       1.76%            1.55%           0.86%           0.80%          0.74%
Allowance for loan losses to nonperforming assets         36.82%           29.91%          34.50%          36.50%         38.98%
</TABLE>

                                       12
<PAGE>

         The following table shows the allocation of the allowance for loan
losses as of the dates indicated by loan type:

<TABLE>
<CAPTION>
                                                                              December 31,
                                ----------------------------------------------------------------------------------------------------
                                        2002                 2001                2000                1999                1998
                                ----------------------------------------------------------------------------------------------------
                                           Percent              Percent             Percent             Percent             Percent
                                              of                   of                  of                  of                  of
                                           Loans in             Loans in            Loans in            Loans in            Loans in
                                             Each                 Each                Each                Each                Each
                                           Category             Category            Category            Category            Category
                                              to                   to                  to                  to                  to
                                             Total                Total               Total               Total               Total
                                  Amount     Loans     Amount     Loans     Amount    Loans     Amount    Loans     Amount    Loans
<S>                             <C>          <C>     <C>          <C>     <C>         <C>     <C>         <C>     <C>         <C>
Residential 1-4 family          $  491,171   58.87%  $  304,503   67.13%  $ 391,768   71.96%  $ 358,027   73.33%  $ 381,269   75.85%
Commercial mortgages               956,217   23.24%     470,459   15.92%    189,927   11.73%     92,273    9.60%     75,020    8.30%
Construction loans -
residential                          8,651    3.70%      35,014    3.62%     23,871    2.14%          -    3.43%               2.49%
Construction loans - commercial     16,914    1.75%           -    0.20%          -    0.14%          -    0.13%               0.42%
Commercial nonmortgage loans       314,963    6.94%     165,188    5.89%     92,594    5.72%    125,077    5.61%    101,691    3.98%
Loans secured by deposits                -    0.26%           -    0.26%          -    0.19%          -    0.08%          -    0.11%
Other consumer and installment     132,121    5.23%     324,836    6.98%    105,584    8.14%    154,623    7.82%    128,916    8.85%
                                ----------------------------------------------------------------------------------------------------
     Total allowance for loan
        losses                  $1,920,037  100.00%  $1,300,000  100.00%  $ 803,744  100.00%  $ 730,000  100.00%  $ 686,896  100.00%
                                ====================================================================================================
</TABLE>


         CLASSIFIED ASSETS. If a mortgage loan borrower fails to make a required
payment on a loan, the Bank attempts to cure the deficiency by contacting the
borrower. Printed delinquent notices are sent after five days past due and a
second notice after 15 days past due. The borrower is charged a late fee of 4%
of the delinquent mortgage payment amount. Direct contact is made after a
payment is more than 30 days past due, and in many cases in less than 30 days.
In most cases, deficiencies are cured promptly. If deficiencies are not cured
within 90 days, or satisfactory arrangements to cure the delinquency are not
made, then the Bank, at the discretion of the Board of Directors, will foreclose
the mortgage. Periodic inspections are made of the property to determine the
status of the collateral. If foreclosed, the property will be sold at a public
sale, and usually is purchased by the Bank subject to redemption rights of the
borrower.

         As these redemption rights may extend for periods of one to 12 months,
an effort is made to obtain the property much sooner through a deed in lieu of
foreclosure. Property acquired by the Bank through foreclosure or deed in lieu
of foreclosure is classified as "Real Estate Owned" until it is sold or
otherwise disposed.

         Consumer loan borrowers who fail to make payments are contacted to cure
the delinquency and in most cases the delinquency is quickly corrected. The Bank
recognizes that greater diligence is required in the collection of a consumer
loan than a mortgage, because of the depreciable nature of the collateral. First
payment defaults require immediate personal attention by the loan officer in
order to establish good payment habits or discover early that a collection
problem may exist.

         When an installment loan payment is 10 days late, a late charge of 5%
of the payment, up to $15.00 is charged and a notice mailed to the borrower.
Notices are mailed every 10 days thereafter until the payments are brought up to
date. Direct contact with the borrower is made before an account reaches 30 days
past due.


                                       13
<PAGE>

         When a consumer loan reaches 90 days in arrears, the Board of Directors
of the Bank will review the account to determine if the possibility of a loss
exists and may classify the account as substandard, doubtful, or loss, according
to the criteria contained in the Bank's Asset Classification Policy and federal
regulations. Substandard and doubtful classification may require an allowance to
be set up at the discretion of the Bank's Board of Directors. A loss will be
charged off against the allowance for possible loan losses. Unsecured
installment loans will automatically be classified as a loss when they are 120
days delinquent.

         If an account continues to deteriorate to a point that it is 90 days
past due, immediate steps are taken to collect payments due to date, secure
additional collateral, or repossess existing collateral. The Bank retains
collateral obtained as a result of loan default as an asset at the lower of cost
or market value until sold or disposed in a different manner.

         Loans in nonaccrual status as of December 31, 2002 consisted of loans
for which foreclosure had begun or full collection of the loan was questionable.
The Bank generally places mortgage loans (other than loans in the foreclosure
process) in nonaccrual status at the earlier of 180 days or the date on which
the carrying value (loan balance plus accrued interest less specific valuation
allowance) exceeds an estimate of the market value of the collateral securing
the loan. The Bank generally places commercial loans (other than loans in the
foreclosure process) in nonaccrual status at the earlier of 90 days or the date
on which the carrying value (loan balance plus accrued interest less specific
valuation allowance) exceeds an estimate of the market value of the collateral
securing the loan.

         The following table presents the aggregate amount of troubled asset
categories as of the end of the period indicated:

<TABLE>
<CAPTION>
                                                              As of December 31,
                                        ---------------------------------------------------------------
                                            2002          2001        2000        1999        1998
                                            ----          ----        ----        ----        ----
<S>                                        <C>          <C>         <C>         <C>         <C>
Past due 90 days and still accruing        $  899,975   $1,073,625  $1,314,288  $1,142,680  $1,619,254
Nonaccrual loans                            2,955,666    2,821,965     911,610     487,574           -
Real estate owned                           1,358,759      451,173     103,500     369,952     478,677
                                        ---------------------------------------------------------------
     Total nonperforming assets             5,214,400    4,346,763   2,329,398   2,000,206   2,097,931
Restructured assets                           626,882    1,381,920   1,030,858     514,746     466,000
                                        ---------------------------------------------------------------
     Total troubled assets                 $5,841,582   $5,728,683  $3,360,256  $2,514,952  $2,563,931
                                        ===============================================================
Ratio of troubled assets to
     total loans                                2.75%        2.61%       1.50%       1.22%       1.44%
                                        ===============================================================
Ratio of troubled assets to
     total assets                               1.97%        2.05%       1.24%       1.00%       1.08%
                                        ===============================================================
</TABLE>


                                       14
<PAGE>

INVESTMENT ACTIVITIES

         The Bank has the authority to invest in various types of liquid assets,
including short-term United States Treasury obligations and securities of
various federal and state agencies, certificates of deposit at insured financial
institutions, banker's acceptances, and federal funds.

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                    ---------------------------------------------------------------------------
                                                              2002                     2001                     2000
                                                    ---------------------------------------------------------------------------
                                                        Book        % of        Book         % of         Book        % of
                                                       Value        Total       Value       Total        Value        Total
                                                    ---------------------------------------------------------------------------
<S>                                                   <C>              <C>    <C>               <C>     <C>             <C>
Investment securities:
   U.S. Treasury and agency securities                $        -       0.00%  $  549,996        7.87%   $4,439,731      46.38%
   Obligations of states and political subdivisions    3,177,986      40.78%   2,320,298       33.22%    1,634,630      17.08%
   Other Securities                                      500,000       6.41%           -        0.00%            -       0.00%
                                                    ---------------------------------------------------------------------------
   FHLB stock                                          4,115,400      52.81%   4,115,400       58.91%    3,497,500      36.54%
                                                    ---------------------------------------------------------------------------
      Total investment securities and FHLB stock      $7,793,386     100.00%  $6,985,694      100.00%   $9,571,861     100.00%
                                                    ===========================================================================
Mortgage-backed securities
   GNMA                                               $  409,674       4.60%  $  544,363       52.64%   $  702,576      55.69%
   FNMA                                                  259,372       2.91%     350,712       33.91%      398,136      31.56%
   FHLMC                                                 107,895       1.21%     120,763       11.68%      138,620      10.99%
   SBA                                                 7,458,381      83.68%      -             0.00%      -             0.00%
                                                    ---------------------------------------------------------------------------
      Subtotal                                         8,235,322      92.40%   1,015,838       98.23%    1,239,332      98.24%
   Unamortized premium, net                              677,401       7.60%      18,281        1.77%       22,253       1.76%
                                                    ---------------------------------------------------------------------------
      Total mortgage-backed securities                $8,912,723     100.00%  $1,034,119      100.00%   $1,261,585     100.00%
                                                    ===========================================================================


         The following table sets forth the maturity composition of the Bank's
investment and mortgage-backed securities at the dates indicated:

                                                                           December 31, 2002
                                                                           -----------------
                                                      Less than     1 to 5      5 to 10    More than
                                                        1 year       years       Years      10 years      Total
                                                     --------------------------------------------------------------
Investment securities
     U.S. Treasury and agency securities             $          -  $        -  $        -  $        -   $        -
     Obligations of states and political
       subdivisions                                       360,129     755,169     648,674    1,414,014   3,177,986
     Other securities                                           -           -           -      500,000     500,000
                                                     --------------------------------------------------------------
          Total investment securities                $    360,129    $755,169  $  648,674  $ 1,914,014  $3,677,986
                                                     ==============================================================
     Weighted average rate                                  4.48%       4.30%       4.48%        4.99%       4.71%

Mortgage-backed securities                           $          -  $        -  $        -  $ 8,912,723  $8,912,723
                                                     ==============================================================
     Weighted average rate                                      -           -           -        5.29%       5.29%
</TABLE>

         The Bank may also invest a portion of its assets in certain commercial
paper and corporate debt securities. The Bank is also authorized to invest in
mutual funds and stocks whose assets conform to the investments that the Bank is
authorized to make directly.


                                       15
<PAGE>

SOURCES OF FUNDS

         DEPOSIT ACCOUNTS. Deposits are an important source of the Bank's funds
for use in lending and for other general business purposes. The Bank currently
offers several types of savings programs including passbook and statement
accounts, NOW accounts, Super NOW accounts, money-market accounts, fixed-rate
and fixed-term certificates of deposit, among others. The Bank currently changes
the interest rates paid on these types of accounts from time to time. The Bank
is not limited to a maximum rate of interest it may pay on savings deposits
under federal regulations. The Bank is also authorized to accept non-interest
bearing checking deposits from businesses or organizations.

         At December 31, 2002 approximately 51.5%, or $104.4 million, of the
Bank's deposits consisted of various savings and demand deposit accounts from
which customers are permitted to withdraw funds at any time without penalty.

         Interest is earned on passbook and statement savings accounts from the
date of deposit to the date of withdrawal and credited quarterly. Interest is
earned on NOW accounts from the date of deposit to the date of withdrawal and
credited monthly. The Asset Liability Management Committee of the Bank
establishes the interest rate on these accounts.

         The Bank also makes available to its depositors a number of savings
certificates with varying terms and interest rates so as to be competitive in
its market area. These certificates have minimum requirements as well.


                                       16
<PAGE>

         The following table sets forth the change in composition of deposit
account types offered by the Bank at the dates indicated:

<TABLE>
<CAPTION>
                                 Balance at                                Balance at
                                  Dec. 31,       % of      Increase         Dec. 31,         % of     Increase
                                    2002       Deposits   (Decrease)          2001         Deposits  (Decrease)
                              ---------------------------------------  -----------------------------------------
<S>                            <C>              <C>        <C>           <C>                <C>       <C>
Passbook and savings           $  40,890,720    20.18%     2,815,419     $  38,075,301      21.27%    2,563,070
NOW accounts                      47,823,961    23.61%       653,061        47,170,900      26.33%    6,949,453
Noninterest-bearing deposits      12,747,121     6.29%     1,884,228        10,862,894       6.06%    1,025,706
Money market deposit and
     Super NOW accounts            2,900,110     1.43%       664,089        2,236,021        1.25%    (402,226)
Certificates of deposit:
     Six-month money
         market certificates       5,686,949     2.81%       634,284         5,052,665       2.82%    2,755,822
     IRA certificates             10,872,937     5.37%      (76,103)       10,949,040        6.11%      193,824
     Jumbo certificates           32,948,100    16.27%    19,397,222       13,550,878        7.56%        4,472
     Other certificates           48,693,898    24.04%   (2,538,230)        51,232,128      28.60%  (7,815,619)
                              ---------------------------------------  -----------------------------------------
         Total                 $ 202,563,796   100.00%   $23,433,970     $ 179,129,826     100.00%   $5,274,502
                              =======================================  =========================================

                                 Balance at
                                  Dec. 31,       % of      Increase
                                    2000       Deposits   (Decrease)
                              ---------------------------------------
Passbook and savings           $  35,512,231    20.42%     1,387,210
NOW accounts                      40,221,447    23.14%   (2,447,195)
Noninterest-bearing deposits       9,837,187     5.66%     1,637,840
Money market deposit and
     Super NOW accounts            2,638,247     1.52%     (638,410)
Certificates of deposit:
     Six-month money
          market certificates      2,296,843     1.32%   (3,180,023)
     IRA certificates             10,755,216     6.19%     (191,689)
     Jumbo certificates           13,546,406     7.79%     3,855,774
     Other certificates           59,047,747    33.96%     9,751,968
                              ---------------------------------------
          Total                $ 173,855,324   100.00%   $10,175,475
                              =======================================
</TABLE>


                                       17
<PAGE>

         The following table shows the amount and interest rates of certificates
of deposit accounts with balances of $100,000 or greater issued by the Bank as
of December 31, 2002.


                                                            Weighted
                   Maturity Date             Amount       Average Rate
                   -------------             ------       ------------
         01/01/2003 - 03/31/2003          $  8,190,384       3.092%
         04/01/2002 - 06/30/2002             1,912,416       3.369%
         07/01/2002 - 12/31/2002             5,732,813       3.103%
         After 12/31/2002                   18,617,212       4.912%
                                        -------------------------------
            Total                         $ 34,452,825       4.093%
                                        ===============================

         BORROWINGS. In addition to savings deposits, the Bank obtains funds
from loan repayments, from advances from the FHLB and other borrowings. Loan
repayments are a relatively stable source of funds, while savings inflows and
outflows are significantly influenced by general interest rates and money market
conditions. Borrowings may be used on a short-term and long-term basis to
compensate for reductions in normal sources of funds, such as savings inflows at
less than projected levels. They may also be used on a longer-term basis to
support expanded activities. Historically, the Bank has borrowed primarily from
the FHLB.

         Outstanding FHLB borrowings and advances as of December 31, 2002
totaled $64.4 million compared to $70.1 million as of December 31, 2001 and
$67.4 million as of December 31, 2000. The weighted average interest rate on
FHLB borrowings and advances outstanding as of December 31, 2002 was 4.79%, as
of December 31, 2001 was 5.68% and as of December 31, 2000 was 6.40%.

         The Bank obtains advances from the FHLB upon the security of its
mortgage loan portfolio. Such advances are made pursuant to several different
credit programs. Each credit program has its own interest rate and range of
maturities, and the FHLB prescribes acceptable uses to which the advances
pursuant to each program may be put as well as limitations on the size of such
advances. These limitations are based both on a fixed percentage of assets and
the borrower's credit worthiness. The FHLB is required to review its credit
limitations and standards at least once every 6 months. FHLB advances have from
time to time been available to meet seasonal and other withdrawals of savings
accounts and to expand lending.

Under current FDIC regulations, there are no limitations on the amount of
borrowings that can be obtained by the Bank. See "Supervision and Regulation -
FEDERAL HOME LOAN BANK SYSTEM."

COMPETITION

         The Bank experiences substantial competition in attracting and
retaining savings deposits and in lending funds. Direct competition for savings
deposits comes from other savings banks, commercial banks, and credit unions.
Additional significant competition for savings deposits comes from money-market
mutual funds and corporate and government debt securities.

         The primary factors in competing for loans are interest rates and loan
origination fees and the range of services offered by the various financial
institutions. Competition for origination of real estate loans normally comes
from other savings banks, savings and loan associations, commercial banks,


                                       18
<PAGE>

credit unions, mortgage bankers, mortgage brokers and insurance companies. The
Bank has been able to compete effectively in its primary market area. The Bank
considers its primary competition to be other savings banks, savings and loan
associations, and commercial banks. The Bank continues to rank as the primary
mortgage lender in St. Joseph County, Michigan.

         The Riegle-Neal Interstate Banking and Branching Efficiency Act affects
the ability of bank holding companies to branch into states other than the bank
holding company's home state, and the ability of banks in different states to
merge. The Bank may be indirectly affected by increased competition from out of
state banks and bank holding companies entering into the Bank's market.

         In St. Joseph County, in which the Bank has offices, the Bank's
competitors include eight commercial banks, one savings bank and five credit
unions, some of which have assets which are substantially larger than the Bank.

TRUST DEPARTMENT

         The Bank began to offer full trust services on January 2, 1997. The
Bank is staffed with two experienced trust officers who were formerly with
another local financial institution. The Trust Department offers trust,
custodial, and agency accounts to its customers within the Bank's market area.
It is anticipated that the operations of the Trust Department will not only
fulfill trust needs of the Bank's current customers but will also attract new
customers to the Bank. The Trust Department had total assets serviced under
either management or custody agreements of $94.6 million at December 31, 2002.
The Trust Department's net income was $96,128, $97,465 and $105,104 for the
years ended December 31, 2002, 2001 and 2000, respectively.

SERVICE CORPORATION ACTIVITIES

         The Bank has four wholly-owned service corporations, Oakleaf Financial
Services, Inc., previously SFB Agency, Ludington Service Corporation, First
Michiana Development Corporation of Sturgis, and Oak Mortgage, LLC, all
incorporated under the laws of the State of Michigan. First Michiana Development
Corporation holds stock in a reinsurance bank, title insurance agency and its
largest asset is an equity investment in a limited partnership providing
low-income housing. The total investment in this limited partnership as of
December 31, 2002 was $161,080. (See Note 1 of the Notes to Consolidated
Financial Statements). This limited partnership, titled H.O.M.E. Limited
Dividend Housing Association Limited Partnership, is a 70 unit apartment complex
in Holland, Michigan which provides housing for low income senior citizens. The
project is designed to provide investors with low income housing tax credits
under Section 42 of the Internal Revenue Code. Neither Ludington nor First
Michiana has been actively operating within the past few years; their sole
function currently is to hold investments. The Bank purchased all of the
outstanding stock of SFB Agency, Inc. in 1995 for $1,000. On January 14, 2000,
SFB Agency, Inc. purchased McKillen Financial, Inc. SFB Agency, Inc.'s name was
changed to Oakleaf Financial Services, Inc. Oakleaf Financial Services, Inc.
sells securities and insurance products provided by a third party securities
firm and an insurance agency. As of December 31, 2002, Oakleaf Financial
Services, Inc. had six full time employees. The Bank also established Oak
Mortgage, LLC in 2001. Oak Mortgage, LLC originates and services residential
mortgages. Oak Mortgage, LLC has three full-time employees.

         Net income derived from the subsidiary activities is included in the
consolidated statements of income for the Bank.


                                       19
<PAGE>

EMPLOYEES

         As of December 31, 2002, the Bank employed 133 employees including 26
part-time employees. Management considers its relations with its employees to be
excellent.

         The Bank provides its full-time employees with hospitalization and
major medical insurance, paid sick leave, life insurance and short-term
disability benefits. The Bank also has a non-contributory, defined benefit
retirement plan sponsored by Pentegra (formerly known as the Financial
Institutions Retirement Fund). The Bank's employees are not represented by a
collective bargaining group.

SUPERVISION AND REGULATION

         GENERAL. State chartered savings banks, such as the Bank, are regulated
by the Michigan Division of Financial Institutions of the Office of Financial
and Insurance Services ("DFI") and FDIC and have their deposits insured by the
Savings Association Insurance Fund ("SAIF"), administered by FDIC. The Bank is
subject to periodic DFI and FDIC examinations to test compliance by an
institution with various regulatory requirements. This supervision and
regulation is intended primarily for the protection of depositors. Although the
FDIC rating for the Bank cannot be publicly disclosed, the following areas of
regulatory requirements demonstrate the scope and degrees of compliance by the
Bank.

         In addition to laws that affect businesses in general, financial
institutions are subject to a number of federal and state laws and regulations
which have a material impact on their business. These include, among others,
state usury laws, state laws relating to fiduciaries, the Truth In Lending Act,
the Truth In Savings Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Expedited Funds Availability Act, the Community Reinvestment
Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures
Act, the Bank Secrecy Act, the Omnibus Financial Institutions Reform, Recovery
and Enforcement Act ("FIRREA"), the FDIC Improvement Act of 1991 ("FDICIA"),
electronic funds transfer laws, redlining laws, antitrust laws, environmental
laws, and privacy laws. Violation of these laws could result in significant
fines and penalties upon banks and their directors and officers.

         The Company is a financial holding company organized under the Bank
Holding Company Act of 1956, as amended, and the regulations promulgated
thereunder. Under the Bank Holding Company Act, the Company is regulated by the
Board of Governors of the Federal Reserve. The Company is also governed by the
Financial Services Modernization Act discussed in the following section "New
Regulatory Developments."

         NEW REGULATORY DEVELOPMENTS. In 1999, the Financial Services
Modernization Act (Gramm-Leach-Bliley Act of 1999) was passed by Congress and
was signed into law by the President on November 12, 1999. This Act represents a
broad reform of federal regulation of financial services. Enactment of this Act
makes it easier for affiliations between banks, securities firms, and insurance
companies to take place and provides for functional regulation of these
entities.


                                       20
<PAGE>

         While this new Act repeals certain pre-existing legislation preventing
cross-industry affiliations and provides a framework for achieving the Act's
purposes, many details of implementing the changes authorized by the Act will be
the subject of regulations to be adopted in the future by the Federal Reserve
Board, the Securities and Exchange Commission, and other relevant federal
agencies.

         Although the Act is designed to increase competition and could have
long-range impact on the competition of the Bank, Management of the Bank
believes that there will be no immediate impact on the Bank's performance.

         The Federal Reserve Board submitted a proposal to permit electronic
delivery of federally mandated disclosures under Regulation B, E, M, Z and DD.
The Federal Reserve Board also instituted changes and regulations requiring
"more prominent" disclosures of APR's fees and other charges for credit and
charge card solicitation and applications. The Securities and Exchange
Commission instituted rules under the use of external auditors to perform
internal audit functions. Also the FRB, FDIC, OCC and OTS instituted rules
regarding disclosure of certain agreements made to fulfill Community
Re-Investment Act Requirements ("CRA Sunshine"). There are also new proposals,
that have yet to be acted, which include the implementation of Fair Credit
Reporting Act requirements regarding sharing of consumer information with
affiliates to proposed amendments and regulations regarding predatory lending
issues. The Federal Reserve Board is also considering proposed changes to
Regulation E requiring posting of ATM fees. While management does not believe
that any of the new regulations will have a serious impact on the operations of
the Bank, these items are currently under review to determine advantages and
disadvantages relative to the shareholders.

         In June 1998, Statement of Financial Accounting Standard No. 133 (FAS
133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES was 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 the Bank.

         In June 2001, Statement of Financial Accounting Standards No. 142 (FAS
142), GOODWILL AND OTHER INTANGIBLE ASSETS" was 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 are no longer amortized. Instead, these assets are evaluated for
impairment on an annual basis. If an asset is deemed to be impaired, the asset
is written down through an adjustment to current earnings. As a result of
adopting FAS 142, the Bank will no longer be amortizing goodwill.


         It is possible additional legislation and administrative actions
affecting the banking industry are being considered and in the future may be
considered by the United States Congress, state legislatures and various
regulatory agencies, including those referred to above. It cannot be predicted
with certainty whether such legislation or administrative action will be enacted
or the extent to which the banking industry in general or the Bank would be
affected.


                                       21
<PAGE>

         REGULATORY CAPITAL REQUIREMENTS. As of December 31, 2002, the Bank was
subject to the capital adequacy regulations adopted by the FDIC. Failure to meet
minimum capital requirements can initiate certain mandatory and discretionary
actions by regulators that could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting
principles.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (See Note 11 -
Regulatory Matters in the Notes to Consolidated Financial Statements).

The Bank's actual total capital as of December 31, 2002 was $25.0 million, or
12.5% of risk-weighted assets, compared to $20.0 million, or 10.0% of
risk-weighted assets to be classified as well-capitalized.

The Bank's actual Tier 1 capital as of December 31, 2002 was $23.1 million, or
11.5% of risk-weighted assets, compared to $12.0 million, or 6.0% of
risk-weighted assets to be classified as well-capitalized.

The Bank's actual Tier 1 capital as of December 31, 2002 was $23.1 million, or
7.8% of adjusted assets of $296.2 million, compared to $14.8 million, or 5.0% of
adjusted assets to be classified as well-capitalized.

         The tangible assets of the Bank as of December 31, 2002 were $292.0
million with tangible capital of $23.1 million, or 7.9%, compared to a
requirement of 3.0% to be adequately capitalized.

         Risk-weighted assets are the total assets of the Bank multiplied by
risk-weighting percentages assigned in the capital regulations. Risk-weighting
percentages range from 0% to 100%, depending on the regulatory definition of the
risk profile of the underlying assets. The Bank's risk-weighted assets totaled
$200.1 million as of December 31, 2002, which created a risk-based capital
requirement of $16.0 million. The Bank's risk-based capital was $25.0 million or
12.5% as of December 31, 2002.

         The DFI assessment for calendar year 2000, based on total assets as of
December 31, 1999, was $17,852, due to a decrease in the assessment rates. The
DFI assessment for calendar year 2001, based on total assets as of December 31,
2000, was $26,428. The DFI assessment for calendar year 2002, based on total
assets as of December 31, 2001, was $27,025.

         INSURANCE OF ACCOUNTS. The Bank's savings accounts are insured up to
applicable limits of SAIF. As federal supervisory agency over state chartered
savings banks, the FDIC issues regulations, conducts examinations and generally
supervises the operations of such SAIF insured institutions. Any institution
that does not operate in accordance with or conform to applicable regulations,
policies and directives may be sanctioned for noncompliance. For example,
proceedings may be instituted against any insured institution or any director,
officer, or employee of such institution who engages in unsafe and unsound
practices, including the violation of applicable laws and regulations. As
administrator of SAIF, the FDIC has the authority to terminate insurance of

                                       22
<PAGE>

savings accounts pursuant to procedures established for that purpose. If the
FDIC terminates insurance of accounts, the deposits in the institution subject
to termination proceedings will continue to be insured by SAIF for a period of
two years following the date of termination.

         USURY LIMITATIONS. The Depository Institutions Deregulation and
Monetary Control Act of 1980 provides that it preempts state usury laws on
residential first mortgage loans unless the applicable state legislature acted
to override the preemption within three years of enactment. The Michigan
legislature did not act to override the federal preemption and currently does
not limit the rate of interest to be charged on mortgage loans by institutions
such as the Bank. On some types of consumer loans, Michigan usury laws limit,
the rates that may be charged by the Bank. Further, with the exception of
Michigan criminal usury statutes, there are no interest rate limits on most
commercial loans to business entities. The conversion of the Bank from a
federally chartered stock savings bank to a Michigan savings bank did not change
the effect on the Bank.

         QUALIFIED THRIFT LENDER TEST. The Bank must maintain its status as a
"qualified thrift lender" ("QTL") in order to exercise the powers granted to a
state charted savings bank and maintain full access to FHLB advances. The Bank
will remain a QTL if its qualified thrift investments continue to equal or
exceed 50% of the savings association's portfolio assets. As of December 31,
2002 the Bank had substantially more than 50% of its portfolio assets invested
in qualified investments, due to its concentration in residential mortgage
lending.

         As a Michigan savings bank, failure to maintain QTL status would
require the Bank to repay all outstanding FHLB advances, recapture its bad debt
reserve allowed under federal income tax, and dispose of or discontinue any
preexisting investments or activities not permitted for both savings
institutions and national banks. Management believes that the chance of the Bank
failing to maintain its QTL status is remote.

         LOANS TO ONE BORROWER. The Bank may lend up to 15% of the sum of
capital (common stock) and surplus (additional paid-in capital). Upon a 2/3 vote
by the Board of Directors of the bank, the limitation may be increased to 25% of
the sum of capital and surplus. The 25% limitation restricts loans to one
borrower to $5.9 million at December 31, 2002, which the Bank has not exceeded.
As a Michigan savings bank, the Commissioner of the DFI has discretion to
determine the Bank's percentage limit on loans to one borrower.

         DEMAND ACCOUNTS. In the past, a savings institution was restricted to
having a demand account with certain entities (nonpersonal accounts) only if a
lending relationship existed. That restriction has been lifted; however the
accounts still may not pay interest. This enables the Bank to increase its
lower-cost deposit base.

         TRANSACTIONS WITH AFFILIATES. FIRREA reinstates restrictions on
transactions with affiliates that were formerly imposed by the CEBA. FIRREA
further modifies other provisions pertaining to prohibited transactions with
affiliates that were formerly contained in the National Housing Act. The
restrictions of the Federal Reserve Act, specifically Sections 23A and 23B, have
been adopted by FIRREA, as follows:

                  1.       Loans and extensions of credit to an affiliate cannot
                           exceed 10% of an association's capital stock and
                           surplus and must be collateralized 100% to 130%,
                           depending on the form of collateral.


                                       23
<PAGE>

                  2.       Aggregate loans and extensions of credit to all
                           affiliates cannot exceed 20% of the association's
                           capital stock and surplus.

                  3.       Low quality assets may not be purchased from an
                           affiliate.

                  4.       Loans and extensions of credit to affiliates must be
                           at market rates and terms.

         The Bank has no transactions that would cause a violation of any of
these regulations.

         TRUTH IN SAVINGS. The Truth in Savings Act became effective on June 22,
1993. The regulation requires uniform calculation and disclosure of
interest-related features of accounts, as well as all service fees assessed on
consumer deposit accounts.

         APPRAISAL POLICIES. The Bank's management must develop, implement and
maintain appraisal policies and practices. The statement of policy provides
guidance to management concerning relevant and accepted appraisal standards to
be considered in the development of an institution's appraisal guidelines.
Management is required to develop and adopt guidelines for hiring appraisers,
including consideration of education, experience and membership in professional
organizations. In addition, management is required to periodically review the
performance of approved appraisers.

         FEDERAL RESERVE SYSTEM. The Federal Reserve Board has adopted
regulations that require savings institutions to maintain non-earning reserves
against their transaction accounts (primarily NOW and regular checking accounts)
and non-personal time deposits with an original maturity of less than 18 months.
As of December 31, 2002, the Bank was in compliance with these requirements.
These reserves may be used to satisfy liquidity requirements imposed by the
regulatory agencies. Because required reserves must by maintained in the form of
vault cash or a non-interest bearing account at a Federal Reserve Bank, the
effect of this reserve requirement is to reduce the amount of the institution's
interest-earning assets.

         FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB System,
which consists of 12 regional Federal Home Loan Banks subject to Federal Housing
Finance Board supervision and regulation. As a member, the Bank is required to
acquire and hold stock in the FHLB in an amount equal to at least 1% of the
aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts, and similar obligations at the beginning of each year, or 5%
of its advances from the FHLB, whichever is greater. The Bank is in compliance
with this requirement with an investment in the FHLB of $4.1 million in stock as
of December 31, 2002.

         The Bank's borrowings from the FHLB must be collateralized by 145% of
the borrowed amount. Assets eligible for collateral include permanent
one-to-four family whole mortgages loans, excluding mortgages of employees and
mortgages delinquent more than 60 days (see Borrowings). The Bank's assets that
qualified for collateral on FHLB borrowings were $99.6 million as of December
31, 2002. Therefore, the limitation on additional FHLB borrowings would be $4.3
million ($99.6 million / 145% - $64.4 million = $4.3 million).


                                       24
<PAGE>

         The following table indicates the amount of advances received from the
FHLB, due dates and accompanying interest rates:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                            ------------
Short-term advances                                                              2002           2001            2000
                                                                                 ----           ----            ----
<S>                                                                           <C>            <C>             <C>
     Line of credit, 1.33% at Dec. 31, 2002, 6.30% at Dec. 31, 2000           $ 1,671,907    $         -      $7,460,855
     Fixed interest rate, maturing December 19, 2001, 6.16% at Dec. 31, 2000            -              -       2,100,000
     Fixed interest rate, maturing February 23, 2002, 5.12% at Dec. 31, 2001            -      6,000,000               -
     Variable interest rate, maturing March 3, 2003, 1.33% at Dec. 31, 2002     3,000,000              -               -
     Variable interest rate, maturing June 16, 2003, 1.33% at Dec. 31, 2002     2,000,000              -               -
                                                                              ------------   ------------    -----------
          Total short-term advances                                             6,671,907      6,000,000       9,560,855
                                                                              ------------   ------------    -----------

Long-term advances
     6.50%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on April 16, 2001                             -              -         671,200
     7.18%; fixed rate, payment due at maturity on February 19, 2002                    -     10,000,000      10,000,000
     7.18%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on June 17, 2002                              -        526,472         650,316
     6.22%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on October 15, 2002                           -        765,814         949,621
     6.09%; fixed rate, payment due at maturity on December 19, 2002                    -      1,200,000       1,200,000
     5.31%; fixed until February 22, 2000 with quarterly repricing
          thereafter,
          Rate at Dec. 31,2000, 6.76%, with maturity on February 19, 2003               -              -      10,000,000
     6.09%; fixed rate, payment due at maturity on December 19, 2003            3,700,000      3,700,000       3,700,000
     7.17%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on May 17, 2004                         515,121        645,506         796,663
     7.34%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on March 15, 2005                     5,821,641      8,079,672      10,000,000
     5.70%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on February 14, 2006                  6,672,727      8,159,399       9,881,721
     5.50%; fixed until February 19, 2003 with quarterly repricing
          thereafter, with maturity on February 19, 2008                       10,000,000     10,000,000      10,000,000
     4.20%; fixed until March 18, 2002 with quarterly put option thereafter
          Maturing March 16, 2011                                              10,000,000     10,000,000               -
     4.29%; fixed until November 17, 2003 with quarterly put option
          thereafter
          when 3-month LIBOR exceeds 8.00%, maturing November 15, 2011          1,000,000      1,000,000               -
     4.55%; fixed until December 22, 2003 with quarterly put option
          thereafter when 3-month LIBOR exceeds 7.50%, maturing
          December 20, 2011                                                    10,000,000     10,000,000               -
     4.85%; fixed until February 25, 2005 with quarterly put option
thereafter
          when 3-month LIBOR exceeds 8.00%, maturing February 27, 2012         10,000,000              -               -
                                                                              ------------   ------------    -----------
     Total long-term advances                                                  57,709,489     64,076,863      57,849,521
                                                                              ------------   ------------    -----------

Total FHLB advances                                                           $64,381,396    $70,076,863     $67,410,376
                                                                              ============   ============    ===========
</TABLE>

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

                                       25
<PAGE>

                               Payments On
                   Year         Long-Term
                  Ending        Advances
               ----------------------------
                   12/31/03   $  7,377,466
                   12/31/04      3,428,740
                   12/31/05      2,557,211
                   12/31/06      3,346,072
                   12/31/07              -
                   12/31/08     10,000,000
                   12/31/09              -
                 Thereafter     31,000,000
                            ---------------
                              $ 57,709,489
                            ===============


         FIRREA provided (i) that FHLB advances must be secured by specified
types of collateral; (ii) that long-term FHLB advances may be obtained only for
the purpose of providing funds for residential housing finance; and (iii) that
regulations shall be adopted by the Federal Housing Finance Board establishing
standards of "community investment and service" that must be met by FHLB members
who wish to continue receiving long-term advances. These FIRREA provisions are
expected to have no effect on the Bank's ability to obtain FHLB advances up to
the limits described above.

         SECURITIES REGULATION. The Company is subject to the informational
reporting requirements of the Securities Exchange Act. The Company files annual
reports on Form 10-K (the Company's year end is December 31) and quarterly
reports on Form 10-Q, with the Securities and Exchange Commission. It is also
required to file any current reports on Form 8-K concerning recent material
developments. Prior to the reorganization described earlier in this Form 10-K,
the Bank was subject to these same reporting requirements as the Company under
the Securities and Exchange Act and filed its Form 10-K reports, Form 10-Q
reports, Form 8-K reports and other applicable filings with the FDIC. See
"Available Information."

         An annual report to stockholders and proxy statement are provided to
each stockholder of record as of the record date for the Annual Meeting of
stockholders, which is usually set as a date in mid-March. The record date for
the April 29, 2003 Annual Meeting of stockholders is March 17, 2003. These
documents are also filed with the Securities and Exchange Commission. The
Company holds its Annual Meeting of stockholders in the last week of April each
year at which each stockholder of record, as of the record date, is entitled to
vote either in person or by proxy.

         Directors, insiders, and certain officers are required to file reports
with the Securities and Exchange Commission concerning their ownership of and
transactions in the Common Stock of the Company and options thereof. The Company
is required to report any of these filings that are delinquent.

         All filings are subject to review by the Securities and Exchange
Commission and filers are subject to potential civil, administrative, and
criminal liability for any misrepresentations or omissions of any material fact
in their securities filings.


                                       26
<PAGE>

         FEDERAL TAXATION. The Company files a consolidated federal income tax
return with its wholly-owned subsidiaries on a calendar year basis. The Company
and its subsidiaries report their income and expense using the accrual method of
accounting.

         The Small Business Job Protection Act of 1996, signed into law on
August 30, 1996, repealed the special thrift bad debt deduction provisions. This
legislation eliminates the use of the percentage of taxable income method as a
means of calculating deductions for bad debts, allows banks greater flexibility
in diversifying their loan and investment portfolios and establishes
requirements for the recapture of previously untaxed bad debt reserve
accumulations.

         Bad debt reserve accumulations prior to 1988 are exempt from recapture
unless the Company liquidates, pays a dividend in excess of earnings and profits
or redeems stock. Post 1987 bad debt reserve accumulations will be taxed in
equal amounts over a period of six years beginning in 1996. The Bank's pre-1988
tax bad debt reserves which have been suspended are $918,000 and the amount of
the post-1987 reserves which will be recaptured in income are $291,600.

         Savings institutions are also entitled to limited special tax treatment
with respect to the deductibility of interest expense relating to certain
tax-exempt obligations. Savings institutions are entitled to deduct 100% of
their interest expense, allocable to the purchase or carrying of tax-exempt
obligations acquired before 1983. For taxable years after 1986, the Tax Reform
Act of 1986 eliminates the deduction entirely for obligations purchased after
August 7, 1986 (except for certain issues by small municipal issuers).

         Depending on the composition of its items of income and expense, a
savings institution may be subject to the alternative minimum tax. For tax years
beginning after 1986, a savings institution must pay an alternative minimum tax
equal to the amount (if any) by which 20% of alternative minimum taxable income
("AMTI"), as defined, exceeds regular tax due. AMTI equals regular taxable
income increased or decreased by certain adjustments and increased by certain
tax preferences. Adjustments and preferences include depreciation deductions in
excess of those allowable for alternative minimum tax purposes, tax-exempt
interest on most private activity bonds issued after August 7, 1986, the amount
of the bad debt reserve deduction claimed in excess of the deduction based on
the experience method and, for 1990 and succeeding years, 75% of the excess of
adjusted current earnings ("ACE") over AMTI. ACE equals pre-adjustment AMTI
("PAMTI") increased or decreased by certain ACE adjustments, which included
tax-exempt interest on municipal bonds for tax purposes, depreciation deductions
in excess of those allowable for ACE purposes and the dividend received
deduction. PAMTI equals AMTI computed with all the preferences and adjustments
other than the ACE adjustment and the alternative minimum tax net operating loss
(AMTNOL). AMTI may be reduced only up to 90% by AMTNOL carryovers. The payment
of alternative minimum tax will give rise to minimum tax credit which will be
available with an indefinite carry forward period available to reduce federal
income taxes of the institution in future years, limited to the level of
alternative minimum tax arising in each of the carry forward years.

         STATE TAXATION. The Company is also subject to taxes imposed by the
State of Michigan. The Single Business Tax is the primary tax and is a "value
added" type of tax for the privilege of doing business in the State of Michigan.
The tax, at a rate of 1.9%, is on a tax base made up by adding compensation,
depreciation and other expenses to federal taxable income, and subtracting


                                       27
<PAGE>

interest earned on federal obligations (net of associated expense) and the
acquisition costs of tangible assets during the year.

ENVIRONMENTAL

         The Bank recognizes that with each real estate mortgage loan there is
potential exposure to environmental liability and therefore the Bank has adopted
a written environmental risk reduction procedure. The Bank's environmental risk
reduction procedure does not protect it from legal liability.

         Typically, the procedure requires that a Phase I Environmental Analysis
be performed prior to closing for most mortgage loans over $100,000 secured by
commercial or industrial real estate. The borrower is required to pay the cost
of this analysis. The Bank will consider factors such as prior use of the
property, the dollar amount of the loan and review an environmental hazard
report from a qualified environmental firm to determine whether additional
environmental assessments are necessary.

         For all residential real estate mortgage loans, potential borrowers are
given a "Homeowners' Guide to Environmental Hazards" at the time of their
application to assist the home buyer in determining whether any environmental
hazards exist on the subject property. Additionally, at the time of closing, on
property whose value exceeds $250,000 the seller of a parcel of property is
required to sign a "Sellers' Disclosure Statement" in order to identify any
environmental hazards. The cost to the Company in complying with these
procedures is negligible. However, the Bank's environmental risk reduction
procedures do not protect it from legal liability.


                                       28
<PAGE>

                               ITEM 2. PROPERTIES

     The following table sets forth certain information regarding the Bank's
properties as of December 31, 2002. All offices are owned by the Bank (except as
noted), free and clear of encumbrances and are full service offices.

<TABLE>
<CAPTION>
                                                               Approximate
                                Address              Owned/      Square
      Location                City, St Zip           Leased      Footage                    Other Information
      --------                ------------           ------      -------                    -----------------
<S>                     <C>                          <C>         <C>        <C>
Sturgis (Main Office)   113-125 East Chicago Road    Owned       22,422     Opened in 1905, relocated to present location in 1974.
                        Sturgis, MI  49091

   Branch Offices
   --------------
Bronson                 863 West Chicago Road        Owned        2,400     Opened by First National Bank of Sturgis in 1978 and
                        Bronson, MI  49028                                  acquired in 1997.

Centreville             158 West Main                Owned        3,096     Acquired from First of America Bank, N.A. in 1998.
                        Centreville, MI  49032

Climax                  125 North Main               Owned        1,344     Acquired from First of America Bank, N.A. in 1998.
                        Climax, MI  49034

Coldwater               290 East Chicago Road        Owned        1,200     Opened in 1978 by First Federal Savings & Loan of Battle
                        Coldwater, MI  49036                                Creek and acquired from Great Lakes Bancorp in 1996

Colon                   110 South Blackstone Street  Owned        1,180     Opened in 1978, relocated to present location in 1991.
                        Colon, MI  49040

South Haven             1121 LaGrange Street         Owned        2,450     Acquired from First of America Bank, N.A. in 1998.
                        South Haven, MI  49090

Sturgis                 1001 South Centerville Road  Owned        1,908     Opened in 1975 by First Federal Savings & Loan of
                        Sturgis, MI  49091                                  Kalamazoo and acquired from Standard Federal Bank in
                                                                            1991.

Sturgis                 1501 East Chicago Road       Leased         500     Leased in 1997.  Limited service branch.
                        Sturgis, MI  49091

Three Rivers            115 North Main Street        Owned        1,856     Opened by Kalamazoo Savings & Loan in 1975.
                        Three Rivers, MI  49093                             Acquired from First Federal of Michigan in 1988.

White Pigeon            122 West Chicago Road        Owned        1,854     Opened in 1905, relocated to present location in 1974.
                        White Pigeon, MI  49099
</TABLE>

         As of December 31, 2002, the net book value of all of the Bank's
offices, including land, buildings, furniture, fixtures and equipment, including
data processing equipment, was $6.6 million. Each of the properties is in good
condition.


                                       29
<PAGE>

                            ITEM 3. LEGAL PROCEEDINGS

         In the normal course of business, the Company is occasionally made a
party to actions seeking to recover damages from the Company or its
subsidiaries.

         The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. In the opinion of
Management, the ultimate disposition of these matters is not expected to have a
material adverse effect on the Company's financial condition.


           ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the fourth quarter of 2002, no matters were submitted to a vote
of security holders.


PART II.

  ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The information contained in the sections captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Market Information" in the 2002 Annual Report to Stockholders is incorporated
herein by reference.

         In addition to the information incorporated by reference the following
table shows sales of unregistered securities by the Company within the past
three years.

                   Date of    Number of    Exercise
                     Sale      Shares       Price           Name
          ------------------------------------------------------------------
                   03/31/00       600       4.35     Waltke, Joyce
                   04/14/00       600       4.35     Eishen, Chandre
                   04/14/00     2,100       4.35     Eishen, Eric
                   04/14/00       501       4.35     Hoggatt, Brian
                   04/14/00       225       4.35     Lintz, Jodie
                   04/14/00        75       4.35     Losinski, Robin
                   04/14/00       225       4.35     Mussall, Linda
                   04/14/00       150       4.35     Patterson, Dawn
                   04/20/00       150       4.35     Isaac, Toby
                   04/20/00     1,095       4.35     Parker, Tracey
                   04/21/00       315       4.35     Gloy, Trudy
                   04/21/00       612       4.35     Moyer, Arthur
                            ----------
                               37,735
                            ==========

         All of the foregoing sales were made pursuant to the exercise of stock
options by officers, directors, or employees of the Company, which options were
granted under benefit plans approved by a majority of shareholders present, in
person or proxy, at an annual meeting of the shareholders of the Company. The
sales of these securities were exempt from registration under Title 12, Code of
Federal Regulations Section 563g.3(g).


                                       30
<PAGE>

                         ITEM 6. SELECTED FINANCIAL DATA

         The information contained in the section captioned "Selected Financial
Data" in the 2002 Annual Report to Stockholders is incorporated herein by
reference.


     ITEM 7. MANAGEMENT'S DICUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

         The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
2002 Annual Report to Stockholders is incorporated herein by reference.

      ITEM 7.A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

         The information contained in the section captioned "Asset/Liability
Management" in the 2002 Annual Report to Stockholders is incorporated herein by
reference.

               ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements contained in the 2002 Annual
Report to the Stockholders are incorporated herein by reference.

     ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE

         The stockholders at the 2002 Annual Meeting ratified the selection of
Plante & Moran, PLLC as independent public accountants for the year ending 2002.
There have been no disagreements on accounting and financial disclosure matters
with Plante & Moran, PLLC.


PART III.

           ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         For information concerning the executive officers and directors of the
Company, the information contained under the section captioned "PROPOSAL
I--ELECTION OF DIRECTORS" in the Company's Proxy Statement for the Company's
2002 Annual Meeting of Stockholders is incorporated herein by reference (the
"Proxy Statement").

                         ITEM 11. EXECUTIVE COMPENSATION

         The information contained under the section captioned "PROPOSAL
I--ELECTION OF DIRECTORS" in the Proxy Statement in incorporated herein by
reference.


                                       31
<PAGE>

   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
                          RELATED STOCKHOLDER MATTERS

         The information required by this item is incorporated herein by
reference to the sections captioned "PROPOSAL I--ELECTION OF DIRECTORS" and
"VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF" in the Proxy Statement.


             ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is incorporated herein by
reference to the section captioned "PROPOSAL I--ELECTION OF DIRECTORS" in the
Proxy Statement.


PART IV.

                        ITEM 14. CONTROLS AND PROCEDURES

         Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
the Securities Exchange Act of 1934 ("Exchange Act") Rule 13a-14. Based upon
that evaluation, the Company's Chief Executive Officer along with the Company's
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic Securities and Exchange Commission ("SEC")
filings. There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect these controls
subsequent to the date the Company performed its evaluation.


                ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                             AND REPORTS ON FORM 8-K

(A)      FINANCIAL STATEMENTS AND SCHEDULES

         The financial statements are set forth under Item 8 of this report on
Form 10-K.

         Financial statement schedules have been omitted since they are either
         not required, not applicable, or the information is otherwise included.

(B)      REPORTS ON FORM 8-K

         The Company filed no reports on Form 8-K during the quarter ended
December 31, 2002.


                                       32
<PAGE>

(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 Eric L. Eishen (4)

              10.5  Employment Agreement with Brian P. Hoggatt (4)

              10.6  Employment Agreement with David E. Watters (4)

              10.7  Employment Agreement with Ronald W. Scheske (4)

              10.8  Employment Agreement with Steven L. Gage (5)

              13.1  Annual Report to Stockholders

              21    Subsidiaries of Registrant

              99.1  Certification of the CEO Pursuant to 18 U.S.C. Section 1350,
                    as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                    of 2002.

              99.2  Certification of the CFO Pursuant to 18 U.S.C. Section 1350,
                    as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                    of 2002.


                                       33
<PAGE>

(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 Bancorp, Inc. for the
quarter ended June 30, 2002.
(5) Incorporated by reference to Form 10-Q for Sturgis Bancorp, Inc. for the
quarter ended September 30, 2002.


AVAILABLE INFORMATION

         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 President Eric L. Eishen at Sturgis Bank & Trust Company, 113-125 E.
Chicago Road, Sturgis, Michigan 49091, telephone number (269)651-9345 or, for a
nominal fee from the FDIC at telephone number (202)898-8913 or fax number
(202)898-3909. Filings of the Company can be obtained from the Company by
contacting President Leonard L. Eishen at Sturgis Bancorp, Inc., 113-125 E.
Chicago Road, Sturgis, Michigan 49091, telephone number (269)651-9345 or through
the Securities and Exchange Commission Edgar System at WWW.SEC.GOV.

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Sturgis, State of Michigan, on March 17, 2003.



                                               Sturgis Bancorp, Inc.



                                               By: /s/
                                                   -----------------------------
                                                   Leonard L. Eishen
                                                   President and CEO


                                       34
<PAGE>

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated, in the City of
Sturgis, State of Michigan, on March 17, 2003.


            Signature                                   Title

/s/
_________________________________                      Director
     Raymond H. Dresser, Jr.


/s/
_________________________________                 Director, President and
        Leonard L. Eishen                         Chief Executive Officer


/s/
_________________________________                 Director, Vice President
         Eric L. Eishen


/s/
_________________________________             Director, Chairman of the Board
       Lawrence A. Franks


/s/
_________________________________                      Director
         Donald L. Frost


/s/
_________________________________           Director, Vice Chairman of the Board
        James A. Goethals


/s/
_________________________________                      Director
         Philip G. Ward


/s/
_________________________________               Chief Financial Officer and
         Brian P. Hoggatt                          Secretary/Treasurer


                                       35
<PAGE>

I, Leonard L. Eishen, certify that:

1. I have reviewed this report on Form 10-K of Sturgis Bancorp, Inc.

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

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

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and

c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date   March 25, 2003      /s/
       --------------      -----------------------------------------------
                           Leonard L. Eishen, President, Chief Executive Officer


                                       36
<PAGE>

I, Brian P. Hoggatt, certify that:

1. I have reviewed this report on Form 10-K of Sturgis Bancorp, Inc.

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

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

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

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

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and

c) presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date   March 25, 2003      /s/
       --------------      -----------------------------------------------
                           Brian P. Hoggatt, Chief Financial Officer


                                       37