<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, 2003

              [_] 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. [X]

The aggregate market value of common stock held by non-affiliates of the
registrant as of March 15, 2004 was $24,933,083.

The number of shares outstanding of the registrant's common stock as of March
15, 2004 was 2,809,285.

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, 2004 to be
delivered to stockholders are incorporated by reference into Part II.

Portions of the definitive Proxy Statement dated March 26, 2004 to be delivered
to stockholders in connection with the Annual Meeting of Shareholders to be held
on April 27, 2004 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

        Sturgis Bancorp, Inc. (the "Company"), is a financial holding company
under the Bank Holding Company Act of 1956, as amended. The Company originated
on December 11, 2001, when the shareholders of Sturgis Bank & Trust Company (the
"Bank") approved the reorganization of the Bank as a wholly owned subsidiary of
the Company. 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

        The Bank is a state-chartered savings bank located in Sturgis, Michigan.
The Bank began operations in 1905 as a state chartered building 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 has been expanding its commercial loan department since 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'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 diverse economy. 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.

<TABLE>
<CAPTION>

QUARTERLY FINANCIAL DATA

                                 Interest          Net Interest           Net              Earnings
       Quarter Ended              Income              Income             Income           Per Share
---------------------------------------------------------------------------------------------------------
<S>                                   <C>                <C>                  <C>             <C>
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         0.24
Dec. 31, 2002                         4,294,553          2,209,304            794,415         0.28
March 31, 2003                        4,089,947          2,184,214            764,976         0.27
June 30, 2003                         3,922,503          2,129,750            558,059         0.20
Sept. 30, 2003                        3,648,691          1,959,922            716,801         0.26
Dec. 31, 2003                         3,584,457          1,954,439            565,253         0.20
</TABLE>

EFFECT OF GOVERNMENT MONETARY POLICIES

        Our earnings are affected by domestic economic conditions and the
monetary and fiscal policies of the United States government, its agencies, and
the Federal Reserve Board. The Federal Reserve Board's monetary policies have
had, and will likely continue to have, an important impact on the operating
results of commercial banks through its power to implement national monetary
policy in order to, among other things, curb inflation or avoid a recession. The
policies of the Federal Reserve Board have a major effect upon the levels of
bank loans, investments and deposits through its open market operations in
United States government securities, and through its regulation of, among other
things, the discount rate on borrowings of member banks and the reserve
requirements against member bank deposits. It is not possible to predict the
nature and impact of future changes in monetary and fiscal policies.

RECENT DEVELOPMENTS

        During January 2002, the Board of Directors of the Company, the parent
company of


                                       4
<PAGE>

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 negotiated
transactions. Through December 31, 2002, the Company had redeemed 301,999 shares
at a total redemption price of $3,005,294. The repurchase program expired in
January 2003 without any additional shares repurchased.

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


                                       5
<PAGE>

Bank.

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


                                       6
<PAGE>

or Federal Home Loan Bank of Indianapolis (FHLB) at a minimum yield of .25% to
the Bank as servicing income, plus an applicable premium. Loan servicing fee
income in 2003 was $502,743 or 8.78% of noninterest income. Loan servicing fee
income as a percentage of net interest income for the years ended December 31,
2003, 2002, and 2001 was 6.13%, 4.38%, and 2.99%, 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. The Bank's mortgage-backed
securities carry a variable rate feature.

        At December 31, 2003, 1.3%, or $2.7 million, of the Bank's net loan
portfolio was residential mortgages serviced by others.

        An asset is recorded on the balance sheet for mortgage servicing rights.
At December 31, 2003 and 2002 the balance was $1,974,988 and $1,501,922,
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, 2003, the Bank had commitments of $4.4 million
and $42.4 million on fixed rate and variable 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 to $118.7
million, or 55.08% of net loans receivable, at December 31, 2003 from $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


                                       7
<PAGE>

during 2003.

        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
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 $2.4 million of loans in process,
aggregated $7.8 million at December 31, 2003, representing 3.61% 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.

        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.

        Automobile 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.

        As of December 31, 2003, the Bank had $9.5 million in consumer
nonmortgage loans outstanding. The Bank's consumer loans represent 4.39% of the
Bank's net loan portfolio.

        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, 2003, the Bank's
commercial real estate, net commercial construction loans and nonmortgage
commercial loans represented 30.81%, 0.81% and 6.86% of the Bank's net loan
portfolio, respectively.

        As of December 31, 2003, approximately $66.4 million, or 30.81% of the
Bank's net loan portfolio consisted of real estate loans secured by
income-producing properties. The Bank's


                                       8
<PAGE>

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 $4.1 million at
December 31, 2003. The Bank's regulatory limit on maximum loans to one borrower
is $5.9 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. The
Bank'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 fewer loans and
borrowers, the effects of general economic conditions and the increased
difficulty of evaluating, monitoring and liquidating collateral for 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. At December 31, 2003, the Bank had $14.8
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,
                                                   ----------------------------------------------------------------------------
                                                             2003                     2002                      2001
                                                             ----                     ----                      ----
                                                   ------------------------- ------------------------ -------------------------
                                                      Amount       Percent      Amount      Percent       Amount      Percent
                                                   ------------------------- ------------------------ -------------------------
<S>                                                 <C>              <C>      <C>             <C>       <C>             <C>
Mortgage loans:
     Loans on existing property                     $188,446,797     87.44%   $175,248,436    82.65%    $176,552,922    80.58%
     Insured or guaranteed real estate loans           5,986,528      2.78%      9,970,426     4.70%      11,027,824     5.03%
     Residential participations purchased              2,745,708      1.27%      4,826,883     2.28%       7,421,180     3.39%
     Nonresidential participations purchased           3,000,000      1.39%          9,002     0.00%           9,654     0.00%
Nonmortgage loans:
     Commercial nonmortgage loans                     14,784,475      6.86%     15,072,501     7.11%      12,906,602     5.89%
     Commercial nonmtg participations purchased          -            0.00%        -           0.00%        -            0.00%
     Student loans                                       -            0.00%          2,450     0.00%           7,462     0.00%
     Deposit account loans                             1,129,623      0.52%        569,566     0.27%         571,740     0.26%
     Home improvement loans                              180,495      0.08%        355,107     0.17%         714,386     0.33%
     Other consumer loans                              8,144,472      3.77%     10,997,094     5.18%      14,577,529     6.65%
                                                   -------------- ---------- -------------- --------- -------------- ----------
          Total loans                                224,418,097    104.13%    217,051,465   102.36%     223,789,299   102.13%
Less -
     Loans in process                                  6,895,652      3.19%      3,167,369     1.49%       3,257,555     1.49%
     Deferred loan fees                                 (317,539)    -0.15%        (96,216)   -0.05%          91,791     0.04%
     Unearned interest                                    18,262      0.01%         16,925     0.01%          26,013     0.01%
     Allowance for loan losses                         2,294,157      1.06%      1,920,037     0.91%       1,300,000     0.59%
                                                   -------------- ---------- -------------- --------- -------------- ----------
          Loans receivable, net                     $215,527,565    100.00%   $212,043,350   100.00%    $219,113,940   100.00%
                                                   ============== ========== ============== ========= ========== ==============
The conventional real estate loans are
  secured as follows:
     One to four family residential                 $122,811,924     56.98%   $130,770,464    61.67%    $154,399,203    70.47%
     Commercial and multifamily residential           68,476,577     31.77%     54,276,167    25.60%      35,937,018    16.40%
                                                   -------------- ---------- -------------- --------- -------------- ----------
          Total conventional real estate loans      $191,288,500     88.75%   $185,016,631    87.27%    $190,336,221    86.87%
                                                   ============== ========== ============== ========= ========== ==============
</TABLE>

                                       10
<PAGE>
<TABLE>
<CAPTION>

                                                                                 At December 31,
                                                                                 ---------------
                                                             2000                     1999                      1998
                                                             ----                     ----                      ----
                                                      Amount       Percent      Amount      Percent       Amount      Percent
                                                   ------------------------- ------------------------ -------------------------
<S>                                                 <C>              <C>      <C>             <C>       <C>             <C>
Mortgage loans:
     Loans on existing property                     $172,857,255     77.32%   $155,336,051    75.31%    $128,194,980    71.87%
     Insured or guaranteed real estate loans          11,631,417      5.20%     14,716,720     7.13%      13,938,560     7.81%
     Residential participations purchased              9,984,544      4.47%     12,097,185     5.86%      15,052,062     8.44%
     Nonresidential participations purchased              10,253      0.00%         10,764     0.01%          11,363     0.01%
Nonmortgage loans:
     Commercial nonmtg. Loans                         12,780,883      5.72%     11,673,025     5.66%       7,125,317     3.99%
     Commercial nonmtg participations purchased          -            0.00%        -           0.00%       2,250,000     1.26%
     Student loans                                        20,784      0.01%         27,287     0.01%          36,024     0.02%
     Deposit account loans                               420,711      0.19%        164,713     0.08%         199,664     0.11%
     Home improvement loans                            1,478,183      0.66%      1,859,281     0.90%       3,074,908     1.72%
     Other consumer loans                             16,690,110      7.46%     14,238,471     6.90%      12,646,758     7.09%
                                                   -------------- ---------- -------------- --------- -------------- ----------
          Total loans                                225,874,140    101.03%    210,123,497   101.87%     182,529,636   102.33%
Less -
     Loans in process                                  1,212,498      0.54%      2,732,760     1.32%       2,770,482     1.55%
     Deferred loan fees                                  248,782      0.11%        353,041     0.17%         646,559     0.36%
     Unearned interest                                    35,043      0.02%         42,674     0.02%          53,848     0.03%
     Allowance for loan losses                           803,744      0.36%        730,000     0.35%         686,896     0.39%
                                                   -------------- ---------- -------------- --------- -------------- ----------
          Loans receivable, net                     $223,574,073    100.00%   $206,265,022   100.00%    $178,371,852   100.00%
                                                   ============== ========== ============== ========= ========== ==============
The conventional real estate loans are
  secured as follows:
     One to four family residential                 $164,967,395     73.79%   $157,716,099    76.46%    $139,858,013    78.41%
     Commercial and multifamily residential           27,216,007     12.17%     20,586,146     9.98%      13,181,168     7.39%
                                                   -------------- ---------- -------------- --------- -------------- ----------
          Total conventional real estate loans      $192,183,402     85.96%   $178,302,245    86.44%    $153,039,181    85.80%
                                                   ============== ========== ============== ========= ========== ==============
</TABLE>

                                                                 11
<PAGE>
<TABLE>
<CAPTION>

The following table presents information regarding scheduled principal
repayments of commercial and construction loans as of December 31, 2003:

                                                                  Year 1        >1-5 Years       >5 Years         Total
                                                            ---------------------------------------------------------------
<S>                                                             <C>            <C>               <C>           <C>
Commercial nonmortgage loans
   Fixed                                                        $ 1,921,141    $ 2,685,611       $ 675,806     $ 5,282,558
   Adjustable                                                     5,923,739      2,493,224       1,084,954       9,501,917
                                                            ---------------------------------------------------------------
      Total commercial nonmortgage loans                         $7,844,880     $5,178,835      $1,760,760     $14,784,475

Real estate - construction, net                                   9,541,953       -               -              9,541,953


         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                                              $ 15,453,960        $ 14,547,550      $ 13,658,233
           Purchase / refinance                                        82,599,099          88,905,714        71,172,560
           Sale                                                       118,716,871         110,327,411        77,333,342
                Total real estate                              ---------------------------------------------------------
                     loans originated                                 216,769,930         213,780,675       162,164,135

      Loans sold                                                    (126,277,169)       (108,718,408)      (74,319,076)
      Loan principal reductions                                     (100,617,047)       (110,019,101)      (87,316,948)

      Increase (decrease)  in real estate loans                ---------------------------------------------------------
        receivable (before net items)                                $ 10,124,286       ($ 4,956,834)      $    528,111
                                                               =========================================================
</TABLE>

INTEREST RATES AND FEE INCOME

        The Bank earns interest income from its lending activities. Interest
rates are affected 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


                                       12
<PAGE>

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."

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.


                                       13
<PAGE>
<TABLE>
<CAPTION>

        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:

                                                                           For the year ended December 31,
                                                       2003              2002             2001            2000            1999
                                                       -----             -----            ----            ----            ----
<S>                                                    <C>               <C>               <C>             <C>             <C>
Balance at the beginning of the period                 $1,920,037        $1,300,000        $803,744        $730,000        $686,896
Charge-offs:
     Residential mortgages                                122,873           448,217         226,230         117,403          15,000
     Commercial mortgages                                 128,959           121,053          42,900           -               -
     Construction loans - residential                      -                 -                -               -               -
     Construction loans - commercial                       -                 -                -               -               -
     Commercial nonmortgage loans                         121,566           130,718         175,675          25,061           -
     Loans secured by deposits                             -                 -                -               -               -
     Other consumer and installment loans                 142,776           250,118         162,412         188,219         127,890
                                                    --------------------------------------------------------------------------------
          Total charge-offs                               516,174           950,106         607,217         330,683         142,890
Recoveries
     Residential mortgages                                 10,185            -               21,344          54,261           3,000
     Commercial mortgages                                   5,230             2,966           -               -               -
     Construction loans - residential                      -                 -                -               -               -
     Construction loans - commercial                       -                 -                -               -               -
     Commercial nonmortgage loans                          -                 16,458           3,021           2,044           -
     Loans secured by deposits                             -                 -                -               -               -
     Other consumer and installment loans                  55,170            55,713          22,914          39,122          78,994
                                                    --------------------------------------------------------------------------------
          Total recoveries                                 70,585            75,227          47,279          95,427          81,994
Net charge-offs                                           445,589           874,879         559,938         235,256          60,896
Provision for loan losses                                 819,709         1,494,916       1,056,194         309,000         104,000
                                                    --------------------------------------------------------------------------------
Balance at the end of the period                       $2,254,157        $1,920,037      $1,300,000        $803,744        $730,000
                                                    ================================================================================
Ratio of net charge-offs during the period to
     Average loans outstanding during the period            0.21%             0.40%           0.25%           0.11%           0.03%

Allowance for loan losses to total loans                    1.02%             0.88%           0.58%           0.36%           0.35%
Nonperforming assets to total assets                        1.90%             1.76%           1.55%           0.86%           0.80%
Allowance for loan losses to nonperforming assets          41.22%            36.82%          29.91%          34.50%          36.50%
</TABLE>


                                                                 14
<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,
                           ---------------------------------------------------------------------------------------------------------
                                   2003                 2002                  2001                2000                 1999
                           ---------------------------------------------------------------------------------------------------------
                             Amount    Percent     Amount    Percent    Amount    Percent    Amount   Percent   Amount   Percent
                                         of                    ofs                  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
                                         Loans                 Loans                Loans               Loans              Loans
<S>                          <C>         <C>       <C>        <C>       <C>         <C>     <C>        <C>     <C>           <C>
Residential 1-4 family     $  448,026    52.90%   $ 491,171   58.87%   $ 304,503    67.13% $ 358,027   73.33% $ 358,027      73.33%
Commercial mortgages        1,457,075    29.59%     956,217   23.24%     470,459    15.92%    92,273    9.60%    92,273       9.60%
Construction loans -
  residential                  15,577     4.53%       8,651    3.70%      35,014     3.62%     -        3.43%     -           3.43%
Construction loans -
  commercial                    3,506     2.18%      16,914    1.75%      -          0.20%     -        0.13%     -           0.13%
Commercial nonmortgage
  loans                       267,228     6.59%     314,963    6.94%     165,188     5.89%   125,077    5.61%   125,077       5.61%
Loans secured by
  deposits                     -          0.50%      -         0.26%      -          0.26%     -        0.08%     -           0.08%
Other consumer and
  installment                 102,744     3.71%     132,121    5.23%     324,836     6.98%   154,623    7.82%   154,623       7.82%
                           ---------------------------------------------------------------------------------------------------------
  Total allowance for
    loan losses            $2,294,157   100.00%  $1,920,037  100.00%  $1,300,000   100.00% $ 730,000  100.00% $ 730,000     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


                                       15
<PAGE>

before an account reaches 30 days past due.

        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,
                                        ---------------------------------------------------------------
                                            2003          2002        2001        2000        1999
                                            ----          ----        ----        ----        ----
<S>                                        <C>          <C>         <C>         <C>         <C>
Past due 90 days and still accruing        $  473,102   $  899,975  $1,073,625  $1,314,288  $1,142,680
Nonaccrual loans                            4,245,716    2,955,666   2,821,965     911,610     487,574
Real estate owned                             749,899    1,358,759     451,173     103,500     369,952
                                        ---------------------------------------------------------------
     Total nonperforming assets             5,468,717    5,214,400   4,346,763   2,329,398   2,000,206
Restructured assets                           426,414      626,882   1,381,920   1,030,858     514,746
                                        ---------------------------------------------------------------
     Total troubled assets                 $5,895,131   $5,841,582  $5,728,683  $3,360,256  $2,514,952
                                        ===============================================================
Ratio of troubled assets to
     total loans                                2.71%        2.73%       2.60%       1.50%       1.22%
                                        ===============================================================
Ratio of troubled assets to
     total assets                               2.04%        1.96%       2.04%       1.24%       1.00%
                                        ===============================================================
</TABLE>


                                       16
<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,
                                                    ----------------------------------------------------------------------------
                                                              2003                     2002                     2001
                                                    ----------------------------------------------------------------------------
                                                        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%  $    -           0.00%    $  549,996       7.87%
   Obligations of states and political subdivisions     2,817,060      37.48%   3,177,986      40.78%     2,320,298      33.22%
   Other Securities                                       425,000       5.65%     500,000       6.41%       -             0.00%
   FHLB stock                                           4,274,700      56.87%   4,115,400      52.81%     4,115,400      58.91%
                                                    ----------------------------------------------------------------------------
      Total investment securities and FHLB stock      $ 7,516,760     100.00%  $7,793,386     100.00%    $6,985,694     100.00%
                                                    ============================================================================
Mortgage-backed securities
   GNMA                                               $   267,725       4.60%  $  409,674       4.60%    $  544,363      52.64%
   FNMA                                                 4,216,941       2.91%     259,372       2.91%       350,712      33.91%
   FHLMC                                                   77,626       1.21%     107,895       1.21%       120,763      11.68%
   SBA                                                  6,577,602      83.68%   7,458,381      83.68%       -             0.00%
                                                    ----------------------------------------------------------------------------
      Subtotal                                         11,139,894      92.40%   8,235,322      92.40%     1,015,838      98.23%
   Unamortized premium, net                               583,057       7.60%     677,401       7.60%        18,281       1.77%
                                                    ----------------------------------------------------------------------------
      Total mortgage-backed securities                $11,722,951     100.00%  $8,912,723     100.00%    $1,034,119     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, 2003
                                                                            -----------------
                                                      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                                    415,132     584,500     404,131      1,838,296    2,817,059
     Other securities                                        -           -             -         425,000      425,000
                                                     -----------------------------------------------------------------
          Total investment securities                $    415,132  $  584,500   $ 404,131    $ 2,313,296  $ 3,242,059
                                                     =================================================================
     Weighted average rate                                  4.59%       4.20%       4.46%          4.89%        4.67%

Mortgage-backed securities                           $       -     $     -      $    -       $11,722,951  $11,722,951
                                                     =================================================================
     Weighted average rate                                    -          -           -             4.33%        4.33%
</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.


                                       17
<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, and
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, 2003 approximately 56.7%, or $113.4 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 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 balance requirements.


                                       18
<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
                                            2003       Deposits   (Decrease)          2002         Deposits  (Decrease)
                                      ---------------------------------------  -----------------------------------------
<S>                                      <C>            <C>        <C>             <C>              <C>       <C>
        Passbook and savings             $43,604,746    21.82%     2,714,026       $40,890,720      20.18%    2,815,419
        NOW accounts                      54,641,468    27.33%     6,817,507        47,823,961      23.61%      653,061
        Noninterest-bearing deposits      12,282,992     6.14%      (464,129)       12,747,121       6.29%    1,884,228
        Money market deposit and
             Super NOW accounts            2,893,130     1.45%        (6,980)        2,900,110       1.43%      664,089
        Certificates of deposit:
             Six-month money
                  market certificates      3,980,311     1.99%    (1,706,638)        5,686,949       2.81%      634,284
             IRA certificates             10,156,868     5.08%      (716,069)       10,872,937       5.37%      (76,103)
             Jumbo certificates           28,372,184    14.19%    (4,575,916)       32,948,100      16.27%   19,397,222
             Other certificates           43,988,514    22.00%    (4,705,384)       48,693,898      24.04%   (2,538,230)
                                      ---------------------------------------  -----------------------------------------
                  Total                 $199,920,213   100.00%   ($2,643,583)     $202,563,796     100.00%  $23,433,970
                                      =======================================  =========================================

                                         Balance at
                                          Dec. 31,       % of      Increase
                                            2001       Deposits   (Decrease)
                                      ---------------------------------------
        Passbook and savings             $38,075,301    21.27%     2,563,070
        NOW accounts                      47,170,900    26.33%     6,949,453
        Noninterest-bearing deposits      10,862,894     6.06%     1,025,706
        Money market deposit and
             Super NOW accounts            2,236,021     1.25%      (402,226)
        Certificates of deposit:
             Six-month money
                  market certificates      5,052,665     2.82%     2,755,822

             IRA certificates             10,949,040     6.11%       193,824
             Jumbo certificates           13,550,878     7.56%         4,472
             Other certificates           51,232,128    28.60%    (7,815,619)
                                      ---------------------------------------
                  Total                 $179,129,826   100.00%    $5,274,502
                                      =======================================
</TABLE>


                                       19
<PAGE>

        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 at December 31, 2003 totaled
55.8 million, compared to $64.4 million at December 31, 2002 and $70.1 million
at December 31, 2001. The weighted average interest rate on FHLB borrowings and
advances outstanding as of December 31, 2003 was 4.62%, as of December 31, 2002
was 4.83% and as of December 31, 2001 was 5.68%.

        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. For limitations based on
collateral requirements of FHLB, 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,
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.


                                       20
<PAGE>

        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.
Several mortgage brokers operate in St. Joseph County and the Bank also competes
for loans and deposits with various online banking services.

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 $109.1 million at December 31, 2003. The
Trust Department's net income was $82,766, $96,128 and $97,465 for the years
ended December 31, 2003, 2002 and 2001, 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, 2003 was $129,880. (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, 2003, Oakleaf Financial
Services, Inc. had seven full time employees. The Bank also established Oak
Mortgage, LLC in 2001. Oak Mortgage, LLC originates and services residential
mortgages. Oak Mortgage, LLC has two full-time employees.

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


EMPLOYEES


                                       21
<PAGE>

        As of December 31, 2003, the Bank employed 129 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, 401K match 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.

        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


                                       22
<PAGE>

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 material 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 enacted, 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 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 no longer amortizes goodwill.

        In November, 2002, the Financial Accounting Standards Board ("FASB")
issued Financial Interpretation No. ("FIN") 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 elaborates on the disclosures to be made by a
guarantor about its obligations under certain guarantees issued. It also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions of FIN
45 have been applied on a prospective basis to guarantees issued or modified
after December 31, 2002. However, the value of such guarantees is immaterial and
the adoption of this Standard did not have a material effect on Bancorp's
financial statements.

        On March 13, 2002, FASB determined that loan commitments related to the
organization or acquisition of mortgage loans that will be held for sale must be
accounted for as derivative instruments, effective for fiscal quarters beginning
after April 10, 2002. Accordingly, Bancorp adopted such accounting on July 1,
2002. Bancorp enters into commitments to originate loans whereby the interest
rate on the loan is determined prior to funding (rate lock commitments).


                                       23
<PAGE>

Rate lock commitments on mortgage loans that are intended to be sold are
considered to be derivatives. Accordingly, such commitments, along with any
related fees received from potential borrowers, are recorded at fair value in
derivative assets or liabilities, with changes in fair value recorded in the net
gain or loss on sale of mortgage loans. Fair value is based on fees currently
charged to enter into similar agreements, and for fixed-rate commitments also
considers the difference between current levels of interest rates and the
committed rates. Prior to July 1, 2002, such commitments were recorded to the
extent of fees received. Fees received were subsequently included in the net
gain or loss on sale of mortgage loans. The cumulative effect of adopting SFAS
No. 133 for rate lock commitments as of July 1, 2002 was not material.

        In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement 123."
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value method of accounting for stock-based employee compensation. In
addition, this Statement amends disclosure requirements to require more
prominent disclosures about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results in both
annual and interim financial statements. SFAS No. 148 was effective for
financial statements for fiscal years ending after December 15, 2002. As
permitted by SFAS No. 148, Bancorp will continue to apply the provisions of APB
Opinion No. 25, "Accounting for Stock-Based Compensation," for all employee
stock option grants and has elected to disclose pro forma net income and
earnings per share amounts as if the fair-value based method had been applied in
measuring compensation costs.

        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.

        REGULATORY CAPITAL REQUIREMENTS. As of December 31, 2003, 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, 2003 was $25.5
million, or 12.3% of risk-weighted assets, compared to $20.8 million, or 10.0%
of risk-weighted assets to be classified as well-capitalized.


                                       24
<PAGE>

        The Bank's actual Tier 1 capital as of December 31, 2003 was $23.2
million, or 11.2% of risk-weighted assets, compared to $12.5 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, 2003 was $23.2
million, or 8.3% of adjusted assets of $280.7 million, compared to $14.0
million, or 5.0% of adjusted assets to be classified as well-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
$208.0 million as of December 31, 2003, which created a risk-based capital
requirement of $16.6 million for adequate capitalization.

        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
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. The Bank will remain a QTL if its qualified thrift
investments continue to equal or exceed 50% of the portfolio assets. As of
December 31, 2003, the Bank exceeded 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 convert to a different charter, such as a commercial bank charter.
Management believes that the chance of the Bank failing to maintain its QTL
status is remote in the next three years. However, if a


                                       25
<PAGE>

conversion is required due to further increases in the commercial loan
portfolio, Management expects the conversion will cause minimal impact on Bank
operations and financial statements.

        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, 2003, 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. FIRREA
adopts the restrictions of the Federal Reserve Act, specifically Sections 23A
and 23B, 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.

        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 is not aware of any 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


                                       26
<PAGE>

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, 2003, 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 $4.3 million in stock as
of December 31, 2003.

        The Bank's borrowings from the FHLB must be collateralized by loans in
the Bank's portfolio. Assets pledged by the Bank as collateral include permanent
one-to-four family whole mortgages loans, excluding mortgages of employees and
mortgages delinquent more than 60 days (see Borrowings), and other real estate
loans. The limitation on additional borrowings by the Bank at December 31, 2003
was $10.8 million, including $8.1 million available on the Bank's $10.0 million
line of credit.


                                       27
<PAGE>
<TABLE>
<CAPTION>

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

                                                                                                  December 31,
                                                                                                  ------------
Short-term advances                                                                    2003           2002            2001
                                                                                       ----           ----            ----
<S>                                                                                 <C>            <C>             <C>
     Line of credit, 1.11% at Dec. 31, 2003, 1.33% at Dec. 31, 2002                 $ 1,875,538    $ 1,671,907     $   -
     Fixed interest rate, matured February 23, 2002, 5.12% at Dec. 31, 2001              -              -           6,000,000
     Variable interest rate, matured March 3, 2003, 1.33% at Dec. 31, 2002               -           3,000,000         -
     Variable interest rate, matured June 16, 2003, 1.33% at Dec. 31, 2002               -           2,000,000         -
     Variable interest rate, maturing May 17, 2004, 1.11% at Dec. 31, 2003            4,000,000         -              -
                                                                                    ------------   ------------   ------------
          Total short-term advances                                                   5,875,538      6,671,907      6,000,000
                                                                                    ------------   ------------   ------------

Long-term advances
     7.18%; fixed rate, payment due at maturity on February 19, 2002                     -              -          10,000,000
     7.18%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on June 17, 2002                               -              -             526,472
     6.22%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on October 15, 2002                            -              -             765,814
     6.09%; fixed rate, payment due at maturity on December 19, 2002                     -              -           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                -              -              -
     6.09%; fixed rate, payment due at maturity on December 19, 2003                     -           3,700,000      3,700,000
     7.17%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on May 17, 2004 prepaid in 2003                -             515,121        645,506
     7.34%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on March 15, 2005                           3,537,269      5,821,641      8,079,672
     5.70%; payments due per "Mortgage Advance Principal
          Payment Schedule" with maturity on February 14, 2006                        5,391,863      6,672,727      8,159,399
     5.50%; fixed until February 19, 2003 with quarterly put option thereafter
          maturing 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     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      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     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     10,000,000         -
                                                                                    ------------   ------------   ------------
     Total long-term advances                                                        49,929,132     57,709,489     64,076,863
                                                                                    ------------   ------------   ------------

Total FHLB advances                                                                 $55,804,670    $64,381,396    $70,076,863
                                                                                    ============   ============   ============
</TABLE>

                                       28
<PAGE>

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

                               Payments On
                   Year         Long-Term
                  Ending        Advances
               ----------------------------
                   12/31/04   $  3,025,849
                   12/31/05      2,557,211
                   12/31/06      3,346,072
                   12/31/07       -
                   12/31/08     10,000,000
                 Thereafter     31,000,000
                            ---------------
                              $ 49,929,132
                            ===============


        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 27, 2004 Annual Meeting of stockholders is March 15, 2004. 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. No such filings
were delinquent for the year ending December 31, 2003.

        All filings are subject to review by the Securities and Exchange
Commission and filers are subject to potential civil, administrative, and
criminal liability, among other things, for any misrepresentations or omissions
of any material fact in their securities filings. Filers are also subject to
civil, administrative, and/or criminal liabilities of various types for failing
to comply


                                       29
<PAGE>

with other applicable securities laws and regulations.

        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 $312,000.

        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.


                                       30
<PAGE>

        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
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 insulate it from potential 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 completely insulate it from potential legal liability.

AVAILABLE INFORMATION

        The Company's Common Stock is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934 and the Company files reports with the SEC.
These reports include, among others, the annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and securities transaction
reports of directors, executive officers and certain other reporting persons on
Forms 3, 4, and 5.

        The public may read and copy any materials filed by the Company with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, NW., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. Filings of the Company can
also be obtained from the Company by contacting President Eric 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. 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


                                       31
<PAGE>

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.

        The Bank maintains a website at WWW.STURGISBANK.COM. On this site, a
link is provided to SEC's website that provides all filings of the Company. In
this way, the Company makes available reports, including the annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
securities transaction reports on Form 3, Form 4, and Form 5, and certain other
reports filed or furnished pursuant to the Exchange Act as soon as reasonably
practicable after it electronically files such material with, or furnishes it
to, the Securities and Exchange Commission.


                                       32
<PAGE>

                               ITEM 2. PROPERTIES

     The following table sets forth certain information regarding the Bank's
properties as of December 31, 2003. 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
                          Coldwater, MI  49036                                Battle 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. Acquired
                          Three Rivers, MI  49093                             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, 2003, the net book value of all of the Bank's
offices, including land, buildings, furniture, fixtures and equipment, including
data processing equipment, was $6.5 million. Each of the properties is in good
condition.


                                       33
<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 2003, 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 2003 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 through December 31, 2003.

               Date of       Number of    Exercise
                Sale          Shares       Price              Name
          ------------------------------------------------------------------
               01/03/03         9,000      $ 4.35        Eishen, Leonard
                            ----------
                                9,000
                            ==========

        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). The exercise of the stock options was
timely reported in a Form 4 filed with the Securities and Exchange Commission
pursuant to Section 16 of the Securities Exchange Act.


                                       34
<PAGE>

                         ITEM 6. SELECTED FINANCIAL DATA

        The information contained in the section captioned "Selected Financial
Data" in the 2003 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
2003 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 2003 Annual Report to Stockholders is incorporated herein by
reference.

               ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements contained in the 2003 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 2003 Annual Meeting ratified the selection of
Plante & Moran, PLLC as independent public accountants for the year ending 2003.
Plante & Moran, PLLC has been the independent public accountants, pursuant to
stockholder approval, since 1999. There have been no disagreements on accounting
and financial disclosure matters with Plante & Moran, PLLC for the fiscal year
ending December 31, 2003.

                        ITEM 9.A. CONTROLS AND PROCEDURES

        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 Exchange Act Rule 13a-15. Based upon that evaluation,
the Company's Chief Executive Officer along with the Company's Chief Financial
Officer concluded that, as of the end of the period covered by this report, 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


                                       35
<PAGE>

could significantly affect these controls subsequent to the date the Company
performed its evaluation.

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 sections captioned "SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN OTHERS" and "PROPOSAL I--ELECTION OF
DIRECTORS" in the Company's Proxy Statement for the Company's 2003 Annual
Meeting of Stockholders is incorporated herein by reference (the "Proxy
Statement").

        The Company has adopted a Code of Ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer, as well as all directors, officers and employees of the Company. The
Code of Ethics was adopted during calendar year 2003 and a copy is attached as
an exhibit to this Form 10-K. To the extent the Company makes any amendments to
or any waivers of any provision of the Code of Ethics, it will disclose such
under Item 10 of Form 8-K.

        Our Board of Directors has determined that all members of the Audit
Committee are "independent" as that term is defined by NASDAQ. Our Board of
Directors has also determined that the Audit Committee does not have an "audit
committee financial expert" as that term is defined in the SEC regulations,
because our Board of Directors did not believe that any of the members of the
Audit Committee met the qualifications of an "audit committee financial expert."
However, our Board of Directors has determined that all of the members of the
Audit Committee are able to read and understand fundamental financial statements
within the meaning of the NASDAQ audit committee requirements and that at least
one of its members has the financial sophistication required by NASDAQ. Our
Board of Directors has determined that by satisfying the requirements of the
NASDAQ listing standards with a member of the Audit Committee that has the
requisite "financial sophistication" qualifications, our Audit Committee has the
financial expertise necessary to fulfill the duties and the obligations of the
Audit Committee. Our Board of Directors has concluded that the appointment of an
additional director to the Audit Committee is not necessary at this time.


                         ITEM 11. EXECUTIVE COMPENSATION

        The information contained under the sections captioned "PROPOSAL
I--ELECTION OF DIRECTORS" and "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS"
in the Proxy Statement are incorporated herein by reference.

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


                                       36
<PAGE>

        The information contained under the sections captioned "SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN OTHERS" and "PROPOSAL I--ELECTION OF
DIRECTORS" in the Proxy Statement are incorporated herein by reference.

        The following table provides information regarding options outstanding
at December 31, 2003 to purchase Bancorp's common stock, which have been granted
under equity compensation plans.

<TABLE>
<CAPTION>
------------------------------- ---------------------------- ----------------------------- ------------------------------------
                                                                                                  Number of securities
                                    Number of securities                                         remaining available for
                                     to be issued upon              Weighted-average           future issuance under equity
                                        exercise of                 exercise price of              compensation plans
                                    outstanding options,           outstanding options,           (excluding securities
                                     warrants and rights           warrants and rights           reflected in column (a))

        Plan Category                       (a)                          (b)                               (c)
------------------------------- ---------------------------- ----------------------------- ------------------------------------
<S>                                       <C>                          <C>                                  <C>
Equity compensation plans                 111,576                      $ 13.62                             -0-
approved by security holders
------------------------------- ---------------------------- ----------------------------- ------------------------------------
Equity compensation plans not
approved by security holders *              N/A                          N/A                               N/A
------------------------------- ---------------------------- ----------------------------- ------------------------------------

Total                                     111,576                      $ 13.62                             -0-
------------------------------- ---------------------------- ----------------------------- ------------------------------------
</TABLE>

        * - Bancorp has options outstanding under three expired option plans,
all of which were previously approved by stockholders.


             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.

                 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

        The information contained under the section captioned "Principal
Accounting Firm Fees" in the Proxy Statement is incorporated herein by
reference.

PART IV.

                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.


                                       37
<PAGE>

        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, 2003.

(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 Ronald W. Scheske (4)

              10.7          Employment Agreement with Steven L. Gage (4)

              10.8          Employment Agreement with Tracey L. Parker (4)

              10.9          Employment Agreement with David E. Watters (4)

              13.1          Annual Report to Stockholders

              14.1          Code of Ethics

              21            Subsidiaries of Registrant



                                       38
<PAGE>

              31.1          Certification of CEO Pursuant to Section 302 of the
                            Sarbanes- Oxley Act of 2002.

              31.2          Certification of CFO Pursuant to Section 302 of the
                            Sarbanes- Oxley Act of 2002.

              32.1          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.

              32.2          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.

              99.1          Audit Committee Charter


(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 September 30, 2003.



                                   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 25, 2004.



                                        Sturgis Bancorp, Inc.



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



                                       39
<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 25, 2004.


            Signature                                       Title



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



    /s/ Leonard L. Eishen
_________________________________                         Director
        Leonard L. Eishen



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



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



     /s/ Donald L. Frost
_________________________________                         Director
         Donald L. Frost



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



     /s/ Philip G. Ward
_________________________________                         Director
         Philip G. Ward



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



                                       40