1

                                  UNITED STATES
                       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, 2001
                                       OR
    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
           For the transition period from ____________ to ___________

                         Commission file number 0-16023

                            UNIVERSITY BANCORP, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                38-2929531
(State or other jurisdiction of     (I.R.S. Employer incorporation)
         Identification No.

959 Maiden Lane, Ann Arbor, Michigan                    48105
(Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code (734) 741-5858

Securities registered pursuant to section 12(b) of the Act: NONE Securities
registered pursuant to section 12(g) of the Act:
         Common Stock, par value $.010 per share

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
         Yes   X     No
     Indicate by check mark 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 definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

     The number of shares outstanding of the Registrant's Common Stock as of
March 22,2002: 3,752,501 shares. The aggregate market value of the voting stock
held by non-affiliates of the Registrant based on $0.73 per share, the average
bid and asked price for the Registrant's Common Stock on March 22, 2002, as
reported by NASDAQ, was approximately $686,315.

     * For purposes of this calculation shares of the Registrant held by
directors and officers of the Registrant and by other affiliates have been
excluded.

                               Page 1 of 87 pages
                 Exhibit index on sequentially numbered page 83




PART I.

Item 1. - Business

General

     University Bancorp, Inc. The Company is a Delaware corporation which
operates as a bank holding company for its wholly-owned subsidiary, University
Bank. The Company changed its name to `University Bancorp, Inc.' from `Newberry
Bancorp, Inc.' in 1996, in order to better identify itself with the Bank.

     University Bank. The Bank is a state chartered community bank. The Bank was
chartered by the state of Michigan in 1908 and began business in 1890. In 1994,
we sold the bank's offices in Newberry, Michigan and Sault Ste. Marie, Michigan.
As part of a non-compete agreement with the purchaser of the bank's offices, we
relocated the Bank's main office to the former offices of its mortgage operation
in Sault Ste. Marie, Michigan. In 1995, the Bank changed its name from `The
Newberry State Bank' to `University Bank' to more closely identify with its
current place of business, Ann Arbor, Michigan. Ann Arbor is a university town,
home to the University of Michigan and is the largest city in Washtenaw County,
just west of the Detroit Metropolitan Statistical Area. The Bank's primary
market area is defined as the City of Ann Arbor and surrounding areas in greater
Washtenaw County.

      Midwest Loan Services. In 1995, University Bank acquired 80% of the common
stock of Midwest Loan Services. Midwest specializes in the servicing and
subservicing of mortgage loans for various credit unions, financial institutions
and mortgage brokers. Most of their servicing and subservicing portfolio is
comprised of residential mortgage loans sold to Fannie Mae, Freddie Mac and
other private residential mortgage conduits.

     University Insurance & Investment Services. In 1996, University Bank
established an insurance and investment products sales agency. This subsidiary
of the Bank, called "University Insurance & Investment Services, Inc." (the
Agency) is based in the Bank's Ann Arbor office. The Agency is licensed by the
State of Michigan to sell insurance as agent for licensed insurance companies. A
d/b/a of the Agency, University Insurance Center, commenced business in 1999,
adding a full service property and casualty insurance agency offering insurance
for homes, autos, apartments and businesses in addition to the original products
which included life and health care insurance, annuities and mutual fund sales.
Employees of the Agency are also licensed to sell investment products such as
annuities and mutual funds, and the President of the Bank, who is also Chairman
of the Agency, also offers broker-dealer investment services including money
management through a clearing arrangement with Equitas America LLC and Pershing.

     Michigan BIDCO. In 1993, Stephen Lange Ranzini and Joseph Louis Ranzini
founded BIDCO, which is a Business and Industrial Development Company, called
Michigan BIDCO, Inc. The BIDCO is licensed by the Michigan Office of Financial
and Insurance Services under the State of Michigan BIDCO program. Michigan BIDCO
(formerly known as Northern Michigan BIDCO) invests in businesses in Michigan
with the objective of fostering job growth and economic development. As a result
of the recent buyout of the Bank's interest in the BIDCO, University Bancorp
currently owns 6.10% of the BIDCO. The Bank also holds $600,000 of 7.5%
cumulative preferred stock of the BIDCO.


     Northern Michigan Foundation. In 1995,Michigan BIDCO donated $225,000 to
capitalize Northern Michigan Foundation, and in 1996, donated an additional
$75,000 to the Foundation. The Foundation is an IRS-approved 501c(3) non-profit
which is an intermediary lender to rural small businesses under the U.S.
Department of Agriculture's Rural Economic Community Development Division's
Intermediary Re-lending Program. The Foundation has the right to borrow a total
of up to $2 million from the Intermediary Re-lending Program at 1% interest with
a 30-year term because of a $300,000 donation received from Michigan BIDCO.
Pursuant to a management services agreement with the BIDCO, the BIDCO and the
Foundation share administrative staffs and offices, with the Foundation
reimbursing the BIDCO for these management services.

     Varsity Funding. In 1995, University Bank established a mortgage-banking
subsidiary, Varsity Funding, L.L.C. to specialize in the purchase and
origination of impaired credit, or sub-prime quality, residential mortgages, for
sale to non-U.S. government agency-backed mortgage conduits. In 1999, this
subsidiary was sold to another financial institution and is no longer included
with the current operations of the Bank.

     Varsity Mortgage. In 1996, University Bank established Varsity Mortgage,
L.L.C. to purchase residential home loans which generally qualify for sale to
secondary market investors under the underwriting criteria of the Federal Home
Loan Mortgage Corporation and Federal National Mortgage Association from
correspondents in Michigan and in adjacent states. In 1999, this subsidiary was
sold to another financial institution and is no longer included with the current
operations of the Bank.

Employees

     The Company employed 69 full-time equivalents as of March 22, 2002:

                  University Bank, Ann Arbor                28
                  Midwest Loan Services                     35
                  University Insurance & Investment          2

Properties

     The Bank owns a building in Ann Arbor, Michigan that is the Bank's main
office.

     The Bank leases a site that includes a registered historic building in Ann
Arbor, at the corner of Washtenaw Avenue and Stadium Boulevard as a multiple ATM
drive-through location, a BIDCO office and an off-site storage facility. The
minimum lease period ends May 2006 with two optional five-year extensions.

     The Bank leases an ATM location with an adjacent meeting room in Dexter,
Michigan under a month-to-month lease. Additionally, the Bank leases space for
another ATM at a location in Ann Arbor near the University of Michigan Campus.
The minimum period of this lease ends December 2005.

     The Bank owns a former loan office in Sault Ste. Marie and such space is
leased to an unrelated third-party. Management is in negotiations to sell this
property.


     Midwest Loan Services leases an office in Houghton, Michigan under a
year-to-year lease.

     The Company believes that the office facilities are adequate to support the
anticipated level of future expansion of business.


Lines of Business

Deposit Products & Services

     University Bank offers traditional retail savings products and services to
its customers. These include demand deposit and NOW interest-bearing checking
accounts, money market deposit accounts, regular savings accounts and term
deposit certificates ranging in maturity from three to three hundred months. The
Bank also offers self-directed retirement accounts, free access to 24-Hour ATM
machines, telephone banking, VISA debit cards and Gold VISA accounts. The Bank
is also a member of MasterCard, but currently is not offering a MasterCard
product. From time to time to raise liquidity, the Bank relies on brokers to
sell CDs. At December 31, 2001, the Bank had approximately $11.0 million in CDs
issued through brokers.
Lending Products

     University Bank offers a range of traditional lending products, including
commercial small business loans, residential real estate mortgage loans, home
equity loans, commercial real estate mortgage loans, consumer installment loans,
and land development and construction loans.

Classifications of the loan portfolio as of December 31, 2001 are as follows:

                                       Amount Outstanding(1)        % of Total
    Commercial, Real Estate & Other             $15,088,956             43.1%
    Residential Construction                      2,683,594              7.7%
    Residential Real estate                      11,738,595             33.5%
    Residential Home equity                       4,805,407             13.7%
    Consumer                                        628,526              1.8%
    Credit Card                                      80,946              0.2%
    Gross Loans                                 $ 35,026,024            100.0%

(1) - Excludes loans held for sale.

     The Bank's loan portfolio is geographically concentrated in Ann Arbor and
Washtenaw County, Michigan. The ability of individual loan customers to honor
their debts is partially dependent on the local economy. The Ann Arbor area is
primarily dependent on the education, healthcare, services, and manufacturing
(automotive and other) industries.

     Most of the Bank's commercial loans are secured by commercial real estate.
Commercial real estate loans have a loan to value ratio typically less than 80%
at the time the loan is originated. In no cases is the loan to value ratio for
commercial real estate loans greater than 85% (except for one SBA guaranteed
loan which had a 90% loan to value ratio at the time of origination). The
primary risk of commercial loans is that the area's economy declines and rents

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decrease while vacancy increases, thereby decreasing the value of the building.
If the guarantor suffers a financial reverse, the Bank is then exposed to a
loss.

     Residential loans typically have a loan to value ratio less than 80% at the
time the loan is originated, unless the borrower's financial position is very
strong, in which case a loan to value ratio of up to 90% is considered. To meet
the Bank's goals for first time homebuyers, the Bank has originated a portfolio
of 97% loan to value residential loans totaling about $3 million, although real
estate prices in Washtenaw County where these loans were originated have been
rising at 10-12% per year for two years in a row, and most of these loans were
originated in 1998 and 1999. Home equity secured residential loans have loan to
value ratios of less than 90% at time of origination in the case of fixed rate
fully-amortizing loans and 80% for home equity lines of credit. The primary risk
of residential lending is that home prices drop (typically this occurs during
recessions) and borrowers walk away from their home or file for bankruptcy. All
of the Bank's construction loans, are secured by residential properties with a
loan to value ratio of 80% or less. The Bank controls the risk of construction
lending by performing inspections prior to disbursing interim construction funds
to avoid cost overruns.

     The Bank makes very few unsecured loans, typically for borrowers who are
multi-millionaires, but even in these cases, the Bank typically takes collateral
out of an abundance of caution. Most of the Bank's credit card loans are secured
by residential properties. Consumer loans are generally secured by vehicles
(primarily cars or trucks). The primary risk of these loans is that the value of
the car depreciates faster than the loan balance amortizes, and the borrower
loses their job or has a severe medical problem in their family. In these
circumstances, the collateral could be insufficient to repay the loan if the
borrower files for bankruptcy. In addition, if the economy is soft, used vehicle
prices tend to deteriorate creating additional risk of insufficient collateral
in the event of a default.

     The Bank makes very few business loans that are not secured by real estate.
Business Lines of Credit are typically made up to a 50% ratio of inventory and
other equipment at current market value, and 70% of current receivables.
Business Manager Loans are also structured as Lines of Credit and are secured by
individual receivables up to 90% of face value individually purchased with
recourse to the borrower and additional insurance to protect the bank against
fraud and bankruptcy of the issuer of the account which is receivable to the
borrower. The primary risk of this type of lending backed by non-real estate
business assets is that if the business suffers a financial reverse, the
collateral is easily dissipated by an unscrupulous borrower, causing the Bank a
loss. For this reason, the Bank de-emphasizes this type of lending.

     Typically with respect to all personal and residential loans, a ratio of
total debt payments to total income of all borrowers and guarantors less than
42% is required. With respect to commercial real estate and business loans, a
ratio of income to all debt payments of greater than 1.25x is required.
Therefore, the Bank typically has both income and asset backing to secure its
loans. However, there can always exist valid reasons to have exceptions to each
rule and the Bank's loan committee retains the power to take unusual
circumstances into account when evaluating each loan request versus the Bank's
policies. Loans that are lacking current demonstrated income are classified and
increased reserves are established for those loans. Loans that are lacking both



current demonstrated income and asset backing are allocated even higher reserves
equal to the amount estimated to be realized upon the sale of the collateral
less all estimated costs.

Mortgage Banking

     The Bank originates internally or via other financial institutions
residential home loans which generally qualify for sale to secondary market
investors under the underwriting criteria of the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association and the Government
National Mortgage Association. Loans purchased or originated internally are
either sold directly to FHLMC, FNMA or GNMA, or are pooled into mortgage-backed
securities and the securities are sold to investors in the secondary market.
With the exception of Midwest Loan Services, the Bank is currently selling the
servicing rights on all mortgages originated that are sold to the secondary
market. Some residential mortgages are held in the Bank's loan portfolio as an
investment.

     University Bank became a seller/servicer and began originating Federal Home
Loan Mortgage Corporation (FHLMC) insured mortgages in 1991 and became a
seller/servicer and began originating Federal National Mortgage Association
(FNMA) insured mortgages 1994. The Bank has also been approved as a
seller/servicer of Government National Mortgage Association (GNMA) mortgages for
many years but only began using our license in 1999 to originate and sell these
loans without retaining the servicing rights.

Mortgage Subservicing

     Mortgage servicing firms receive monthly payments from loan customers,
aggregate and account for these payments, and send the funds to mortgage-backed
securities holders, including pension funds and financial institutions. For some
mortgage customers, escrow funds are also accumulated, and funds sent to taxing
authorities and insurance companies as needed. Mortgage servicers also dun
delinquent accounts and foreclose loans, if required. Mortgage servicers receive
a fixed monthly fee for performing this service. When these services are
performed for the Bank, it is called `servicing'. When these services are
performed for other institutions, it is called `subservicing'. The Bank's
80%-owned subsidiary, Midwest Loan Services, specializes in subservicing
residential mortgage loans sold to FNMA and FHLMC and other non-agency private
conduits for the account of credit unions, other financial institutions and
mortgage brokers. Midwest is licensed and regulated by FHLMC and FNMA.

Investment Securities

     The Bank maintains surplus available funds in investments consisting of
short-term money market instruments, U.S. government bonds, U.S. federal agency
obligations, mortgage-backed securities backed by federal agency obligations and
obligations of local units of government. These investments are managed by the
Bank's President, who is a licensed Registered Representative, and purchase/sale
decisions are subject to the review and approval of the Board of Directors. The
securities portfolio provides a source of liquidity to meet Bank operating
needs. At December 31, 2001, the portfolio had a net unrealized loss of
approximately $167,000 versus a net unrealized loss of $335,000 at December 31,



2000, and $585,000 at December 31, 1999.

     Information regarding securities where cost exceeded more than 10% of the
Company's stockholders' equity at December 31, 2001 are as follows:

Issuer ............. Coupon  Yield  Final Maturity  Market Value Amortized Cost
FHLBI equity (1) ...   VAR    6.75%       None       $  848,400   $  848,400
FNMA CMO 93-205H (2)   PO     4.15%     9/25/23       1,835,646    1,947,252
US Treasury Strip ..   PO     5.19%     5/15/16         423,100      478,836

     (1) The rate varies quarterly. The Bank is required to maintain the
investment in Federal Home Loan Bank of Indianapolis common stock in an amount
related to the Bank's single family mortgage related assets and FHLBI advances.
Shares can be redeemed or sold at par value to the FHLBI as required from time
to time.

     (2) This Principal Only strip has an expected average life of less than
five years. The increase in market value is due to interest rate fluctuations
which have shortened the average life of the instrument. Accrued net interest
income on this zero coupon bond was increased in 2001 to reflect the decreased
average life. The bond is rated AAA.

Merchant Banking (Michigan BIDCO & Northern Michigan Foundation)

     Michigan BIDCO. Initially, Michigan BIDCO made both loans and direct equity
investments but now focuses typically on loans that are fully collateralized
with equity participation upside. As a matter of policy, University Bank
restricts itself from investing or lending to a business that the BIDCO
finances, and related parties which co-invest with BIDCO must do so on a basis
equal to or less favorable than BIDCO's. BIDCO has a loan to one borrower limit
of $500,000, but sells participations and/or seeks loan guarantees from
government agencies for larger financings. As of December 31, 2001,
approximately $16.5 million in loans and/or investments (at original cost) had
been made to various types of businesses in the state of Michigan.

     Michigan BIDCO (BIDCO) was founded in 1993 and is licensed by the Michigan
Office of Financial and Insurance Services under the State of Michigan BIDCO
Act. In 1993, BIDCO received $3 million in financing from the Michigan Strategic
Fund (MSF). This investment was made in the form of a 10-year loan, which
carried concessionary terms allowing it to be converted to a grant over time
under certain circumstances. BIDCO earned job and sales credits to be applied
against the principal and interest owed to the Michigan Strategic Fund. Credits
were earned from the growth of businesses invested in by BIDCO. The loan has
been fully repaid from these credits.

     In 1993, Michigan BIDCO issued $3,000,000 in 9% senior convertible bonds to
match the State of Michigan's commitment. University Bancorp purchased $27,000
in bonds and the Bank contributed $280,000 for 280 shares of Michigan BIDCO
stock. This represented a 44.1% interest in Michigan BIDCO. The financial
results of Michigan BIDCO were accounted for under the equity method of
accounting until March 1999. In April 1999, $1,850,000 of Michigan BIDCO bonds
were repurchased by the BIDCO, and University Bancorp converted its $27,000 of
bonds into common stock, thereby increasing the Bank's equity ownership to
80.1%. Effective April 1999, Michigan BIDCO's financial results became
consolidated into the results of University Bancorp. The remaining Michigan
BIDCO bonds were converted into common stock on May 31, 2000, and thus diluted
University Bancorp's equity ownership down to 28.8%. In December 2001, BIDCO

<PAGE>

repurchased all of the Bank's 280 shares of BIDCO for an amount equal to the
Bank's carrying cost in exchange for cash and $600,000 of 7.5% cumulative
preferred stock. At December 31, 2001, University Bancorp's equity ownership was
6.10%. As a result of the reduction in ownership, the BIDCO is no longer
consolidated in the financial statements of University Bancorp. Subsequent to
May 31, 2000 the investment has been accounted for under the equity method of
accounting. As a result of its investment in Michigan BIDCO, the Bank made a
total profit of $1,243,464 on its $280,000 investment.

     The financial statements of BIDCO are presented using the investment
company method, and, accordingly, BIDCO's investments in stocks, stock rights,
limited liability companies and loans are reported at fair value. BIDCO
typically invests in companies for which current market quotations are not
readily available; therefore we estimate the fair value of BIDCO investments on
a quarterly basis and the Board of Directors approves the fair value estimates.
In deriving its estimates, BIDCO management reviews the financial condition and
operating performance of investee companies, as well as performance of the
company with its contractual arrangements with BIDCO. BIDCO management estimates
the fair value of investments by using cash flow multiples applicable to a
company's industry, discounted cash flow analyses, and other valuation
techniques. The Company believes the procedures used and assumptions made are
reasonable in the circumstances; however, the fair value estimates may differ
significantly from the values that would have been used had current market
quotations been available.

     The Company's profit (loss) from the investment in BIDCO was $(114,551)
$234,740, and $916,991 for the years ended December 31, 2001, 2000, and 1999,
respectively.

     Northern Michigan Foundation. BIDCO management operates a 501(c)3
tax-exempt non-profit re-lending organization, Northern Michigan Foundation
under a management contract. The Foundation has received the right to borrow $2
million at 1% interest for 30-years from the U.S. Department of Agriculture
(USDA) Rural Intermediary Relending Program. The Foundation is one of the
non-profit, privately-run, USDA Intermediary Relending Programs in northern
Michigan. Each of these community development loan funds covers six counties as
its primary market area. The Foundation makes loans that are fully
collateralized, but assumes more credit risk in a typical investment than
commercial banks generally are willing to take when they make loans. No equity
participation is sought or retained.

     The Foundation recently applied to take on an additional six counties along
with a $2 million 1% interest 30-year loan from another Rural Intermediary that
wishes to discontinue its program. There is no guarantee that USDA will approve
the transfer or that the Foundation will be able to meet the USDA's requirements
to add the additional counties.

Competition

Community Banking, Ann Arbor

     The attraction and retention of deposits depend on the Bank's ability to
provide investment opportunities that satisfy the requirements of investors with
respect to rate of return, liquidity, risk and other factors. The Bank competes
for these deposits by offering personal service and attention, fair and
competitive rates, low fees, and a variety of savings programs including
tax-deferred retirement programs.

     The Bank competes for loan originations primarily through the quality of



services provided to the loan customers, competitive interest rates and
reasonable loan fees, rapid and local decision-making and the range of services
offered. Competition in originating loans comes principally from other
commercial banks, credit unions, insurance companies, mortgage banking companies
and savings and loans.

     The following table shows market share of deposits for Washtenaw County by
financial institution for June 2001, June 2000 and June 1999, respectively from
the FDIC and National Credit Union Association's annual branch deposit survey.

Washtenaw County Financial Institution Deposits:

                                           2001           2000           1999
TCF National Bank .................          16.2%          16.5%          17.8%
National City Bank ................          11.9%          12.8%          12.8%
Comerica Bank .....................          11.9%          11.6%          10.7%
Bank One ..........................           9.4%          10.5%          11.1%
Key Bank ..........................           7.2%           8.0%           7.3%
Standard Federal FSB ..............           6.2%           6.5%           6.7%
Flagstar Bank FSB .................           5.1%           4.9%           4.0%
Ann Arbor Commerce Bank ...........           4.9%           4.9%           4.5%
University of Michigan CU .........           4.2%           3.9%           3.5%
Bank of Ann Arbor .................           3.9%           3.5%           2.8%
Chelsea State Bank ................           3.1%           3.5%           3.3%
Huron River Area CU ...............           3.1%           3.1%           3.0%
Citizens Bank .....................           2.8%           3.0%           3.2%
Midwest Financial CU ..............           2.1%           2.1%           2.0%
Republic Bank .....................           2.3%           1.9%           2.3%
United Bank & Trust ...............           1.3%           1.1%           0.9%
University Bank ...................           0.9%           0.9%           0.9%
Charter One FSB ...................           0.7%           0.7%           0.7%
Other institutions ................           2.8%           0.6%           2.6%

Total deposits (in billions) ......         $4.342          $3.942        $3.865

     Total deposits in the county increased 10.2% from June 2000 to June 2001.
Total deposits in the county increased 2.0% from June 1999 to June 2000. In
attracting deposits, the Bank's primary competitors for deposits are mutual
funds, other commercial banks, credit unions, savings and loans and insurance
companies.

     The Bank's main office is adjacent to the University of Michigan Hospital
complex. The complex employs a total of 7,800 persons. In February 1999, the
nearest competitor to the Bank's main office, a National City Bank branch, was
permanently closed. While the Bank competes with all of these financial
institutions for loans and deposits and in particular the eight financial
institutions that have branch offices in the northeast Ann Arbor market area,
the other major competitor in the immediate local deposit market near the
Medical Center complex is Midwest Financial Credit Union, formerly known as
Hospital & Health Services Credit Union. The Bank's main office was formerly the
headquarters of this credit union, which moved its office to a new office
building three miles from the Medical Center Complex.

     The Ann Arbor banking market is dominated by banks owned by out-of-state
holding companies. In the city of Ann Arbor, the University of Michigan Credit

<PAGE>

Union is the largest locally-owned financial institution. The only locally-owned
community financial institutions, excluding University Bank, are University of
Michigan Credit Union, Huron River Area Credit Union, Midwest Financial Credit
Union, Bank of Ann Arbor, Automotive Federal Credit Union and several smaller
credit union.

Mortgage Banking

     The Bank's retail mortgage origination operations encounter competition for
the origination of residential real estate loans primarily from savings
institutions, commercial banks, insurance companies and other mortgage banking
firms. Many of these firms have a well-established customer and/or borrower
client base. Some competitors, primarily savings institutions, insurance
companies and commercial banks, have the ability to create unique loan products
from time to time because they are able to hold the loans in their own portfolio
rather than sell into the secondary market. The Bank's ability to hold mortgage
loans in our portfolio helps us to compete more effectively. Most loans sold
into the secondary market, however, go to the same sources, those being FHLMC,
FNMA, and GNMA. Most lenders have access to these secondary market sources;
therefore, competition often becomes more a matter of service and pricing than
that of product. As a mortgage loan originator and a purchaser of mortgage loans
through correspondents, the Bank must be able to compete with respect to the
types of loan products offered by competitors to borrowers and correspondents,
including the price of the loan in terms of origination fees or fee premium or
discount, loan processing costs, interest rates, and the service provided by our
staff. An important element to competing is master purchase agreements
negotiated periodically with FNMA and FHLMC with low and competitive loan
guarantee fees, a wide variety of mortgage programs, and a variety of flexible
underwriting criteria. The Bank's ability to secure these master purchase
agreements is dependent upon the performance from a quality perspective of loans
previously sold to the agencies.

     During lower interest rate environments, competition for loans is less
intense due to the large number of loans available for origination. As interest
rates rise and the number of loans available for origination diminishes,
competition becomes quite intense and companies with larger investor bases,
flexibility with respect to type of product offered and greater experience in
dealing in these types of markets tend to be the most successful.

     The Bank also originates residential loans to be held in portfolio, and
management believes that this product together with the product offerings from
FHLMC, FNMA and GNMA are sufficient for the Bank. The Bank also is licensed as a
HUD Title 1 and Multifamily seller/servicer, but has no plans at this time to
expand utilization of HUD or GNMA programs.

     Mortgage Servicing and Subservicing. Servicing competition is somewhat less
intense than the loan origination aspect of mortgage banking. Due to net worth
and management requirements, many mortgage origination companies do not have the
capacity to service loans. Falling interest rates present competitive challenges
for the mortgage servicing operation in that mortgagors are more likely to
refinance existing mortgages. The quality of service and the ability of the
origination operation to compete on price and service is important in retaining
these customers by refinancing them internally, rather than losing the
refinancing transaction to a competitor. Increased refinancing activity as a
result of falling interest rates should decrease profitability of mortgage
servicing by increasing amortization charges on purchased mortgage servicing
rights.


     In the subservicing business, Midwest Loan Services competes primarily with
about 30 firms nationwide, including specialized subservicing units of mortgage
banking companies, and specialized firms owned by banks and savings and loans.
Most of these companies have substantially larger financial resources than
Midwest Loan Services, and some of them are located in rural areas with low
prevailing wages.

     Midwest Loan Services is located in Houghton, Michigan in the western upper
peninsula of Michigan. Personnel and occupancy costs are the largest costs in a
mortgage servicing operation, and the prevailing wages and occupancy costs in
the upper peninsula of Michigan are generally lower than the national average.
Midwest Loan Services has developed a unique business extranet website for its
business partners and their retail customers. Through its website at
www.subservice.com, Midwest Loan Services provides the opportunity for all
customers to access their mortgage information 24 hours a day 7 days a week in
an environment which provides seamless access to all information. Business
partners have access to all mortgage data as easily as if it were serviced on
their in-house computer system. Customers can access all information about their
accounts and perform any type of transaction through the internet. As a result
of low personnel costs, its internet technology and the relationships it has
developed in the credit union industry over time, the Company believes that
Midwest Loan Services' mortgage servicing operation has a competitive advantage.

Michigan BIDCO

     Michigan BIDCO makes loans that are fully collateralized with equity
participation upside. BIDCO assumes more credit risk in a typical investment
than commercial banks generally are willing to take when they make loans. BIDCO
also makes direct equity investments similar to the investments that venture
capital investors make. BIDCO seeks to invest in businesses located in Michigan.
The BIDCO's objective is to seek profit while fostering job and economic growth
in its market area. BIDCO competes with non-bank financial institutions, other
specialized lenders such as finance companies and receivable factoring
companies, and wealthy investors who make risk-oriented investments. There is
only one other active BIDCO in the state of Michigan. At year-end 2001, BIDCO
was fully invested. The source of funds for new loans will come from loan
payoffs or scheduled amortization of loans, or from additional pools of
investment capital. The BIDCO is investigating its options in this regard.

     Since 1996, the BIDCO has pursued a strategy of liquidating its existing
investment portfolio to raise cash for two purposes: 1) the buyout of some of
the investors in the BIDCO; and 2) expanding its funds under management through
other government agency economic development programs (Conifer Capital L.P. - a
small business investment company and Northern Michigan Foundation).

Northern Michigan Foundation

     Generally, when it makes loans the Foundation competes with other
specialized non-bank lenders and wealthy investors who make risk-oriented
investments in businesses located in northern Michigan. Each Rural Relending
Intermediary has a specific territory of six counties, and as a result they do
not compete with each other.
<PAGE>

Regulation

     Primary Regulators of University Bancorp. The Company is bank holding
company registered under the Federal Bank Holding Company Act of 1956. The
Federal Reserve Bank of Chicago is the Company's primary regulator and the
Company is subject to regulation, supervision and examination by the Federal
Reserve. The Company is required to file semi-annual reports with the Federal
Reserve and other information as required under the rules of the Board of
Governors of the Federal Reserve System. Additionally, the Federal Reserve Board
possesses enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations. Among these
powers is the ability to bar the payment of dividends by banks and bank holding
companies.

     Acquisitions. The Company is generally prohibited from engaging in a
non-banking activities since it is a bank holding company. The Company cannot
acquire more than 5% of the shares of another company engaged in non-banking
activities. The Company can only acquire direct or indirect control of more than
5% of the voting shares of a company engaged in a banking related activity with
the prior approval by the Federal Reserve Board to acquire these shares or by
regulatory exemption. The Federal Reserve Board has identified specific banking
related activities in which a bank holding company may engage with notice to the
Federal Reserve. The Federal Reserve considers managerial, capital, and other
financial factors, including the impact on local competition of any proposal and
past performance under the Community Reinvestment Act in acting on acquisition
or merger application. Bank holding companies may acquire other banks located in
any state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring company and all of its insured depository institution
affiliates.

     Commitments. In connection with obtaining the consent of the Federal
Reserve to a 1989 merger transaction when the Company obtained public listing on
the NASDAQ Small-Cap Market, certain commitments were made to the Federal
Reserve. Management agreed that the Employee Stock Ownership Plan would not
purchase more than 10% of the common stock or 5% of any other class of our
voting shares, without the prior approval of the Federal Reserve. Management
also agreed not to incur additional debt or to have the Bank pay dividends to us
without the prior approval of the Federal Reserve.

     Capital Requirements. The Federal Reserve Board imposes certain capital
requirements on the Company under the Federal Bank Holding Company Act,
including a minimum leverage ratio and a minimum ratio of "qualifying" capital
to risk-weighted assets. These requirements are described below under "Capital
Regulations". The Federal Reserve uses capital adequacy guidelines in its
examination and regulation of bank holding companies. If capital falls below
minimum guidelines, a bank holding company may, among other things, be denied
approval to acquire or establish additional banks or non-bank businesses. The
"prompt corrective action" provisions of federal law and regulation authorizes
the Federal Reserve to restrict the payment of dividends to us from an insured
bank which fails to meet specified capital levels.

     Source of Strength. In accordance with Federal Reserve Board policy, the
Company is expected to act as a source of financial strength to the Bank and to



commit resources to support the Bank in circumstances in which the Company may
not otherwise wish to do so. Under the Federal Bank Holding Company Act, the
Federal Reserve may require a bank holding company to terminate any activity or
relinquish control of a bank subsidiary if the agency determines that
divestiture may aid the depository institution's financial condition. In
addition, if the Commissioner deems our Bank's capital to be impaired, the
Commissioner may require the Bank to restore its capital by a special assessment
upon us as University Bank's sole stockholder. If the Company were to fail to
pay an assessment, the directors of the Bank would be required, under Michigan
law, to sell the shares of the Bank's stock owned by the Company to the highest
bidder at either a public or private auction and use the proceeds of the sale to
restore the Bank's capital.

     Financial Holding Companies. Beginning March 11, 2000, bank holding
companies may apply to become Financial Holding Companies. We have not applied
to become a Financial Holding Company. Financial Holding Companies may engage in
a wider range of non-banking activities than Bank Holding Companies, including
greater authority to engage in securities and insurance activities. The expanded
powers are available to a bank holding company only if the bank holding company
and its bank subsidiaries remain well-capitalized and well-managed. The new law
also imposes various restrictions on transactions between the depository
institution subsidiaries of bank holding companies and their non-bank
affiliates. These restrictions are intended to protect the depository
institutions from the risks of the new non-banking activities permitted to
affiliates.

     Primary Regulators of University Bank. The Bank is a Michigan banking
corporation and its deposit accounts are insured by the Bank Insurance Fund
(BIF) of the Federal Deposit Insurance Corporation (FDIC). As a
Michigan-chartered commercial bank, University Bank is subject to the
examination, supervision, reporting and enforcement powers of the Commissioner,
as the chartering authority for Michigan banks, and the FDIC, as administrator
of the BIF. These agencies and the federal and state laws applicable to the Bank
and its operations, extensively regulate various aspects of the banking business
including, among other things, reserves against loans, capital levels relative
to operations, lending activities and practices, collateral for loans,
establishment of branches, mergers, acquisitions and consolidations, payment of
dividends, internal controls, permissible types and amounts of loans,
investments and other activities, interest rates on loans and on deposits, and
the safety and soundness and scope of banking practices. As an insured bank,
University Bank is also required to file quarterly reports and other information
as required with the FDIC.

     All subsidiaries of University Bank including Midwest Loan Services and
University Insurance & Investment Services are all also subject to all
regulations applicable to University Bank itself, including regular on-site
examination by both the OFIS and the FDIC.

     Other Regulators. As a FHLMC, FNMA, and HUD Title 1 and Title 2 and HUD
multifamily seller/servicer, University Bank's mortgage banking operation is
subject to regulation and regular on-site examination by FHLMC, FNMA and HUD.

     Other Regulations. University Bank and its subsidiaries are also subject to
various regulations including:

o        the Community Reinvestment Act,
o        the federal Truth-in-Lending Act,
o        the Home Mortgage Disclosure Act,
o        the Equal Credit Opportunity Act,
o        the Fair Credit Reporting Act,
o        the Fair Debt Collection Act,
o        the Right to Privacy Act,
o        the Real Estate Settlement Procedures Act,
o        the Bank Secrecy Act,
o        the Electronic Funds Transfer Act,
o        Federal Reserve regulations,
o        state usury laws, and
o        federal laws concerning interest rates.

     Also, University Bank may not engage in any activity not authorized by the
Michigan Banking Code unless it is authorized by the Commissioner of the OFIS as
being closely related to banking.

     These laws and regulations are primarily intended to protect depositors and
the deposit insurance fund of the FDIC, not the Bank nor the Company's
stockholders. The following is a summary of certain statutes and regulations
affecting University Bank. The following information is qualified in its
entirety by reference to the particular statutory and regulatory provisions.

     Various changes to the Federal Deposit Insurance Act (FDIA) are currently
proposed in Congress. Any change in applicable laws, regulations or regulatory
policies of various governmental regulatory authorities may have a material
effect on the Company's business, operations and prospects. Those authorities
include, but are not limited to, the Board of Governors of the Federal Reserve
System, the FDIC, the Commissioner of the Michigan Office of Financial and
Insurance Services, the Internal Revenue Service, and state taxing authorities.
The Company is unable to predict the nature or extent of the effects that fiscal
or monetary policies, economic controls or new federal or state legislation may
have on future business and earnings.

     Deposit Insurance. As an FDIC-insured institution, the Bank is required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums, based upon
their respective levels of capital and results of supervisory evaluation. Banks
classified as well-capitalized, as defined by the FDIC, and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized, as defined by the FDIC, and considered to be of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.

     The Federal Deposit Insurance Act (FDIA) requires the FDIC to establish
assessment rates at levels which will maintain the Deposit Insurance Fund at a
mandated reserve ratio of not less than 1.25% of estimated insured deposits.

     The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound practices, or have
violated any applicable law, regulation, order, or any condition imposed in
writing by, or written agreement with, the FDIC, or if the institution is in an
unsafe or unsound condition to continue operations. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.

     Commissioner Assessments. Michigan banks are required to pay supervisory
fees to the Commissioner to fund the operations of the Commissioner. The amount
of supervisory fees paid by a bank is based upon the bank's total assets, as
reported to the Commissioner.

     FICO Assessments. Pursuant to federal legislation enacted in 1996,
University Bank, as a member of the BIF, is subject to assessments to cover the
payments on outstanding obligations of the Financing Corporation (FICO). FICO
was created in 1987 to finance the re-capitalization of the Federal Savings and
Loan Insurance Corporation, the predecessor to the FDIC's Savings Association
Insurance Fund (SAIF)which insures the deposits of thrift institutions. Between
January 1, 2000 and the maturity of the outstanding FICO obligations in 2019,
BIF members and SAIF members will share the cost of the interest on the FICO
bonds on a pro rata basis. It is estimated that FICO assessments during this
period will be less than 0.025% of deposits.

     Capital Regulations. The FDIC has established the following minimum capital
standards for state-chartered, FDIC-insured non-member banks, like University
Bank:

o        a leverage requirement consisting of a minimum ratio of Tier 1 capital
         to total assets of 3% for the most highly-rated banks with minimum
         requirements of 4% to 5% for all others;
o        and a risk-based capital requirement consisting of a minimum ratio of
         total capital to total risk-weighted assets of 8%, at least one-half of
         which must be Tier 1 capital.

     Tier 1 capital consists principally of stockholders' equity. These capital
requirements are minimum requirements. Higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual
institutions. For example, FDIC regulations provide that higher capital may be
required to take adequate account of, among other things, interest rate risk and
the risks posed by concentrations of credit, nontraditional activities or
securities trading activities.

     Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. Depending upon the capital category to which an institution is
assigned, the regulators' corrective powers include: requiring the submission of
a capital restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to issue additional capital stock,
including additional voting stock, or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution.

     In general, a depository institution may be reclassified to a lower
category than is indicated by its capital levels if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.

     The extent of the regulators' powers depends on whether the institution in
question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized." An
institution is critically undercapitalized if it has a tangible equity to total
assets ratio that is equal to or less than 2%. An institution is well
capitalized if it has a total risk-based capital ratio of 10% or greater, core
risk-based capital of 6% or greater, and a leverage ratio of 5% or greater, and
the institution is not subject to an order, written agreement, capital
directive, or prompt corrective action directive to meet and maintain a specific
capital level for any capital measure. An institution is adequately capitalized
if it has a total risk-based capital ratio of not less than 8%, a core
risk-based capital of not less than 4%, and a leverage ratio of not less than
4%.

     These capital guidelines can affect the Bank in several ways. Capital
levels are currently adequate, however, rapid growth, poor loan portfolio
performance, or poor earnings performance, or a combination of these factors,
could change our capital position in a relatively short period of time, making
an additional capital infusion necessary. In general, if the FDIC's assessment
of a Bank's financial and managerial strength changes negatively, the Bank's
cost of FDIC insurance will rise in subsequent semi-annual periods. A financial
institution may also be ordered to restrict its growth, dispose of certain
assets, rescind agreements or contracts, or take other actions as determined by
the ordering agency to be appropriate.

     Dividends. Under Michigan law, the Bank is restricted as to the maximum
amount of dividends it may pay on its common stock. The Bank may not pay
dividends except out of net profits after deducting its losses and bad debts.
The Bank may not declare or pay a dividend unless the Bank will have a surplus
amounting to at least 20% of its capital after the payment of the dividend. If
the Bank has a surplus less than the amount of its capital, it may not declare
or pay any dividend until an amount equal to at least 10% of net profits for the
preceding one-half year (in the case of quarterly or semi-annual dividends) or
full-year (in the case of annual dividends) has been transferred to surplus. The
Bank may not declare or pay any dividend until the cumulative dividends on
preferred stock have been paid in full.

     Federal law generally prohibits the Bank from making any capital
distribution, including payment of a dividend, or paying any management fee to
us if the Bank would thereafter be undercapitalized. The FDIC may prevent the
Bank from paying dividends if the Bank is in default of payment of any
assessment due to the FDIC. In addition, the FDIC may prohibit the payment of
dividends by the Bank, if a payment is determined, by reason of the financial
condition of the Bank, to be an unsafe and unsound banking practice.

     Insider Transactions. The Bank is subject to certain restrictions imposed
by the Federal Reserve Act including any extensions of credit to us, investments
in our stock or other securities, and the acceptance of our stock as collateral
for loans. Certain limitations and reporting requirements are also placed on
extensions of credit by the Bank to its directors and officers, to our directors
and officers, to our principal stockholders, and to "related interests" of the
directors, officers and principal stockholders. In addition, federal law and
regulations may affect the terms upon which any person becoming one of our
directors or officers or one of our principal stockholders may obtain credit
from banks with which the Bank maintains a correspondent relationship.

     Safety and Soundness Standards. Federal banking agencies have adopted
guidelines to promote the safety and soundness of federally insured depository
institutions. These guidelines establish standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, asset quality and earnings.

     In general, the guidelines prescribe the goals to be achieved in each area,
and each institution is responsible for establishing its own procedures to
achieve those goals. If an institution fails to comply with any of the standards
set forth in the guidelines, the institution's primary federal regulator may
require the institution to submit a plan for achieving and maintaining
compliance. The preamble to the guidelines states that the agencies expect to
require a compliance plan from an institution whose failure to meet one or more
of the standards is of the severity that it could threaten the safe and sound
operation of the institution. Failure to submit an acceptable compliance plan,
or failure to adhere to a compliance plan that has been accepted by the
appropriate regulator, would constitute grounds for further enforcement action.

     State Bank Activities. Under federal law and FDIC regulations, FDIC-insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law, as implemented by FDIC
regulations, also prohibits FDIC-insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory capital requirements
and the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member. Impermissible investments
and activities must be divested or discontinued within certain time frames set
by the FDIC in accordance with federal law.

     Consumer Protection Laws. The Bank's business includes making a variety of
types of loans to individuals. In making these loans, the Bank is subject to
state usury and regulatory laws, and various federal statutes, including:

o        the Equal Credit Opportunity Act,
o        the Fair Credit Reporting Act,
o        the Truth in Lending Act,
o        the Real Estate Settlement Procedures Act, and
o        the Home Mortgage Disclosure Act.

     Regulations flowing from these laws prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs, and
regulate the mortgage loan servicing activities of Midwest Loan Services,
including the maintenance and operation of escrow accounts and the transfer of
mortgage loan servicing.

     In receiving deposits, the Bank is subject to extensive regulation under
State and federal law and regulations, including:

o        the Truth in Savings Act,
o        the Expedited Funds Availability Act,
o        the Bank Secrecy Act,
o        the Electronic Funds Transfer Act and
o        the Federal Deposit Insurance Act.

     Violation of these laws could result in the imposition of significant
damages and fines upon the Bank and its directors and officers.

     Real Estate Lending Regulations. Federal regulators have adopted uniform
standards for appraisals of loans secured by real estate or made to finance
improvements to real estate. Banks are required to establish and maintain
written internal real estate lending policies consistent with safe and sound
banking practices and appropriate to the size of the institution and the nature
and scope of its operations. The regulations establish maximum loan to value
ratio limitations on real estate loans, which generally are equal to or greater
than the loan to value limitations established under the Bank's lending
policies.

     Branching Authority. Michigan banks, including University Bank, have
authority under Michigan law to establish branches anywhere in the State of
Michigan, subject to receipt of all required regulatory approvals, including
approval of the Commissioner and the FDIC. The Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of de novo interstate branches or the acquisition
of individual branches of a bank in another state, rather than the acquisition
of an out-of-state bank in its entirety, is allowed only if specifically
authorized by state law.

     The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
allowed individual states to "opt-out" of interstate branching authority by
enacting appropriate legislation prior to June 1, 1997. Michigan did not opt
out, and now permits both U.S. and non-U.S. banks to establish branch offices in
Michigan. The Michigan Banking Code permits the following in appropriate
circumstances and with the approval of the Commissioner:

o        acquisition of all or substantially all of the assets of a
         Michigan-chartered bank by an FDIC-insured bank, savings bank, or
         savings and loan association located in another state;
o        acquisition by a Michigan-chartered bank of all or substantially all
         of the assets of an FDIC-insured bank, savings bank or savings and
         loan association located in another state;
o        consolidation of one or more Michigan-chartered banks and FDIC-insured
         banks, savings banks or savings and loan associations located in other
         states having laws permitting this consolidation, with the resulting
         organization chartered by Michigan;
o        establishment by a foreign bank, which has not previously designated
         any other state as its home state under the International Banking Act
         of 1978, of branches located in Michigan;
o        establishment or acquisition of branches in Michigan by FDIC-insured
         banks located in other states, the District of Columbia or U.S.
         territories or protectorates having laws permitting Michigan-chartered
         banks to establish branches in these jurisdictions.

     Further, the Michigan Banking Code permits the following, upon written
notice to the Commissioner:

o        acquisition by a Michigan-chartered bank of one or more branches, not
         comprising all or substantially all of the assets, of an FDIC-insured
         bank, savings bank or savings and loan association located in another
         state, the District of Columbia, or a U.S. territory or protectorate;
o        establishment by Michigan-chartered banks of branches located in other
         states, the District of Columbia, or U.S. territories or protectorates;
         and
o        consolidation of one or more Michigan-chartered banks and FDIC-insured
         banks, savings banks or savings and loan associations located in other
         states, with the resulting organization chartered by one of the other
         states.

     Primary Regulators for Michigan BIDCO. BIDCO is regulated and supervised by
the Michigan Department of Commerce, Office of Financial and Insurance Services,
Bank & Trust Division. BIDCO is examined annually by the Bank & Trust Division,
and is required to make annual filings of financial statements, to maintain a
license from the Bureau and to operate under strict rules on transactions with
affiliates. Licensing under the terms of the Michigan BIDCO Act conveys certain
exemptions upon BIDCO under Michigan law which are beneficial to the operations
and investment flexibility of the BIDCO. Most importantly, BIDCO is partially
exempt from the state's usury law. As a result, BIDCO can lend money and take
equity participation in the firm it lends to, with the result that BIDCO's
overall combined yield on the investment and loan can exceed the state's usury
limit. The amount of BIDCO's return from the equity participation or contingent
payments is excluded from the calculation to determine compliance with the
state's usury limits.

     Primary Regulator of Midwest Loan Services. Midwest is an approved
seller/servicer of single family mortgage loans for FNMA, FHLMC and HUD Title II
(GNMA), and is subject to their rules, regulations and examinations.

     Primary Regulator of University Insurance & Investment Services. University
Insurance & Investment Services is licensed by the State of Michigan's Office of
Financial and Insurance Services, Insurance Division as both a life and health
and a property casualty insurance agency, and is subject to their rules,
regulations and examinations. University Insurance & Investment Services also
sells broker-dealer investment products and it and its licensed employees are
subject to the rules, regulations and examinations of the National Association
of Securities Dealers, and the Securities & Exchange Commission.



Item 3. - Legal Proceedings

         We are not currently involved in any material pending legal disputes.

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

         Not applicable.



<PAGE>


PART II.

Item 5. - Market for Registrant's Common Equity and Related Stockholder Matters

Common Stock and Dividend Information

     Our common stock trades on the NASDAQ Small-Cap Market under the symbol
UNIB. The high and low sales prices of our common stock as quoted by NASDAQ, for
each quarter since January 1, 1999 are listed below:

                                        High               Low
1999
First Quarter                           $3  3/8            $2  1/8
Second Quarter                           4  3/16            2
Third Quarter                            3  1/2             2  9/16
Fourth Quarter                           2  3/4             1  1/4

2000
First Quarter                           $2  5/8            $1  3/4
Second Quarter                           1  7/8             1
Third Quarter                            2  1/16            0  1/4
Fourth Quarter                           3  1/2             0  1/2

2001
First Quarter                           $2  1/2            $0  1/2
Second Quarter                           2  1/8             1  1/2
Third Quarter                            2  61/64           1  45/64
Fourth Quarter                           2  1/2             0  53/64

     These quotations represent inter-dealer prices, without retail markup,
markdown or commission, and may not represent actual transactions. As of the
March 26, 2002 we had approximately 375 stockholders including approximately 240
beneficial owners of shares held by brokerage firms or other institutions.

     We effected a three for two stock split of our common stock (effected as a
stock dividend) in February 1998. All per share and number of share amounts in
this report are adjusted to reflect the stock split. No cash dividends have been
paid on our common stock. We do not currently anticipate declaring or paying
dividends.

Certain Sales of Equity Securities

         Not applicable.



<PAGE>



Item 6. - Selected Financial Data
<TABLE>
<CAPTION>

                                                       University Bancorp, Inc.
                                            Selected Consolidated Financial and Other Data
                                             (Dollars in Thousands Except Per Share Data)

                                                          2001           2000            1999            1998            1997
Summary of operations (1)
<S>                                                     <C>            <C>             <C>             <C>             <C>
Interest income                                         $3,543         $3,315          $3,195          $3,544          $4,474
Interest expense                                         1,805          2,074           1,967           2,359           3,208
Net interest income                                      1,738          1,241           1,228           1,185           1,266
Provision for loan losses                                   40            111              93             110             260
Net interest income after
  provision for loan losses                              1,698          1,130           1,135           1,075           1,006
Net gain (loss) on securities                               13             18            (15)              98               8
Profit(loss)from investment in  Michigan BIDCO           (115)            235             917             128            (55)
Other non-interest income                                4,057          2,397           1,387           1,903           1,867
Non-interest expense                                     5,960          4,695           4,116           4,204           4,500
Income (loss) before tax                                                (915)           (692)         (1,000)         (1,674)
Income tax expense (benefit)                                 -              -              32           (199)           (293)
Net income (loss)from
  continuing operations                                  (307)          (915)           (724)           (801)         (1,381)
Net income (loss)                                        (307)          (915)           (915)           (198)         (1,118)

Selected Year End Balances
Total assets                                            45,623         47,671          40,823          54,536          57,529
Loans, net                                              34,447         35,644          30,580          23,193          27,715
Loans, held for sale                                     2,138            268             305          11,863          18,157
Cash, cash equivalents and
  investment securities                                  3,946          5,340           5,919          13,040           4,357
Deposits                                                40,198         38,179          32,051          43,220          45,267
Short-term borrowings                                       92          4,094           3,114             277               0
Long-term borrowings                                     1,658            926           2,627           1,196             923
Minority interest                                          305            283             506             205             201
Stockholders' equity                                     2,737          2,042           1,950           3,083           3,398

Per Share Data (2)
Common shares, year-end                                  3,753          2,028           2,013           1,989           1,984
Weighted avg shares, year-end                            2,278          2,027           1,994           1,991           1,922
Cash dividends                                               -              -               -               -               0
Net income (loss) from continuing operations           ($0.13)        ($0.45)         ($0.36)         ($0.40)         ($0.72)
Net income (loss)                                      ($0.13)        ($0.45)         ($0.46)         ($0.10)         ($0.58)
Book value of common shares                              $0.73          $0.65           $0.97           $1.55           $1.81

Selected Ratios
Net yield on earning assets                              4.37%          3.33%           3.14%           2.86%           2.69%
Return on average assets                               (0.67%)        (2.06%)         (1.92%)         (0.35%)         (1.76%)
Return on average equity                              (12.49%)       (53.56%)        (36.38%)         (6.22%)        (29.23%)
Average equity to avg. assets                            5.38%          3.84%           5.28%           5.79%           5.76%

     (1) Excludes results from discontinued operations.
     (2) Retroactively restated to reflect a 3 for 2 stock split in 1998.
</TABLE>


<PAGE>



Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations

     The purpose of the following discussion and analysis is to assist the
reader in understanding and evaluating the changes in financial position and
results of operations over the past several years. Investors should refer to the
consolidated financial statements, the related notes thereto, and statistical
information presented elsewhere in this report when reading this section of the
report.

     The cautionary statements described below are for the purpose of qualifying
for the "safe harbor" provisions of Section 21E of the Securities Exchange Act
of 1934.

                                  RISK FACTORS

     Our business involves a high degree of risk. You should carefully consider
the risks and uncertainties described below and the other information in this
report before deciding whether to invest in shares of our common stock. If any
of the following risks actually occur, our business, financial condition and
results of operations could be materially adversely affected. This could cause
the trading price of our common stock to decline, with the loss of all or part
of an investment in our common stock.

     Described below, are the material risks of investing in University
Bancorp's common stock. Investors should carefullyconsider these prior to
purchasing any shares.

If We Are Delisted From The NASDAQ Small-Cap Market the Marketability of Our
Shares Could Decrease

     NASDAQ has informed management that the Company's common stock would be
de-listed from the NASDAQ Small Cap Market if the market value of shares held by
non-insiders of the Company remains below $1,000,000 through May 15, 2002. As of
March 28, 2001, 940,158 shares of University Bancorp common stock were owned by
non-insiders of the Company. A floor bid price of $1.07 per share is needed to
meet the public float requirement of $1,000,000. As of March 28, 2002, the
current bid price was $0.65 per share of common stock. Also, NASDAQ has informed
management that the Company's common stock would be delisted from the NASDAQ
Small Cap Market if the bid price of the Company's common stock does not trade
at at least $1.00 per share for ten consecutive trading days prior to September
3, 2002. If the Company's common stock is de-listed from NASDAQ, the shares will
be less marketable in the future and there will be a smaller potential pool of
investors for the stock. This would significantly limit the ability of
shareholders deciding to sell their shares to do so. If the Company is
de-listed, the management of University Bancorp could opt to list its common
stock on the NASDAQ Bulletin Board.

You May Not Be Able To Sell Your Shares Upon Demand

     Although the Company's common stock is currently listed for trading on the
NASDAQ Small-Cap Market, the trading market for University Bancorp historically
has been less active than the average trading market for companies listed on the
exchange. In addition, the share price of University Bancorp has been volatile
and has ranged from $0.50 to $2.50 in the past 12 months. Factors such as the
limited number of shares outstanding held by the public, the lack of earnings
history and the absence of a reasonable expectation of dividends within the near
future mean that there might not be an active and liquid market for the
Company's common stock. Even if an active market develops, there can be no
assurance that a market will continue. Purchasers of the Company's common stock
should carefully consider the potentially illiquid and long-term nature of their
investment in the shares.

     The Company's Stock Is Controlled By Insiders Of The Company, Which May Not
Provide You With The Best Possible Return On Your Investment

     A majority of the shares outstanding are held by insiders of the Company.
The Ranzini Group (Mr. Joseph L. Ranzini, Mr. Stephen Lange Ranzini, Mrs.
Mildred Ranzini, the various Ranzini Family Trusts) beneficially owns 2,629,489,
or 68.6% of the issued and outstanding shares at March 22, 2002. These
individuals are able to exert a significant measure of control over University
Bancorp's affairs and policies. This control could be used, for example, to help
prevent an acquisition of University Bancorp, precluding shareholders from
possibly realizing any possible premium which may be offered for the common
stock by a potential acquirer.

Your Ownership Of The Company May Be Further Diluted If The Bank Requires
Additional Capital

     There can be no assurance that the Bank will not need additional capital in
the near future to support the Bank's growth or to counter operating losses.
Funds necessary to meet the Bank's working capital needs and to finance its
expansion might not be available. If additional equity securities are needed to
finance future expansion, such sale could result in significant dilution to the
existing shareholders.

University Bank Has Incurred Significant Start-up Losses And May Never Achieve
Profitability

     University Bank's operations were relocated to Ann Arbor in 1996.
University Bank has a history of losses and has incurred substantial operating
losses. Shareholders are subject to the risks inherent in starting a new
business. The Bank's profitability will depend primarily upon operations that
might never become profitable. Management of the Bank believes that as the size
of loan portfolio and retail deposits increase that the Bank should become
profitable, but there is no assurance that expenses will not rise at a faster
rate than expected as the Bank grows. There is no assurance that University Bank
will grow to a size that will enable it to become profitable. University Bancorp
had a consolidated net loss of $306,573 during 2001 and an accumulated deficit
of $2,205,444 at December 31, 2001.

The Small Size Of University Bank Limits Its Ability To Compete With Larger
Financial Institutions

     University Bank faces strong competition for deposits, loans and other
financial services from numerous Michigan and out-of-state banks, thrifts,
credit unions and other financial institutions. Some of the financial
institutions with which University Bank competes with are not subject to the
same degree of regulation as University Bank is. Many of these financial
institutions aggressively compete for business in the Ann Arbor area. Most of
the Bank's competitors have been in business for many years, have established
customer bases, have numerous branches, have substantially higher lending
limits, and offer certain services that we do not provide. The dominant
competitors in the Ann Arbor area are Great Lakes Bank, National City Bank,
Comerica Bank, Bank One, Key Bank and Republic Bank. There can be no assurance
that University Bank will be able to compete effectively with these competitors
unless it can continue to grow its operations.

The Year Ended December 31, 2001 Compared to the Years Ended December 31, 2000
and 1999

Summary of Results of Operations

     The Company's net loss from continuing operations was $306,573 in 2001,
$914,647 in 2000 and $723,725 in 1999. Earnings (loss) per share from continuing
operations for 2001, 2000 and 1999 were $(0.13), $(0.45) and $(0.36),
respectively. Including both continuing operations and discontinued operations,
our net loss was $306,573 in 2001, $914,647 in 2000 and $915,480 in 1999.

     The Operations of the Company showed significant progress in 2001 as
compared to 2000. The net loss was reduced by $608,074 to $306,573 in 2001 from
$914,647 in 2000. The Company benefited from the declining interest rates in
2001 and increased its net interest margin by $497,242 over the previous year.
Other income rose by $1,305,081. The operations of Midwest Loan Services
contributed significantly to this category as their loan servicing and mortgage
origination activity exceeded the prior year. The increase in income was offset
partially by an increase in the Company's other expenses. Other expense
increased by $1,265,249 from 2000. Increased salary and benefits at Midwest
accounted of the majority of the rise in other expense. Midwest hired additional
personnel in 2001 to manage the higher levels of loan servicing and origination.

     Barring four sizeable non-recurring items, both University Bancorp and the
Bank would have made a profit for the entire 2001 year. Those non-recurring
items were:

Midwest Servicing Rights Valuation ..................         $224,175 (Bank)
Foreclosed Real Estate Valuation ....................         $ 66,829 (Bank)
Non-cash Stock Compensation .........................         $ 31,200 (Bank)
BIDCO Loss ..........................................         $114,551 (Bancorp)

The following non-recurring items negatively impacted the Bank's result:

     1) Midwest Servicing Rights Valuation. The Bank's Midwest Loan Services
subsidiary took a writedown on its servicing rights of $224,175 because long
term rates temporarily dipped to 40-year lows immediately following the
terrorist attacks in September (once written down the servicing rights cannot be
written up under Generally Accepted Accounting Principles even though long term
rates did subsequently rise). The write-down reduced Midwest's basis in
servicing rights to $489,770 from $713,935. The risk in the remaining rights is
effectively offset by a principal-only mortgage-backed security investment that
increased income during 2001 by $120,385;
     2) Foreclosed Real Estate Valuation. In early 2001, management engaged an
experienced real estate company to develop an other real estate owned site
carried on the Bank's books. During 2001, the Bank wrote-down its investment in
this property to $200,000, incurring a $66,829 loss. Substantially all approvals
for the proposed development have been received and the Bank anticipates closing
on the sale of the property by mid-Summer 2002 at the contracted price of
$300,015. This site is the only foreclosed real estate currently owned by the
Bank.
     3) Stock Compensation Expense. The Bank expensed $31,200 in non-cash
compensation expense related to an incentive we provided as a hiring bonus to a
new executive officer in 2001.

     The total of these non-recurring items is $322,194. Without these items,
the Bank's income would have been $136,876 in 2001.

     4) BIDCO Loss. In addition, the bank holding company took a write-down on
its investment in Michigan BIDCO of $114,551 to $29,152 as a result of several
factors including the writedown of one investment, and research and development
expense related to two e-payment patents that were applied for during the year.
The Bank's investment in the BIDCO is now $600,000 in 7.5% cumulative preferred
stock. The Bank realized no income from its equity investment in the BIDCO in
2001 (although a capital restructuring of the BIDCO reduced the Bank's
investment in the BIDCO by $600,227). Management estimates that the BIDCO
preferred stock dividends and ultimate redemption of the preferred stock should
increase the Bank's income in 2002 and subsequent years by $45,000.

     Including both continuing operations and discontinued operations, the loss
in 2000 was similar in amount to the loss in 1999, however, the losses flowed
from primarily different causes. Results in 2000 were negatively impacted by a
decrease in the contribution to profit by Michigan BIDCO in 2000 from $916,991
to $234,740, goodwill amortization of $139,412 related to an earn-out payment
related to the acquisition of Midwest Loan Services, legal expense related to
the successful defense of a lawsuit related to the sale of Varsity Mortgage of
approximately $60,000, and unusually high external auditor expenses of over
$300,000. These negative developments in 2000 overwhelmed the underlying profit
improvement at the community banking operation and the increased profits at
Midwest Loan Services. As a result of the trend toward improved underlying
operating results, University Bank had a profit in four of the last six months
of 2000. Results in 1999 were negatively impacted by losses at discontinued
operations of $191,755, losses caused by an adverse judgment in a lawsuit
totaling $192,000, losses at the community banking operation, and only
break-even results at Midwest Loan Services, which were only partially offset by
a record contribution from Michigan BIDCO of $916,991.

     The following table summarizes the pre-tax income (loss) of each profit
center of the Company for the years ended December 31, 2001 and 2000 (in
thousands):

Twelve months ended December 31, 2001 and 2000 Pre-tax Income (Loss) Summary:

                                                           2001            2000
Community Banking ..............................        $  (414)        $(1,314)
Midwest Loan Services ..........................            237             436
Merchant Banking (Michigan BIDCO) ..............           (115)            235
Corporate Office ...............................            (15)           (272)
                                                           -----           -----
Total ..........................................        $  (307)        $  (915)
                                                           =====           =====
Net Interest Income

     Net interest income represents the dollar amount by which interest income
generated by interest-earning assets exceeds the cost of funds. Interest-earning
assets consist primarily of loans, short term investments and investment
securities, and the principal cost of funds is the interest paid on deposit
accounts and other borrowings. Net interest income is affected by (i) the
difference between the average rate of interest earned on the Bank's
interest-earning assets and the average rate paid on its interest-bearing
liabilities ("interest rate spread") and (ii) the relative amounts of its
average interest-earning assets and interest-bearing liabilities. In order to
maintain and increase earnings during periods of fluctuating interest rates, it
is imperative that interest-earning assets and interest-bearing liabilities be
managed effectively. Trends in net interest income provide a measure of the
effectiveness by which a financial institution manages its interest rate
sensitivity.

     The following tables present for the average balances, the interest earned
or paid, and the weighted average yield for the period indicated.
<TABLE>
<CAPTION>
                                                                              At
                                                                       ---------------------------------------------------
                                                           31-Dec-01                          2001
                                                        ------------------------------------------------------------------
                                                            Average         Average           Interest         Average
                                                             Yield          Balance           Inc(Exp)          Yield
                                                        ------------------------------------------------------------------

Interest Earning Assets:
<S>                                                          <C>             <C>                <C>                 <C>
          Commercial Loans                                   7.90%           $16,111,575        $1,495,597          9.28%
          Real Estate Loans (1)                              7.29%            15,545,774         1,289,550          8.30%
          Installment Loans                                  9.61%             4,635,651           468,940         10.12%
                                                        ------------------------------------------------------------------
              Total Loans                                    7.78%            36,293,000         3,254,087          8.97%
                                                        ------------------------------------------------------------------

     Investment Securities                                   4.75%             2,929,515           265,437          9.06%
     Federal Funds & Bank Deposits                           3.02%               538,676            23,573          4.38%
                                                        -----------------------------------------------------------------

          Total Interest Bearing
             Assets                                          7.56%            39,761,191         3,543,097          8.91%
                                                        ------------------------------------------------------------------

Interest Bearing Liabilities:
     Deposit Accounts:
         Demand                                              1.18%             3,346,502            70,293          2.10%
         Savings                                             1.16%               349,364             6,034          1.73%
         Time                                                4.45%            23,172,173         1,257,631          5.43%
         Money Market Accts                                  2.08%            10,273,959           331,092          3.22%
         Short-term Borrowings                               2.95%             1,931,660            87,304          4.52%
         Long-term Borrowings                                4.58%               699,398            52,503          7.51%
                                                        ------------------------------------------------------------------

         Total Interest Bearing
            Liabilities                                      3.41%            39,773,056         1,804,857          4.54%
                                                        ------------------------------------------------------------------

Net earning assets, net interest
   income, and interest rate spread                          4.15%             $(11,865)        $1,738,240          4.37%
                                                        ==================================================================

Net yield on interest-earning assets                         4.63%                                                  4.37%
                                                        ================                                    ==============
1.       Actual yields; not adjusted to take into account tax-equivalent yields.
</TABLE>


<PAGE>


NET INTEREST INCOME
<TABLE>
<CAPTION>

                                                                                              2000
                                                                       ---------------------------------------------------
                                                                            Average           Interest         Average
                                                                            Balance           Inc(Exp)          Yield
                                                                       ---------------------------------------------------
Interest Earning Assets:
<S>                                                                          <C>                <C>                 <C>
          Commercial Loans                                                   $13,524,876        $1,339,022          9.90%
          Real Estate Loans (1)                                               14,769,498         1,288,810          8.73%
          Installment Loans                                                    4,726,444           481,837         10.19%
                                                                       ---------------------------------------------------
              Total Loans                                                     33,020,818         3,109,669          9.42%
                                                                       ---------------------------------------------------

     Investment Securities (2)                                                 4,172,915           203,862          4.89%
     Federal Funds & Bank Deposits                                                59,305             1,914          3.23%
                                                                       ---------------------------------------------------

          Total Interest Bearing
              Assets                                                          37,253,038         3,315,445          8.90%
                                                                       ---------------------------------------------------

Interest Bearing Liabilities:
     Deposit Accounts:
         Demand                                                                2,838,835            80,160          2.82%
         Savings                                                                 325,536             6,542          2.01%
         Time                                                                 16,940,251         1,082,828          6.39%
         Money Market Accts                                                   12,210,290           535,561          4.39%
         Short-term Borrowings                                                 3,589,958           241,782          6.73%
         Long-term Borrowings                                                  1,457,221           127,574          8.75%
                                                                       ---------------------------------------------------

         Total Interest Bearing
             Liabilities                                                      37,362,091         2,074,447          5.55%
                                                                       ---------------------------------------------------

Net earning assets, net interest
   income, and interest rate spread                                           $(109,053)        $1,240,998          3.35%
                                                                       ===================================================

Net yield on interest-earning
      assets                                                                                                        3.33%
                                                                                                            ==============

(1)      Actual yields; not adjusted to take into account tax-equivalent yields.
(2)       The convertible bonds at Michigan BIDCO were converted on May 31,2000,
          resulting in the deconsolidation of BIDCO related interest earning
          assets and interest bearing liabilities.
</TABLE>




NET INTEREST INCOME
<TABLE>
<CAPTION>

                                                                                           1999
                                                                 ----------------------------------------------------------
                                                                          Average               Interest         Average
                                                                          Balance               Inc(Exp)          Yield
                                                                 ----------------------------------------------------------

Interest Earning Assets:
<S>                                                                            <C>                  <C>              <C>
          Commercial Loans                                                     $12,242,253          $1,220,318       9.97%
          Real Estate Loans (1)                                                 18,142,245           1,317,127       7.26%
          Installment Loans                                                      4,115,908             404,801       9.84%
                                                                 ----------------------------------------------------------
             Total Loans                                                        34,500,406           2,942,246       8.53%
                                                                 ----------------------------------------------------------

     Investment Securities (2)                                                   3,482,913             197,367       5.67%
     Federal Funds & Bank Deposits                                               1,177,852              54,981       4.67%
                                                                 ----------------------------------------------------------

          Total Interest Bearing Assets                                         39,161,171           3,194,594       8.16%
                                                                 ----------------------------------------------------------

Interest Bearing Liabilities:
     Deposit Accounts:
         Demand                                                                  3,169,317             100,543       3.17%
         Savings                                                                   225,017               4,799       2.13%
         Time                                                                   18,992,483           1,071,991       5.64%
         Money Market Accts                                                     11,747,329             487,866       4.15%
         Short-term Borrowings                                                   1,751,173             111,245       6.35%
         Long-term Borrowings                                                    2,550,827             190,117       7.45%
                                                                 ----------------------------------------------------------

         Total Interest Bearing Liabilities                                     38,436,146           1,966,561       5.12%
                                                                 ----------------------------------------------------------

Net Earning Assets, net interest income
   and interest rate spread                                                       $725,025          $1,228,033       3.04%
                                                                 ==========================================================

Net yield on interest-earning assets                                                                                 3.14%
                                                                                                               ============



1.       Amounts for 1999 were adjusted to eliminate loans and income from discontinued operations.
2.       Actual yields; not adjusted to take into account tax-equivalent yields resulting from tax-free municipal
         investments
</TABLE>




<PAGE>



     The table above does not specify the average level of non-interest bearing
demand deposits, which were $2,643,856, $2,827,295, and $2,306,983 for the years
ended December 31, 2001, 2000 and 1999, respectively.

     Net interest income increased $.50 million to $1.74 million in 2001 from
$1.24 million in 2000. The increase resulted from an increase in the net
interest rate spread, plus an increase in earning assets. Net interest income
increased primarily due to a lower rate environment in 2001 as compared to 2000.
In 2001, the Federal Reserve Bank lowered the short-term interest rate numerous
times in an attempt to stimulate the United States economy. The Company's
positioning of rate sensitive assets and liabilities was structured to benefit
from a drop in interest rates. The average yield on interest rate liabilities
declined 18% from 5.55% in 2000 to 4.54% in 2001. In contrast, the average yield
on interest bearing assets increased slightly from 8.90% to 8.91% in 2001. The
spread between the average yield on rate sensitive assets and liabilities rose
to 4.37% in 2001 from 3.35% in 2000. Additionally, the net interest income was
positively affected in 2001 by higher volume of earning assets. Total interest
bearing assets increased by $2.51 million to $39.76 million in 2001 from $37.25
million in 2000.

     Including only activity from continuing operations, net interest income
increased to $1.24 million in 2000 from $1.23 million in 1999, mainly as a
result of an increase in the yield on net interest-earning assets faster than an
increase in the rate on interest-bearing liabilities. During the year ended
December 31, 2000, the average interest-earning asset base fell by $1.91 million
or 4.9% from 1999, while average interest-bearing liabilities decreased by $1.07
million or 2.8%. Due to the rise in short term interest rates, the average cost
of interest-bearing deposits increased from 5.12% in 1999 to 5.55% in 2000. As a
result of an increase in yield on interest-earning assets in an amount greater
than the increase in the rate on interest-bearing liabilities which more than
offset the decrease of interest-bearing assets at a rate greater than the
decrease in interest-bearing liabilities, the net interest margin increased to
3.33% in 2000 from 3.14% in 1999. Short term interest rates bottomed in mid-year
1999, and by year-end 2000, short term interest rates were 1.75% higher. Long
term interest rates hit an interim peak in 1999, but trended lower throughout
2000.

     The following table presents information regarding fluctuations in our
interest income and interest expense for the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in volume (changes in volume
multiplied by old rate); and (2) changes in rate (changes in rate multiplied by
old volume); with the rate/volume variance allocated to changes in rate:

<PAGE>


RATE VOLUME TABLE
                                               2001 - 2000
                                ------------------------------------------------
                                  Change             Change
                                  Due To             Due To             Total
                                  Volume             Rate               Change
Interest Income:
   Commercial Loans              $ 244,047         $ (87,471)         $ 156,576
   Real Estate Mortgage Loans       66,014           (65,274)               740
   Installment/Consumer Loans      (9,205)            (3,692)           (12,897)
   Investment Securities          (74,166)           135,741             61,575
   Federal Funds & Bank Deposits   20,745                913             21,658
                                 --------           --------           ---------
      Total Interest Income       247,345           (19,783)            227,652
                                 --------           --------           ---------

Interest Bearing Liabilities:
   Demand Deposits                 12,825              (22,692)          (9,867)
   Savings Deposits                   456                 (964)            (508)
   Time Deposits                  355,717             (180,914)         174,803
   Money Market Accounts          (76,501)             (127,968)       (204,469)
   Short-term Borrowings          (90,228)              (64,250)       (154,478)
   Long-term Borrowings           (58,923)              (16,148)        (75,071)
                                 ---------            ----------        --------
      Total Interest Expense      143,346              (412,936)       (269,590)
                                 ---------            ----------        --------
                                $ 104,089             $ 393,153       $ 497,242
         Net Interest Income     ========             ==========       =========

RATE VOLUME TABLE
                                                2000 - 1999
                                ------------------------------------------------
                                 Change                Change
                                 Due To                Due To            Total
                                 Volume                Rate              Change
Interest Income:
   Commercial Loans             $ 127,038             $ (8,334)       $ 118,704
   Real Estate Mortgage Loans    (268,564)              240,247         (28,317)
   Installment/Consumer Loans      61,807                15,229          77,036
   Investment Securities           35,922              (29,427)           6,495
   Federal Funds & Bank Deposits  (40,052)              (13,015)        (53,067)
                                 ---------             ---------       ---------
      Total Interest Income       (83,849)              204,700         120,851
                                 ---------             ---------       ---------

Interest Bearing Liabilities:
   Demand Deposits                 (9,923)             (10,460)         (20,383)
   Savings Deposits                 2,034                 (291)           1,743
   Time Deposits                 (122,728)              133,565          10,837
   Money Market Accounts           19,672                28,023          47,695
   Short-term Borrowings          123,460                 7,077         130,537
   Long-term Borrowings           (91,622)               29,079         (62,543)
                                ----------             --------        ---------
      Total Interest Expense      (79,107)              186,993          07,886
                                ----------             --------        ---------
                                $  (4,742)             $ 17,707       $  12,965
         Net Interest Income    ==========             ========        =========

Loan Portfolio

     Information regarding the Bank's loan portfolio as of December 31, 2001 and
2000 is set forth under Note 6 to University Bancorp's consolidated financial
statements included with this report.

Provision for Loan Losses

     The Bank charges to operations a provision for possible loan losses which
is intended to create an allowance for future loan losses inherent in the Bank's
portfolio. Each year's provision reflects management's analysis of the amount
necessary to maintain the allowance for possible loan losses at a level adequate
to absorb anticipated losses. In its evaluation, management considers factors
like historical loan loss experience, specifically identified problem loans,
composition and growth of the loan portfolio, current and projected economic
conditions, and other pertinent factors. A loan is charged-off by management as
a loss when deemed uncollectible, although collection efforts continue and
future recoveries may occur.

     Non-performing loans are defined as loans which have been placed on
non-accrual status and loans over 90 days past due as to principal or interest
and still in an accrual status. Where serious doubt exists as to the
collectibility of a loan, the accrual of interest is discontinued. See Note 6 of
the Consolidated Financial Statements for additional information regarding
impaired and past due loans.

     Non-performing loans amounted to $1,265,276 and $692,219 at December 31,
2001 and 2000, respectively. The bulk of the non-performing loans at year-end
2001 are delinquent real estate loans. The following is a list of all
non-performing loans over 90 days past due not secured by real estate with a
combined loan to current value of 88% or less:


                                          Value of      Loan Amount
    Loan Collateral & Description        Collateral                       LTV%
    ----------------------------------------------------------------------------
    Residential Construction 1st Mtg.     $380,000      $420,000            90%
    Lawn & Snow Care Equipment            $150,000      $178,179           119%
    Truck Loan                            $ 21,000      $ 24,194           115%

     The provision for loan losses in 2001 was $40,000, a decrease of $71,000
from the 2000 level, which in turn was an increase of $18,352 from the 1999
level of $92,648. Loans charged off net of recoveries were $23,884, $80,588 and
$19,064 in 2001, 2000 and 1999, respectively. The allowance for possible loan
losses totaled $579,113, $562,997 and $532,585 at the end of 2001, 2000 and
1999, respectively.


<PAGE>


Analysis of the Allowance for Loan Losses ($ amounts in thousands):
Summary of loan loss expense for the Bank for the years ended December 31

                                         2001           2000             1999
Balance at beginning of the period      $ 563          $ 533            $ 459

Chargeoffs - Domestic:
  Commercial loans                         20            135                0
  Real estate mortgages                     7              9               60
  Installment loans                        17              1                6
                                         -----          -----            -----
  Subtotal                                 44            145               66
                                         -----          -----            ----- -
Recoveries - Domestic:
  Commercial loans                         12             27               28
  Real estate mortgages                     2             21                0
  Installment loans                         6             16               19
                                         -----          -----            -----
    Subtotal                               20             64               47
                                         -----          -----            -----
Net chargeoffs                             24             81               19

Provision for loan losses                  40            111               93
                                         -----          -----            -----
Balance at end of period                $ 579          $ 563            $ 533
                                         =====          ======           =====

Ratio of net chargeoffs during
  period to average loans
  outstanding during period                0.07%          0.24%            0.06%
                                          =====          ======           =====


Analysis of the Allowance for Loan Losses ($ amounts in thousands)

                            Allocated portion of        Percentage of loans in
                               allowance                   each category
                              at December 31              to total loans

                          2001            2000        2001           2000
Loan category:

Domestic:
  Commercial loans       $ 337           $ 216       51.0%            38.1%
                                                      2.9%             2.9%
  Real estate mortgages     78             178       38.2%            42.9%
  Installment loans        135             128       10.9%            16.1%
Unallocated                 29              41        N/A              N/A
                          -----          -----       -----           -----
                         $ 579           $ 563      100.0%           100.0%
                          =====          ======     =====            =====

                                     At                            At
                              December 31, 2001            December 31, 2000
                            --------------------        ---------------------
Total loans (1)                 $35,026,024                   $36,206,544
Reserve for loan losses            $579,113                     $562,997
Reserve/Loans %                       1.65%                        1.55%

(1) Excludes loans held for sale.

     The Bank's overall loan portfolio is geographically concentrated in Ann
Arbor and the future performance of these loans is dependent upon the
performance of relatively limited geographical areas. Since the Bank has a
limited experience with its loan portfolio in Ann Arbor, the Bank's historical
loss ratios may be less than future loss ratios.

     Management believes that the allowance for loan losses is adequate to
absorb losses inherent in the loan portfolio, although the ultimate adequacy of
the allowance for loan losses is dependent upon future economic factors beyond
our control. A downturn in the general nationwide economy will tend to
aggravate, for example, the problems of local loan customers currently facing
some difficulties. A general nationwide business expansion could result in fewer
loan customers being unable to repay their loans.

     Other real estate owned at December 31, 2001 and December 31, 2000 includes
a commercial development site in Sault Ste. Marie, Michigan. Based upon an
appraisal, management believes the 16-acre site where a former loan office is
located has a fair market value more than its carrying value of $200,000 at
December 31, 2001. The Bank no longer intends to utilize it for a branch
location and accordingly has classified it as other real estate owned.
Management has executed an agreement to sell the property to a third-party for
$300,015 subject to various contingencies. There is no assurance that a sale of
the Sault Ste Marie property will be consummated.

Non-Interest Income and Non-Interest Expense

     Non-interest income. For continuing operations, non-interest income
increased to $3,955,410 in 2001, from $2,650,329 in 2000, an increase of 49.2%.
The increase in 2001 was mainly the result of increased revenues from Midwest
Loan Services' loan subservicing and set-up fees, which more than offset a
decline in income from merchant banking (BIDCO) income, because the BIDCO's
results were deconsolidated after May 1, 2000.

     For continuing operations, non-interest income increased to $2,650,329 in
2000, from $2,289,126 in 1999, an increase of 15.8%. The increase in 2000 was
mainly the result of increased revenues from Midwest Loan Services' loan
subservicing and set-up fees, which more than offset a decline in income from
merchant banking (BIDCO) income, because the BIDCO's results were deconsolidated
after May 1, 2000.
     Mortgage banking. Mortgage banking, servicing and origination fees
increased from $2,183,209 in 2000 to $3,783,721 in 2001. The increase in
mortgage banking fee income was the result of an increase in the number of loans
subserviced at Midwest Loan Services. Likewise, mortgage banking, servicing and
origination fees increased to $2,183,209 in 2000 from $1,151,923 in 1999. The
increases in mortgage banking fee income for both 2000 and 2001 was the result
of an increase in the number of loans subserviced at Midwest Loan Services.

     During 2000, Midwest Loan Services increased its mortgage subservicing
contracts by 280% (from $0.5 billion to $1.9 billion) as a result of a new
business relationship with one of the top five mortgage banking firms on Wall
Street. During the first half of 2001, Midwest reached a peak of $2.7 billion in
1-4 family residential loan servicing. In the third quarter of the year, the
loan servicing volume was significantly cut back as Midwest's largest customer
decided to significantly scale back the amount of business it was providing to
Midwest. As of July 1, 2001, 18,500 loans or 95% of the mortgages sub-serviced
by Midwest for this customer had been transferred to other sub-servicers
including a subsidiary of this firm with the rest transferred the following
month. During 2001 Midwest increased its emphasis on mortgage loan originations
through its credit union customers. Much of the increase in loan set up and
other fees resulted from fee income from mortgage originations generated from
member of credit unions. In 2001, Midwest originated 939 mortgage loans. Growth
was consistent in each month throughout the year. In January 2001 12 mortgage
loans were originated and 135 were originated in December 2001, an 1,125%
increase.

     The servicing rights portfolio totaled $67,670,000 of FHLMC and FNMA
mortgages at December 31, 2001, versus $55,443,000 at December 31, 2000. All
residential mortgage loan servicing in 2001 and 2000 was performed by Midwest
Loan Services.

     Based on recent comparable sales and indications of market value from
industry brokers, management believes that the current market value of the
Bank's portfolio of mortgage servicing rights equals cost. Market interest rate
conditions can quickly affect the value of mortgage servicing rights in a
positive or negative fashion, as long term interest rates rise and fall.



Servicing Rights Held by University Bank ($ amounts in 000's)

                                       December 31, 2001       December 31, 2000
Book value of servicing                      $607                   $ 582

Total loans serviced                      $67,670                 $55,443
Ratio of book value of servicing to
  loans serviced                             .90%                   1.05%

Estimated market value of servicing:
  Outside appraisal                         $ 607                   $ 582
Estimated excess of market over book value    $ 0                     $ 0

     Additional information regarding the Bank's mortgage banking activities for
the past three years is set forth in Note 4 to our consolidated financial
statements.

     Mortgage Banking (Michigan BIDCO). BIDCO invests in businesses in Michigan
with the objective of capital gains while fostering job growth and economic
development. As of December 31, 2001, the BIDCO had made twenty-nine investments
since its inception in 1993, amounting to a total of $16,569,800 at original
cost, before repayments or participations sold. At December 31, 2001, Michigan
BIDCO had total assets of $1,109,561 versus $3,429,226 at December 31, 2000.

     The financial results of Michigan BIDCO were accounted for under the equity
method of accounting until March 1999. In April 1999, $1,850,000 of Michigan
BIDCO bonds were repurchased by the BIDCO, and University Bank converted its
$27,000 of bonds into common stock, thereby increasing the Bank's equity
ownership to 80.1%. Effective April 1999, Michigan BIDCO's financial results
became consolidated into the results of University Bancorp. The remaining
Michigan BIDCO bonds were converted into common stock on May 31, 2000, and thus
diluted University Bancorp's equity ownership down to 28.8%. As a result, the
BIDCO is no longer consolidated in the financial statements of University
Bancorp and the investment is now accounted for under the equity method of
accounting. The Company's equity share of BIDCO at December 31, 2001 is 6.10%.
Income (loss) realized from the investment in the BIDCO of was $(114,551),
$234,740 and $916,991 in 2001, 2000, and 1999, respectively.

     Securities. Proceeds from sales of marketable equity securities included in
proceeds from sales of investment securities were $0, $98,625 and $74,550 for
the years ended December 31, 2001, 2000 and 1999, respectively. Gross gains of
approximately $0, $20,625 and $1,879 were realized on 2001, 2000 and 1999 sales,
respectively. Gross losses of $17,981 were realized on 1999 sales.

     Proceeds from sales of available for sale debt securities were $541,460,
$1,123,594 and $530,763 for the years ended December 31, 2001, 2000 and 1999,
respectively, excluding sales associated with the Bank's mortgage banking
operation. There were gross gains of $12,639 and $625 on 2001 an 1999 sales,
respectively and a gross loss $2,839 on 2000 sales.

     At December 31, 2001 gross unrealized losses in our available-for-sale
securities were $167,000 and gross unrealized gains were $0. At December 31,
2000, gross unrealized losses in the available-for-sale securities were $335,000
and gross unrealized gains were $0. At December 31, 1999 gross unrealized losses
in our available-for-sale securities were $585,000 and gross unrealized gains
were $0.

     Non-interest expense. Non-interest expense increased to $5,960,223 in 2001
from $4,694,974 in 2000. The increase was primarily the result of increased
operational expenses at Midwest Loan Services, which more than offset cost
control efforts in other areas at the Bank. During the year the retail bank
division's non-interest expenses increased by just $31,226 to $2,676,073 from
$2,644,847. Midwest's operations were expanded in 2001 due to a substantial
increase in mortgage sub-servicing and origination activity. As the volume
expanded Midwest increased its workforce to perform the required tasks. Other
servicing and sub-servicing related expenses, such as occupancy, supplies and
postage increased also. At the Bank level, a concerted effort was made to reduce
its non-interest expenses. Notable improvements were made in the legal and audit
expense category. Non-interest expense was also impacted by an increase in the
amortization of the mortgage servicing rights due to the low interest rate
environment after September 2001.

     Including only activity from continuing operations, our non-interest
expense increased to $4,694,974 in 2000 from $4,115,712 in 1999, a 14.1%
increase. During the year non-interest expenses at the retail bank division
increased by $321,522 from $2,323,325 to $2,644,847 primarily as a result of
higher legal and audit expenses. Increases in most other areas were the result
of growth at Midwest Loan Services. Data processing expenses were higher
primarily because of a variety of internet initiatives, including internet
banking and development projects at Midwest Loan Services. University Bancorp's
total non-interest expense decreased $56,408 despite $139,412 in goodwill
amortization expense related to an earn-out payment from the Midwest Loan
Services acquisition. The increase in goodwill amortization was more than offset
by decreases in ESOP and legal costs.

Liquidity and Capital Resources

     Our total assets at December 31, 2001 amounted to $45.62 million compared
to $47.67 million at December 31, 2000. Loans receivable, net of reserves and
including loans held for sale, increased by $0.67 million to $36.58 million from
$35.91 million. Cash and cash equivalents including Federal Funds sold on an
overnight basis at the end of 2001 decreased by $1.71 million from the prior
year, while securities increased by $0.32 million. At year-end 2001, the Bank
had an unused line of credit from the Federal Home Loan Bank of Indianapolis of
$4.91 million, and an unused line of credit from the Federal Reserve Bank of
Chicago of $2.10 million.

     University Bank, as an FDIC-insured bank, is subject to certain regulations
that require the maintenance of minimum liquidity levels of cash and eligible
investments. The Bank has historically exceeded this minimum as a result of its
investments in federal funds sold, U.S. government and U.S. agency securities
and cash. In addition, University Bancorp had $96,045 in cash and equity
securities at the end of 2001 to meet cash needs, primarily operating expenses
and interest and principal reductions on the University Bancorp's note payable.
The balance of the loan was $430,000 and $532,000 at year-end 2001 and 2000. The
note is a fully amortizing loan maturing in early 2005. In an effort to maintain
the Bank's Tier 1 capital to assets ratio above 7% and to increase capital
through retained earnings, management does not expect that the Bank will pay
dividends to University Bancorp in 2002. Management intends that the cash and
securities on hand, together with cash from the sale of common stock, equity
conversion notes and preferred stock to be sufficient to cover the required
principal reductions during 2002 on University Bancorp's loan.

     During 2001, University Bancorp raised working capital by issuing equity
conversion notes, which bear interest at prime rate although all payment of
interest is deferred until conversion into common stock or redemption. Notes are
redeemable only through the proceeds of a future sale of common stock or
preferred stock. The various equity conversion notes that were issued were
converted into common stock in November 2001 as part of our rights offering of
common stock, which raised $1,659,749 through the sale of 1,659,749 shares, less
offering expenses. The equity conversion notes were sold to our President,
Chairman and members of their family.

     The Company's total stockholders' equity at December 31, 2001 was
approximately $2.74 million (or 6.0% of total assets) compared to $2.04 million
(or 4.3% of total assets) at December 31, 2000. The Bank's regulatory capital at
December 31, 2001 was $3.72 million or 7.13% of the Bank's total regulatory
assets. The risk-adjusted capital ratio of 9.16% exceeded the minimum regulatory
risk-based capital requirement of 8% of the risk-adjusted assets for the Bank.
The following table provides detailed information about the Bank's risk-adjusted
assets and actual capital percentages:


<PAGE>
<TABLE>
<CAPTION>

                                           Risk Adjusted Assets & Capital Ratios ($ amounts in 000's)

                                           Totals        Items Not             Allocation by Risk Weight Category
                                                       Subject to Risk
                                                         Weighting              0%             20%            50%            100%
Balance Sheet Asset Categories
Cash and balances due from
<S>                                        <C>                                  <C>           <C>
   depository institutions                 837                 -                300           537
Available for sale securities            2,260               (167)              479         1,948
Loans held for sale                      2,138                                                               2,068               70
Loans                                   35,026                                                166           11,349           23,511
Allowance for loan losses                (579)               (579)
All other assets                         5,910                125                             848                             4,937
                                       ---------------------------------------------------------------------------------------------
Total Assets                            45,592               (621)              779         3,499            13,417          28,518
                                       =============================================================================================

Risk-weighted assets                    35,927                                   -            700             6,709          28,518
Less: Excess allowance for loan losses     130
                                       -------
                                        35,848
                                       =======
</TABLE>


               TOTAL AVERAGE ASSETS
Average Total Assets for Leverage Capital Purposes                  45,976
Other identifiable Intangible Assets                                 (125)
                                                                  ---------
Total Average Assets                                                45,851
                                                                  ==========

                TIER 1 CAPITAL
Total Equity Capital                                                 2,924
Less: Unrealized losses on available-for-Sale
      Securities                                                      (167)
Plus: Minority Interest                                                305
Less: Other identifiable Intangible Assets                             125
                                                                  ----------
Total Tier 1 Capital                                                  3,271
                TIER 2 CAPITAL
Allowance for loans & Lease losses                                      579
Less: Excess Allowance                                                  130
                                                                  -----------
Total Tier 2 Capital                                                    449
                                                                  -----------
Total Tier 1 & Tier 2 Capital                                          3,720
                                                                  ===========
                                 CAPITAL RATIOS
Tier 1/Total Average Assets                                            7.13%
Tier 1/Total Risk-Weighted Assets                                      9.14%
Tier 1 & 2/Total Risk-Weighted Assets                                 10.39%




<PAGE>


ITEM 7A.  MARKET RISK

Impact of Inflation

     The primary impact of inflation on our operations is reflected in increased
operating costs. Since our assets and liabilities are primarily monetary in
nature, changes in interest rates have a more significant impact on our
performance than the general effects of inflation. However, to the extent that
inflation affects interest rates, it also affects our net income.

Quantitative and Qualitative Disclosures about Market Risk

     All financial institutions are significantly affected by fluctuations in
interest rates commonly referred to as "interest rate risk." The principal
exposure of a financial institution's earnings to interest rate risk is the
difference in time between interest rate adjustments or maturities on
interest-earning assets compared to the time between interest rate adjustments
or maturities on interest-bearing liabilities. This difference is commonly
referred to as a financial institution's "gap position." In periods when
interest rates are increasing, a negative gap position will result in generally
lower earnings as long-term assets are repricing upward slower than short-term
liabilities. However during a declining rate environment, the opposite effect on
earnings is true, with earnings rising due to long-term assets repricing
downward slower than short-term liabilities.

     Rising long term and short term interest rates tend to increase the value
of Midwest Loan Services' investment in mortgage servicing rights and improve
Midwest Loan Services' current return on these rights by lowering required
amortization rates on the rights. Rising interest rates tend to decrease new
mortgage origination activity, negatively impacting current income from the
Bank's retail mortgage banking operations and Midwest's mortgage banking
operation activities. Rising interest rates also slow Midwest Loan Services'
rate of growth, but increases the duration of its existing mortgages being
subserviced under contract.

     The Bank's securities portfolio is designed to offset a portion of the
market value risk associated with the servicing rights. During 2001, the market
value of the servicing rights versus book decreased by approximately $224,000
(the decrease was expensed as amortization expense) to $0 while the market value
of the Bank's zero coupon and PO securities increased by $167,487 based on
year-end fair market values.

     The table on the following page details our interest sensitivity gap
between interest-earning assets and interest bearing liabilities at December 31,
2001. Certain items in the table are based upon various assumptions that may not
necessarily reflect future experience, and therefore, certain assets and
liabilities may in fact mature or re-price differently from what is illustrated.
The one-year static gap position at December 31, 2001 was estimated at ($14.4
million) or (31.60%):


<PAGE>


<TABLE>


                                      Asset/Liability Position Analysis as of December 31, 2001

                                                       (Dollar amounts in Thousands)
                                                          Maturing or Repricing in
<CAPTION>

                                         3 Mos    91 Days to          1 - 3        3 - 5      Over 5  ALL
ASSETS                                  or Less       1 Year          Years        Years      Years   Other       Total
    Fed Funds                              -              -             -             -          -          -            -
<S>                                   <C>             <C>           <C>           <C>       <C>         <C>         <C>
    Loans - Net                       7,747           6,451         6,559         9,518     6,120       (579)       35,815
    Non-Accrual Loans                                     -             -             -          -        770          770
    Securities                            -               -             -             -      3,108          -        3,108
    Other Assets                          -             600             -             -          -      4,493        5,093
    Cash and Due from Banks              59               -             -             -          -        778          837
                                      ------------------------------------------------------------------------------------------
      TOTAL ASSETS                     7,806          7,051         6,559         9,518      9,228      5,462       45,623
                                      ------------------------------------------------------------------------------------------

LIABILITIES
    CD's under $100,000                 9,016         5,982         2,668           332        269          -       18,267
    CD's over $100,000                  1,997         2,281         1,106             -        115          -        5,499
    MMDA                                4,818         4,819             -             -          -          -        9,637
    NOW                                     -             -         4,063             -          -          -        4,063
    Demand and Escrow                       -             -                           -          -      2,491        2,491
    Savings                                 -             -           340             -          -          -          340
    Other Borrowings                       91           269         1,355            34          -          -        1,749
    Other Liabilities                            -                                    -          -        940          940
    Equity                                  -             -             -             -          -      2,737        2,737
                                      ------------------------------------------------------------------------------------------
      TOTAL LIABILITIES                15,922        13,351         9,532            366       384      6,068       45,623
                                      ------------------------------------------------------------------------------------------
              GAP                     (8,116)        (6,300)       (2,973)        9,151      8,844      (606)            -
                                      ------------------------------------------------------------------------------------------
              CUMULATIVE GAP          (8,116)       (14,416)      (17,389)       (8,238)       606          -
                                      =============================================================================

              GAP PERCENTAGE           -17.79%        -31.60%      -38.11%       -18.06%      1.33%      0.00%
                                       ============================================================================

</TABLE>












The following repricing information is provided for the Bank's investment
portfolio, using book values, as of December 31, 2001:

Investment Portfolio Maturities ($ amounts in thousands) and Yield by Type:

<TABLE>
                                                 Maturity or Repricing Interval:
<CAPTION>
                                                      Less Than          1 Year to       5 Years to        More Than
                                                       One Year            5 Years         10 Years         10 Years
U.S. Treasuries and Government Agencies:
<S>                                                          <C>                <C>              <C>          <C>
  Amount                                                     $0                 $0               $0           $2,427
  Yield                                                      0%                 0%               0%            3.65%

</TABLE>


Additional information regarding the Bank's investments is set forth under Note
5 to the consolidated financial statements.

       The following information illustrates maturities and sensitivities of the
Bank's loan portfolio to changes in interest rates as of December 31, 2001:

Loan Portfolio Maturities by Type ($ amounts in thousands):
<TABLE>

<CAPTION>
                                                 Maturity Interval:
                                                     Less Than         1 Year to          More Than
                                                      One Year           5 Years            5 Years             Total
<S>                                                    <C>              <C>                <C>               <C>
Commercial                                             $ 5,368          $  9,787           $  2,699          $ 17,854
Real Estate Mortgage (1)                               $   757          $    551           $ 12,069          $ 13,377
Installment/Consumer                                   $   262          $    922           $  2,611          $  3,795
                                                        ------            ------             ------            ------
      Total                                            $ 6,387          $ 11,260           $ 17,379          $ 35,026
                                                        ======            ======             ======            ======
</TABLE>

<TABLE>
<CAPTION>

                                                   Maturity Less           Maturity
                                                       Than             More Than One
                                                      One Year               Year             Total
<S>                                                   <C>                <C>                <C>
Total Variable Rate Loans                             $  2,430           $ 13,028           $ 15,458
Total Fixed Rate Loans                                $  3,957           $ 15,611           $ 19,568
                                                        ------             ------             ------
      Total Loans (1)                                 $  6,387           $ 28,639           $ 35,026
                                                        ======             ======             ======
</TABLE>
(1) Excludes loans held for sale of $2,138 and the allowance for loan losses.

Income Taxes

     Income tax expense (benefit) in 2001 and 2000 was $0, versus $32,524 in
1999. The effective tax (benefit) rate was 0% in 2001 and 2000, and (3.7%) in
1999. No tax benefit was realized in 2001, 2000 or 1999 due to loss
carryforwards as a result of the net losses from operations.

     In 1996, the Bank, through a subsidiary, purchased a $1,000,000 interest in
a partnership investment in Michigan Capital Fund for Housing Limited
Partnership I, a Michigan limited partnership, which invested in federal
low-income housing tax credits. The initial investment consisted of a $50,000
equity purchase and the execution by the subsidiary of a $950,000 promissory
note held by this Partnership. Additional capital contributions are made over
time to reduce the balance of the note. The purchase of the tax credits
increased the deferred federal income tax assets in 2001, 2000 and 1999 and is
expected to decrease the amount of federal income taxes we would otherwise pay
annually through 2005.

     At December 31, 2001, the Company had available federal income tax loss
carryforwards that could be utilized to shelter approximately $3,070,000 future
taxable income. Realization of income tax benefits not recorded in the financial
statements is dependent upon generating sufficient future taxable revenue. See
footnote 14 to the financial statements


Legal Proceedings

     At December 31, 2001 we had no outstanding legal proceedings that would
have a material affect on us.

     Results in the fourth quarter of 2000 were negatively impacted by legal
expense to defend and settle a lawsuit related to the Bank's sale, in November
1999, of its shares in Varsity Mortgage, LLC to Paramount Bank of Farmington
Hills, Michigan. Subsequent to the sale, Varsity experienced management problems
and a further drop in its business resulting in substantial operating losses. On
May 19, 2000, Paramount Bank filed a complaint (Case No. 00-023299-CK) in
Oakland County Circuit Court against University Bank and two of its former
officers. On December 14, 2000, the parties settled the suit. Total expense to
defend and settle the lawsuit were approximately $60,000, most of which was
incurred in the fourth quarter of 2000.


Recent Events


     Management is in advanced negotiations to sell its shares of Midwest Loan
Services, Inc. in a transaction that would result in total proceeds of
approximately $2,500,000, including a capital gain of $1,000,000, a payment of
$200,000 by year-end 2002 subject to contingencies, and ongoing fee income of 1%
of the managed escrow accounts serviced by Midwest (currently, this fee income
would be approx. $100,000 per year). There is no assurance that such a
transaction could be completed or that management will opt to sell its 80% stake
in Midwest.



<PAGE>
















                            UNIVERSITY BANCORP, INC.


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


                        CONSOLIDATED FINANCIAL STATEMENTS


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


                          DECEMBER 31, 2001, 2000, 1999


<PAGE>







               Report of Independent Certified Public Accountants

Board of Directors and Stockholders
University Bancorp, Inc.

     We have audited the accompanying consolidated statement of financial
condition of University Bancorp, Inc. and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for each of the two years ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the 2000 financial
statements of Midwest Loan Services, Inc. an 80 percent owned subsidiary, which
statements reflect total assets and revenues constituting 5 percent and 33
percent, respectively of the related consolidated totals for the year ended
December 31, 2000. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Midwest Loan Services, Inc. for 2000, is based solely on the report
of the other auditors. The consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for the year ended December 31, 1999
were audited by other auditors whose report dated March 17, 2000, expressed an
unqualified opinion on those statements.

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

     In our opinion, based on our audit and the report of the other auditors,
the consolidated financial statements for 2001 and 2000 referred to above
present fairly, in all material respects, the consolidated financial position of
University Bancorp, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the consolidated results of their operations and their cash flows for each of
the two years then ended, in conformity with accounting principles generally
accepted in the United States of America.


GRANT THORNTON LLP

Southfield, Michigan
March 15, 2002






                          UNIVERSITY BANCORP, INC ....
                           Consolidated Balance Sheets
                           December 31, 2001 and 2000

                                                   December 31,   December 31,
ASSETS ........................................        2001            2000
                                                  ------------    ------------
Cash and due from banks ... ...................   $    837,550    $  2,537,313
Short term investments ........................           --             9,307
                                                   ------------    ------------
     Total cash and cash equivalents ..........        837,550       2,546,620
Securities available for sale, at market ......      2,260,103       1,944,629
Federal Home Loan Bank Stock ..................        848,400         848,400
Loans held for sale, at the lower of
  cost or market ..............................      2,137,786         267,570
Loans ..........................................    35,026,024      36,206,544
Allowance for loan losses ......................      (579,113)       (562,997)
                                                   ------------    ------------
     Loans, net ................................     34,446,911      35,643,547

Premises and equipment, net ....................      1,787,018       1,375,757
Investment in Michigan BIDCO Inc. ..............        629,258       1,277,384
Investment in Michigan Capital Fund LPI ........        456,244         556,904
Mortgage servicing rights , net ................        606,537         582,210
Real estate owned, net .........................        200,000         340,881
Accounts receivable ............................        862,848       1,639,962
Accrued interest receivable ....................        229,417         307,600
Prepaid expenses ...............................        191,700         168,195
Goodwill, net ..................................         63,914         139,412
Other assets ...................................         65,045          31,582
                                                   ------------    ------------
      TOTAL ASSETS .............................   $ 45,622,731    $ 47,670,653
                                                   ============    ============


                                                                 -Continued-










                         UNIVERSITY BANCORP, INC .......
                     Consolidated Balance Sheets (continued)
                           December 31, 2001 and 2000

                                                   December 31,    December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY ...........      2001            2000
                                                   ------------    ------------
Liabilities:
Deposits:
  Demand - non interest bearing ................   $  2,390,750    $  3,062,013
  Demand - interest bearing ....................     13,701,011      13,106,221
  Savings ......................................        340,341         368,928
  Time .........................................     23,765,478      21,641,561
                                                   ------------    ------------
     Total Deposits ............................     40,197,580      38,178,723
Short term borrowings ..........................         91,566       4,093,954
Long term borrowings ............................     1,657,506         926,130
Accounts payable ................................       339,536       1,474,963
Accrued interest payable ........................       177,407         426,470
Other liabilities ...............................       117,398         245,381
                                                   ------------    ------------
     Total Liabilities ..........................    42,580,993      45,345,621
Minority Interest ...............................       305,129         282,750
Stockholders' equity:
  Preferred stock, $0.001 par value;
    $1,000 liquidation value;
    Authorized - 500,000 shares;
    Issued 725 shares in 2001 ....................     725,000
  Common stock, $0.01 par value;
    Authorized - 5,000,000 shares;
    Issued - 3,867,732 shares in 2001 and
         2,142,985 shares in 2000 ................       38,677          21,430
  Additional paid-in-capital .....................    5,411,018       3,817,608
  Accumulated deficit ............................   (2,205,444)     (1,846,627)
  Treasury stock - 115,184 shares in 2001
    and 2000 .....................................     (340,530)       (340,530)
  Accumulated other comprehensive loss,
    unrealized losses on securities
    available for sale, net ......................     (167,112)       (334,599)
                                                   ------------    ------------
     Total Stockholders' Equity ..................    2,736,609       2,042,282
                                                    ------------    ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .. $ 45,622,731    $ 47,670,653
                                                   ============    ============

        The accompanying notes are an integral part of the consolidated
        financial statements.

                                        UNIVERSITY BANCORP, INC ..............
                                  Consolidated Statements of Operations
                          For the Years Ended December 31, 2001, 2000 and 1999

                                           2001         2000          1999
                                        ----------   ----------    ----------
Interest income:
  Interest and fees on loans ...... $    3,254,088 $  3,109,669 $    2,942,246
  Interest on securities:
   U.S. Government and agencies ...        202,357       129,786      129,495
   Other securities ...............         63,080        74,076       67,872
   Other interest income ..........         23,572         1,914       54,981
                                         ----------   ----------    ----------
     Total interest income ........      3,543,097     3,315,445    3,194,594
                                         ----------   ----------    ----------
Interest expense:
  Interest on deposits:
   Demand deposits ................        401,385       615,721      588,409
   Savings deposits ...............          6,034         6,542        4,799
   Time certificates of deposit ...      1,257,631     1,082,828    1,071,991
  Short term borrowings ...........         87,304       241,782      111,245
  Long term borrowings ............         52,503       127,574      190,117
                                         ----------   ----------    ----------
     Total interest expense .......      1,804,857     2,074,447    1,966,561
                                         ----------   ----------    ----------
     Net interest income ..........      1,738,240     1,240,998    1,228,033
Provision for loan losses .........         40,000       111,000       92,648
                                         ----------   ----------    ----------
     Net interest income after
       provision for loan losses ..      1,698,240     1,129,998    1,135,385
                                         ----------   ----------    ----------
Other income:
  Loan servicing and subservicing fees   2,145,619     1,073,673      557,285
  Initial loan set-up and other fees .   1,570,900     1,069,778      528,525
  Gain on sale of mortgage loans .....      67,202        39,758       66,113
  Merchant banking/ BIDCO income .....    (114,551)      234,740      916,991
  Insurance & investment fee income ..      97,489        71,529       90,185
  Deposit service charges and fees ...      86,135        61,538       62,716
  Net security gains (losses) ........      12,639        17,786      (15,477)
  Other ..............................      89,977        81,527       82,788
                                         ----------   ----------    ----------
     Total other income ..............   3,955,410     2,650,329    2,289,126
                                         ----------   ----------    ----------

                    -Continued-


                          UNIVERSITY BANCORP, INC.
             Consolidated Statements of Operations (continued) For the Years
            Ended December 31, 2001, 2000 and 1999

                                           2001          2000          1999
                                       ----------    ----------    ----------
Other expenses:
  Salaries and benefits ............$   3,250,713 $   1,928,060 $    1,760,670
  Occupancy, net ...................       464,183       320,089       249,855
  Data processing and equipment ....       286,200       336,016       306,531
  Legal and audit expense ............     127,212       408,430       423,633
  Consulting fees ....................     231,795       206,313       119,456
  Mortgage banking expense ...........     132,832       150,403       156,467
  Servicing rights amortization ......     325,091       171,129       214,259
  Goodwill amortization ..............      15,978       139,412             0
  Advertising ........................     111,862       103,177       145,824
  Memberships and training ...........      64,609        98,237        81,121
  Travel and entertainment ...........     104,189        59,565       112,398
  Supplies and postage ...............     333,682       195,449       133,171
  Insurance ..........................      84,772       104,335        48,793
  Other operating expenses ...........     427,105       474,359       363,534
                                         ----------    ----------    ----------
     Total other expenses ............    5,960,223     4,694,974     4,115,712
                                         ----------    ----------    ----------
Loss from continuing operations
   before income taxes ...............    (306,573)     (914,647)     (691,201)
                                         ----------    ----------    ----------
Income tax expense (benefit) .........           0             0        32,524
                                         ----------    ----------    ----------
Net loss from continuing operations ..    (306,573)     (914,647)     (723,725)
Discontinued operations (Note 2) .....           0             0      (191,755)
                                         ----------    ----------    ----------
     Net loss .......................$    (306,573) $   (914,647) $   (915,480)
                                         ==========    ==========    ==========
     Preferred stock dividends ......       52,244         3,933             0
                                         ----------    ----------    ----------
     Net loss available to common
       shareholders                  $    (358,817) $   (918,580) $   (915,480)
                                         ==========    ==========    ==========
Basic and diluted loss from continuing
operations per common share              $   (0.13)    $   (0.45)    $   (0.36)
                                         ==========    ==========    ==========
Basic and diluted loss per common share  $   (0.13)    $   (0.45)    $   (0.46)
                                         ==========    ==========    ==========
Weighted average shares outstanding ....  2,278,364     2,026,735     1,993,607
                                         ==========    ==========    ==========





                            UNIVERSITY BANCORP, INC.
             Consolidated Statements of Comprehensive Income (Loss)
              For the Years Ended December 31, 2001, 2000 and 1999

                                              2001           2000           1999
                                       -----------    -----------    -----------
Net loss ...........................  $  (306,573)    $ (914,647)    $ (915,480)
Other comprehensive income (loss):
   Unrealized gains/(losses) on
    securities available for sale ..      180,126        268,085       (417,452)
   Less:  reclassification
    adjustment for accumulated
   (losses)/gains included in net
    loss ...........................       12,639         17,786        (15,477)
                                       -----------    -----------    -----------
   Other comprehensive income/(loss)
    before tax effect ..............      167,487        250,299       (401,975)
   Income tax expense (benefit) ....            0              0         62,216
   Other comprehensive income loss),
    net of tax .....................      167,487        250,299       (464,191)
                                        -----------    -----------    ----------
Comprehensive loss .................  $   (139,086)   $  (664,348)  $(1,379,671)
                                        ===========    ===========    ==========

















<PAGE>


                            UNIVERSITY BANCORP, INC.
                 Consolidated Statements of Stockholders' Equity For the years
              ended December 31, 2001, 2000, and 1999
<TABLE>

<CAPTION>
                                      Preferred Stock $.001     Common Stock $.01        Treasury Stock
                                            Par Value               Par Value                                  Additional
                                    -------------------------------------------------------------------------
                                     Number of       Par        Number of     Par    Number of                  Paid In
                                      Shares        Value        Shares      Value    Shares       Cost         Capital
                                    -------------------------------------------------------------------------------------------

<S>                                  <C>         <C>              <C>        <C>      <C>         <C>             <C>
Balance December 31, 1998                -            -           2,104,323  $21,043  (115,184)   $(340,530)      $3,539,474
                                    -------------------------------------------------------------------------
Issuance of shares weighted average      -            -              23,662                  -           -
price of $2.125 per share                                                        237                                  50,045
=====================================
Capital increase due to retirement                                                       -           -
of BIDCO stock                           -            -             -          -                                     170,872
Capital increase due to conversion                                                       -           -
of BIDCO bonds to BIDCO stock            -            -             -          -                                      26,117
Unrealized losses on securities                                                          -           -             -
available for sale, net of tax           -            -             -          -
Net loss                                 -            -             -          -         -           -             -
                                    -------------------------------------------------------------------------------------------
Balance December 31, 1999                -            -           2,127,985  $21,280  (115,184)  $ (340,530)      $3,786,508
Issuance of common stock at
weighted average price of $2.08 per
share                                    -            -              15,000      150     -           -                31,100
Issuance of preferred stock at
price of $1,000 per share                725        725,000         -          -         -           -             -
Unrealized gain on securities            -            -                                  -           -             -
available for sale, net of tax                                      -          -
Net loss                                 -            -             -          -         -           -             -
                                    -------------------------------------------------------------------------------------------
Balance December 31, 2000                 725  $    725,000       2,142,985 $21,430             $  (340,530)     $3,817,608
                                                                                    (115,184)
Issuance of preferred stock               733          733,000      -          -         -           -             -
Conversion of preferred stock to
common stock                         $  (1,458)   $(1,458,000)    1,458,000  $14,580     -           -            $1,443,420
Issuance of common stock at
weighted average price of $1.00 per
share, net of expenses of $114,090                                  266,747 $2,667                           $     149,990
       Payment of preferred dividend
Unrealized gain on securities
available for sale, net of tax
Net loss
                                    -------------------------------------------------------------------------------------------
                                           -    $         -       3,867,732$38,677  (115,184)   $(340,530)    $   5,411,018
                                    ===========================================================================================
</TABLE>




<TABLE>

<CAPTION>
                                       UNIVERSITY BANCORP, INC.

                               Consolidated Statements of Stockholders' Equity

                             For the years ended December 31, 2001, 2000, and 1999
                                                                      Accumulated
                                                                         Other            Total
                                                       Retained      Comprehensive    Stockholders'
                                                       Earnings          Loss             Equity
              ------------------------------------------------------------------------------------
              Balance December 31, 1998
<S>                                                    <C>             <C>               <C>
                                                       (16,500)        (120,707)         3,082,780
              ------------------------------------------------------------------------------------
              Issuance of shares weighted average         -                -
              price of $2.125 per share                                                     50,282
              Capital increase due to retirement          -                -
              of BIDCO stock                                                               170,872
              Capital increase due to conversion          -                -
              of BIDCO bonds to BIDCO stock                                                 26,117
              Unrealized losses on securities             -
              available for sale, net of tax                               (464,191)     (464,191)
              Net loss                                (915,480)        -             (915,480)
              ------------------------------------------------------------------------------------
              Balance December 31, 1999              $(931,980)       $(584,898)   $ 1,950,380
              Issuance of common stock at weighted        -                -
              average price of $2.08 per share                                              31,250
              Issuance of preferred stock at price
              of $1,000 per share                         -                -               725,000
              Unrealized gain on securities               -
              available for sale, net of tax                                 250,299       250,299
              Net loss                               (914,647)           -              (914,647)
              -------------------------------------------------------------------------------------
              Balance December 31, 2000            $(1,846,627)    $(334,599)          $2,042,282
              Issuance of preferred stock                 -                -             $ 733,000
              Conversion of preferred stock to
              common stock                                -                -               $ -
              Issuance of common stock at weighted
              average price of $1.00 per share,
              net of expenses of $114,090                                                $ 152,657
                      Payment of preferred dividend   $(52,244)                      $ (52,244)
              Unrealized gain on securities
              available for sale, net of tax                                $167,487     $ 167,487
              Net loss                              $ (306,573)                      $(306,573)
              -------------------------------------------------------------------------------------
                                                   $(2,205,444)    $  (167,112)         $2,736,609
              =====================================================================================
</TABLE>


<PAGE>


<TABLE>

<CAPTION>

                                                      UNIVERSITY BANCORP, INC.
                                                Consolidated Statements of Cash
                                        Flows For the years ended December 30,
                                        2001, 2000 and 1999

                                                                                2001             2000              1999
                                                                          ----------------- ---------------- ------------------
       Cash flow provided by (used in) operating activities:
<S>                                                                          <C>               <C>               <C>
       Net loss                                                              $   (306,573)     $  (914,647)      $   (915,480)
       Adjustments to reconcile net loss to net cash provided by (used
       in) operating activities:
           Depreciation                                                            268,529          252,726            357,647
           Amortization                                                            441,729          410,541            214,259
           Provision for loan loss                                                  40,000          111,000             92,648
           Gain on loan sales and securitization                                  (67,202)         (39,758)           (66,113)
           Accretion on securities                                               (202,277)         (98,341)           (91,151)
           Net (gain)/loss on sale of securities                                  (12,639)         (17,786)             15,477
           Net change in:
             Investment in Michigan BIDCO, Inc.                                          0                0            725,733
             Real estate owned                                                 (1,662,133)          330,590             23,946
             Other assets                                                          508,431      (1,977,779)            429,933
             Other liabilities                                                 (1,490,094)        2,073,567        (5,647,769)
                                                                             -------------       ----------       ------------
       Net cash provided by (used in ) operating activities                    (2,482,229)          130,113        (4,860,870)
                                                                             -------------       ----------       ------------

       Cash flow provided by (used in) investing activities:
             Purchase of investment securities                                   (474,780)         (78,000)          (980,412)
             Proceeds from sales of investment
               securities                                                          541,460        1,222,219            605,313
             Proceeds from maturities/paydowns of
               investment securites                                                    249            3,993            332,116
             Net change in Michigan BIDCO equity
               investments                                                         648,126          197,302                  0
             Loans granted, net of repayments                                    1,156,636      (5,615,966)          4,144,272
             Premises and equipment expenditures, net                            (679,790)        (273,997)          (255,485)
                                                                             -------------      -----------        -----------
       Net cash (used in) provided by investing activities                       1,191,901      (4,544,449)          3,845,804
                                                                             -------------      -----------        -----------

       Cash flow provided by (used in) financing activities:
             Change in deposits                                                  2,018,857        4,381,278       (11,168,662)
             Change in short term borrowings                                   (4,002,388)          980,094          2,836,860
             Issuance of long term borrowings                                    1,000,000                0          1,259,019
             Issuance of equity conversion notes                                   212,904          231,000            304,000
             Principal payments on long term borrowings                          (268,624)        (403,986)          (132,000)
                 Payment of preferred dividends                                   (52,244)
             Issuance of preferred stock                                           520,096          190,000                  0
             Issuance of common stock                                              152,657           31,250             50,282
             Purchase of treasury stock                                                  0                0                  0
             Conversion of BIDCO bonds and buyout of
               minority interests                                                        0                0            170,872
                                                                             -------------       ----------      -------------
              Net cash provided by (used in) financing
               activities                                                        (418,742)        5,409,636        (6,679,629)
                                                                             -------------       -----------     -------------

                 Net change in cash and cash
                   equivalents                                                 (1,709,070)          995,300        (7,694,695)
       Cash and cash equivalents:
            Beginning of year                                                    2,546,620        1,551,320         9,246,015
                                                                             -------------     -----------       ------------
          End of year                                                     $      837,550     $  2,546,620      $   1,551,320
                                                                             =============      ===========       ============
       Supplemental disclosure of cash flow information:
             Cash paid for interest                                       $    2,053,920     $  1,888,083      $    2,141,515

       Supplemental disclosure of non-cash ransactions:
             BIDCO conversion of bonds to common stock                                                         $     26,117
             Preferred stock converted to common stock                           1,458,000
             Equity conversion notes converted to
               preferred stock                                                     212,904          535,000


           De-consolidation of Michigan BIDCO, Inc.:
             Cash (deposits at University Bank)                                              $  (1,746,466)
             Equity investments of Michigan BIDCO, Inc.                                           (595,663)
             Loans                                                                                (518,567)
             Premises & equipment                                                                  (50,724)
             Real estate owned                                                                     (12,313)
             Other assets                                                                          (70,857)
             Long-term borrowings                                                                   993,000
             Other Liabilities                                                                      724,206
             Investment in Michigan BIDCO,Inc.                                                    1,277,384
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.



1.       Summary of significant accounting policies

        Principles of Consolidation and Nature of Operations The consolidated
        financial statements of University Bancorp, Inc. (the Company) include
        the operations of its wholly-owned subsidiary, University Bank (the
        Bank), the Bank's wholly-owned subsidiary, University Insurance &
        Investment Services, Inc.(Agency) and an 80% owned subsidiary, Midwest
        Loan Services, Inc. (Midwest). In 1999, the consolidated financial
        statements also include an 80% owned subsidiary, Michigan BIDCO (BIDCO).
        Due to the reduction in the Company's ownership percentage, this entity
        is accounted for using the equity method at December 31, 2001 and 2000.
        The accounts are maintained on an accrual basis in accordance with
        generally accepted accounting principles and predominant practices
        within the banking and mortgage banking industries. All significant
        intercompany balances and transactions have been eliminated in preparing
        the consolidated financial statements.

        The Company is a bank holding company. University Bank, which is located
        in Michigan, is a full service community bank, which offers all
        customary banking services, including the acceptance of checking,
        savings and time deposits. The Bank also makes commercial, real estate,
        personal, home improvement, automotive and other installment, credit
        card and consumer loans, and provides fee based services such as annuity
        and mutual fund sales, stock brokerage and money management, life
        insurance, property casualty insurance and foreign currency exchange.
        The Bank's customer base is primarily located in the Ann Arbor, Michigan
        area. The Bank established its main office in Ann Arbor in February
        1996, by relocating from the eastern Upper Peninsula of Michigan.

        University Bank's loan portfolio is concentrated in Ann Arbor and
        Washtenaw County, Michigan. While the loan portfolio is diversified, the
        customers' ability to honor their debts is partially dependent on the
        local economy. The Ann Arbor area is primarily dependent on the
        education, healthcare, services, and manufacturing (automotive and
        other) industries. Most real estate loans are secured by residential or
        commercial real estate and business assets secure most business loans.
        Generally, installment loans are secured by various items of personal
        property.

        University Insurance and Investments Services (Agency) is engaged in the
        sale of insurance products including life, health, property and
        casualty, and investment products including annuities, mutual funds,
        stock brokerage and money management. The Agency is located in the
        Bank's Ann Arbor main office. The Agency also has a limited partnership
        investment in low-income housing tax credits through Michigan Capital
        Fund for Housing Limited Partnership I with financing assistance from
        the General Partner, Michigan Capital Fund for Housing.

        Midwest Loan Services (Midwest) is engaged in the business of servicing
        and subservicing residential mortgage loans. Midwest began operations in
        1992 and was acquired by University Bank in December, 1995. Midwest is
        based in Houghton, Michigan, and is a specialist in servicing loans for
        itself and other financial institutions, including the Bank (See Note
        4).


1.       Summary of significant accounting policies (continued)

        Use of Estimates in Preparing Financial Statements: The preparation of
        financial statements in conformity with generally accepted accounting
        principles requires management to make estimates and assumptions based
        upon available information. These estimates and assumptions affect the
        reported amounts and disclosures. Actual results could differ from those
        estimates.

        The significant estimates incorporated into these consolidated financial
        statements which are more susceptible to change in the near term include
        the value of mortgage servicing rights, the allowance for loan losses,
        the identification and valuation of impaired loans, the equity interest
        in the fair value and the change in the fair value of investments made
        by the BIDCO, the fair value of financial instruments, and the valuation
        of deferred tax assets.

        Cash flow reporting
        For purposes of the Consolidated Statements of Cash Flows, cash and cash
        equivalents is defined to include the cash on hand, non-interest bearing
        deposits in other institutions, federal funds sold and other investments
        with a maturity of three months or less when purchased. Net cash flows
        are reported for customer loan and deposit transactions and interest
        bearing deposits with other banks.

        Securities
        Securities are classified as available for sale when they might be sold
        before maturity. Securities available for sale are carried at fair
        value, with unrealized holding gains and losses reported in other
        comprehensive income or loss. Realized gains are based on specific
        identification of amortized cost. Securities are written down to fair
        value when a decline in fair value is not temporary. Interest income
        includes amortization of purchase premium or discount. Other securities
        such as Federal Home Loan Bank stock are carried at cost.

        Loans
        Loans are reported at the principal balance outstanding, net of unearned
        interest, deferred loan fees and costs, and an allowance for loan
        losses. Interest income is reported on the interest method and includes
        amortization of net deferred loan fees and costs over the loan term.
        Interest income is not reported when full loan repayment is in doubt,
        typically when payments are past due over 90 days. Payments received on
        such loans are reported as principal reductions, unless all interest and
        principal payments in arrears are paid in full.

       Mortgage banking activities
        Mortgage banking activitie includes retail and servicing operations.
        Mortgage loans held for sale are valued at the lower of cost or market
        as determined by bid prices for loans in the secondary market. The loans
        are sold without recourse, except in the event that documentation errors
        are made during the origination process.

1.       Summary of significant accounting policies (continued)

        Allowance for loan losses
        The allowance for loan losses is a valuation allowance for probable
        credit losses, increased by the provision for loan losses and recoveries
        and decreased by charge-offs. Management estimates the allowance balance
        required based on past loan loss experience, known and inherent risks in
        the portfolio, information about specific borrower situations and
        estimated collateral values, economic conditions, and other factors.
        Allocations of the allowance may be made for specific loans, but the
        entire allowance is available for any loan that, in management's
        judgment, should be charged-off.

        Loan impairment is reported when full payment under the loan terms is
        not expected. Impairment is evaluated in total for smaller-balance loans
        of similar nature such as residential mortgage, consumer, and credit
        card loans, and on an individual loan basis for other loans. If a loan
        is impaired, a portion of the allowance is allocated so that the loan is
        reported, net, at the present value of estimated future cash flows using
        the loan's existing rate or at the fair value of collateral if repayment
        is expected solely from the collateral. Loans are evaluated for
        impairment when payments are delayed, typically 90 days or more, or when
        it is probable that all principal and interest amounts will not be
        collected according to the original terms of the loan.

        Premises and equipment
        Bank premises and equipment are stated at cost less accumulated
        depreciation. Depreciation is computed primarily on the straight-line
        method for bank premises and the accelerated method for equipment and
        land improvements over their estimated useful lives. The Company uses
        the following useful lives as of December 31, 2001:

          Buildings and building improvements ..............           39 years
          Land and leasehold improvements ..................           15 years
          Furniture, fixtures, and equipment ..............           3-7 years
          Software ........................................           2-5 years

        Other real estate owned
        Real estate properties acquired in collection of a loan are recorded at
        fair value upon acquisition. Any reduction to fair value from the
        carrying value of the related loan is accounted for as a loan loss.
        After acquisition, a valuation allowance reduces the reported amount to
        the lower of the initial amount or fair value less costs to sell.
        Expenses, gains and losses on disposition, and changes in the valuation
        allowance are reported in other expenses.

        Servicing rights
        Servicing rights represent both purchased rights and the allocated value
        of servicing rights retained on loans originated and sold. Servicing
        rights are expensed in proportion to, and over the period of, estimated
        net servicing revenues. Impairment is evaluated based on the fair value
        of the

1.       Summary of significant accounting policies (continued)

        rights, using grouping of the underlying loans as to type, term and
        interest rates. Any impairment of a grouping is reported as a valuation
        allowance.

        Income taxes
        Income tax expense/benefit is the sum of the current year estimated tax
        obligation or refund per the income tax return, and the change in the
        estimated future tax effects of temporary differences and carryforwards.
        Deferred tax assets or liabilities are computed by applying enacted
        income tax rates to the expected reversals of temporary differences
        between financial reporting and income tax reporting, and by considering
        carryforwards for operating losses and tax credits. A valuation
        allowance adjusts deferred tax assets to the net amount that is more
        likely than not to be realized.

        Retirement plan
        The Bank has a 401-k Plan that allows an employee to contribute up to
        15% of salary pre-tax, to the allowable limit prescribed by the Internal
        Revenue Service. Management has discretion to make matching
        contributions to the Plan. However, the Bank made no matching
        contributions for the years ended December 31, 2001, 2000 and 1999.

        Employees Stock Ownership Plan (ESOP)
        The Company has a noncontributory ESOP covering all full-time employees
        who have met certain service requirements. The employees' share in the
        Company's contribution is based on their current compensation as a
        percentage of the total employee compensation. As shares are contributed
        to the plan they are allocated to employees and compensation expense is
        recorded at the shares' fair value. The Company made no contribution in
        2000 and 2001.

        Stock options
        No expense for stock options is recorded, as the grant price equals the
        market price of the stock at grant date. Pro-forma disclosures show the
        effect on income and earnings per share had the options' fair value been
        recorded using an option pricing model.

        Dividend restriction
        Banking regulations require the maintenance of certain capital levels
        and may limit the amount of dividends that may be paid by the bank to
        the holding company or by the holding company to shareholders. In
        addition, the Bank cannot pay a dividend until it has net retained
        earnings. The accumulated deficit of the Bank was $2,205,875 and
        $1,846,627 at December 31, 2001 and 2000, respectively.

        Earnings (loss) per share
        Basic earnings (loss) per share is net income (loss) of the Company
        (after the dividend requirement for preferred stock) divided by the
        weighted average common shares outstanding for the year. Diluted
        earnings per share includes the issuance of any additional dilutive
        potential common shares.

1.       Summary of significant accounting policies (continued)

        Earnings (loss) per share and share amounts have been adjusted for stock
        dividends and splits.

        Comprehensive Income (Loss):
        Comprehensive income (loss) includes both the net loss and the change in
        unrealized gains and losses on securities available for sale.

        Segment Reporting
        The Company's segments are determined by the products and services
        offered, primarily distinguished between banking and mortgage banking
        operations. Loans, investments, and deposits provide the revenues in the
        banking operation, and servicing fees, underwriting fees and loan sales
        provide the revenues in mortgage banking. All operations are domestic.

        Reclassification
        Certain items in the 2000 and 1999 consolidated financial statements and
        notes have been reclassified to conform to the 2001 presentation.


2.     Discontinued Operations
        In 1999, University Bank sold its investment in two mortgage banking
        subsidiaries, Varsity Mortgage, LLC and Varsity Funding Services, LLC,
        which were based in Farmington Hills, Michigan. These subsidiaries
        specialized in the wholesale mortgage banking business, which involved
        the purchase from correspondents, and the sale to the secondary market,
        of conforming and nonconforming residential loans, respectively. The
        Company sold Varsity Funding's operating subsidiary, MortgageQuest in a
        transaction that resulted in no gain or loss to the Company and
        effectively dissolved Varsity Funding. In November 1999, the Company
        sold Varsity Mortgage in a transaction that resulted in no gain or loss
        to the Company. Accordingly, the statement of operations reflects these
        disposals as discontinued operations for the year ended December 31,
        1999. The following schedule discloses the detail of income/loss from
        discontinued operations:

                                                                            1999
         Interest and fees on loans .....................       $   527,136
         Interest expense ...............................           318,383
         Provision for loan losses ......................                 0
         Mortgage banking income ........................         1,722,568
         Other income ...................................            42,433
         Salaries and benefits ..........................         1,153,677
         Occupancy ......................................           158,758
         Data processing ................................            69,913
         Supplies and postage ...........................            65,709
         Mortgage banking expense .......................           558,833
         Travel and entertainment .......................            22,537
         Consultant fees ................................            10,450
         Other operating expenses .......................           125,632
         Pretax income (loss) from discontinued operations      $  (191,755)


3.     Michigan BIDCO, Inc.
        BIDCO was incorporated for the purpose of providing financing to small
        businesses located in Michigan for the purpose of creating business and
        industrial development in the State of Michigan. BIDCO is licensed under
        the Michigan BIDCO Act, and is regulated by the Michigan Office of
        Financial and Insurance Services, Bank and Trust Division. The Chairman
        and President of the Company serve as officers and directors of BIDCO.

        Upon formation, Michigan BIDCO received $3 million from the State of
        Michigan (Michigan Strategic Fund or MSF). As BIDCO monitors each loan
        and investment, it determines the increase or retention in number of
        jobs and annual sales volume of each investee company. This increase or
        retention is then used to determine the credits earned and applied
        against interest and principal due to the MSF. The financial statements
        of BIDCO are stated using the prescribed accounting practices of
        investment companies. Prior to March 31, 1999, the Company's investment
        in BIDCO was accounted for under the equity method of accounting. On
        April 1, 1999, the Company increased its ownership of BIDCO to 80.1% and
        it became a consolidated subsidiary of the Company.

        On May 31, 2000, BIDCO converted its outstanding convertible bonds into
        common stock (a few convertible bonds were also redeemed at that time).
        With the conversion of these convertible bonds, the Company's
        consolidated ownership in BIDCO dropped from 80.1% to 28.8%. Subsequent
        to May 31, 2000, the BIDCO has been excluded from the Company's
        consolidated financial results and the Company's investment in BIDCO is
        now being accounted for using the equity method of accounting. At
        December 31, 2000, the Company owned 31.5% of BIDCO (of which 27.1% was
        held by the Bank and 4.4% by the Company). At December 31, 2001, the
        Bank's shares in the BIDCO were redeemed by the BIDCO in exchange for
        cash of $153,417 and preferred stock with a liquidation preference of
        $600,000. The preferred stock pays 7.5% annual dividends, payable in
        equal monthly installments and it can be retired at par value by the
        Bank, as cash is available. Total equity of BIDCO was $480 thousand and
        $2.9 million at December 31, 2001 and 2000, respectively.


4.      Secondary Market Operations
        Midwest Loan Services provides servicing and subservicing of real estate
        mortgage loans for University Bank and several other financial
        institutions. The unpaid principal balance of these loans was
        approximately $565 million, $2.2 billion and $352 million as of December
        31, 2001, 2000 and 1999 respectively. Custodial escrow balances
        maintained in connection with these respective loans was $18.4 million,
        $38.5 million, and $6.5 million, at December 31, 2001, 2000 and 1999
        respectively. The following summarizes the operations of Midwest for the
        years ended December 31:







4.       Secondary Market Operations (continued)

<TABLE>

<CAPTION>
                                                                            2001                 2000                1999
<S>                                                                  <C>                  <C>                 <C>
      Loan servicing and subservicing fees                           $ 1,574,615          $ 1,073,673         $   547,142
      Loan set-up and other fees                                       1,665,664              597,308             412,728
      Interest income                                                    229,625              415,630              50,796
      Gain on sale of loans                                               60,655               29,249              43,616
                                                                       ---------            ---------           ---------
           Total income                                                3,530,559            2,115,860           1,054,282

      Salaries and benefits                                            1,706,795              773,569             466,060
      Amortization expense                                               312,232              153,170             153,336
      Interest expense                                                     2,389                7,661              15,084
      Other operating expenses                                         1,148,891              677,410             492,738
           Total expenses                                              3,170,307            1,610,810           1,127,218
                                                                       ---------            ---------           ---------
                 Pretax income from Midwest                          $   360,252          $   504,050         $   (72,936)
                                                                       =========            =========           =========
</TABLE>

        University Bank sells conforming residential mortgage loans to the
        secondary market. These loans are owned by other institutions and are
        not included in the Company's consolidated balance sheets. Such mortgage
        loans have been sold predominately without recourse or with limited
        recourse. The unpaid principal balance of these loans was $2.3 million,
        $3.6 million and $64.4 million at December 31, 2001, 2000 and 1999
        respectively.

        Following is an analysis of the change the Company's mortgage servicing
        rights:

                                             2001           2000           1999
Balance, January 1 ................     $ 582,210      $ 704,164      $ 948,208
Additions - originated ............       349,348         49,175        129,905
Bulk sale of servicing rights .....      (159,690)
Amortization expense ..............      (325,021)      (171,129)      (214,259)
                                         ---------      ---------      ---------
Balance, December 31 ..............     $ 606,537      $ 582,210      $ 704,164
                                         ========       =========      =========

        There was no valuation allowance necessary at December 31, 2001, 2000 or
        1999.

5.      Securities available for sale
        The following is a summary of the amortized cost, gross unrealized
        gains, gross unrealized losses and fair value of securities available
        for sale at December 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                               December 31, 2001
                                                Amortized     Gross Unrealized        Fair
                                                 Cost      Gains        Losses        Value
<S>                                           <C>                    <C>             <C>
    U.S. agency mortgage-backed               $1,948,000      -     $ (111,000)     $1,837,000
    U.S. Treasury                                479,000      -        (56,000)        423,000
                                               ---------  --------    ---------      ---------
    Total                                     $2,427,000 $    -     $ (167,000)     $2,260,000
                                               =========  ========   ==========      =========

</TABLE>
<TABLE>

<CAPTION>
                                                             December 31, 2000
                                                Amortized     Gross Unrealized       Fair
                                                 Cost       Gains      Losses        Value
<S>                                          <C>                    <C>            <C>
    U.S. agency mortgage-backed              $1,774,000      -      $(293,000)     $1,481,000
    U.S. Treasury                               506,000      -        (42,000)        464,000
                                              ---------  --------   ----------       ---------
    Total                                    $2,280,000 $    -      $(335,000)     $1,945,000
                                              =========  ========   ==========       =========
</TABLE>


        All of the securities at December 31, 2001 and 2000 were pledged to
secure certain borrowings.
<TABLE>
<CAPTION>

      Sales of available for sale securities:                      2001                2000                1999
<S>                                                            <C>               <C>                  <C>
               Proceeds                                        $541,460          $1,222,219           $ 605,313
               Realized gains                                    12,639              24,126               2,504
               Realized losses                                        -               6,340              17,981
</TABLE>

        The scheduled maturity date of the securities available for sale at
December 31, 2001 is:
<TABLE>
<CAPTION>

                                                 Amortized              Fair
                                                      Cost             Value
<S>                  <C>                        <C>               <C>
                     2002                       $        0        $        0
                     2003-2006                           0                 0
                     2007-2011                           0                 0
                     After 2011                  2,427,000         2,260,000
                                                $2,427,000        $2,260,000
</TABLE>

6.      Loans
        Major classifications of loans are as follows as of December 31:
<TABLE>
<CAPTION>

                                                2001                  2000
<S>                                         <C>                   <C>
      Commercial                            $ 15,088,956          $ 13,686,729
      Real estate - mortgage                  13,377,240            15,525,725
      Real estate - construction               2,683,594             1,061,950
      Installment                              3,795,288             5,839,640
      Credit cards                                80,946                92,500
                                              ----------            ----------
         Gross Loans                          35,026,024            36,206,544
      Allowance for loan losses                 (579,113)             (562,997)
                                               ----------            ----------
         Net Loans                           $ 34,446,911          $ 35,643,547
                                               ==========            ==========
</TABLE>

        Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
                                                                             2001                  2000                  1999
<S>                                                                       <C>                   <C>                   <C>
      Balance, beginning of year                                          $ 562,997             $ 532,585             $ 459,001
      Provision charged to operations                                        40,000               111,000                92,648
      Recoveries                                                             20,058                63,708                47,206
      Charge-offs                                                          (43,942)             (144,296)              (66,270)
                                                                           ---------             --------              --------
      Balance, end of year                                                $ 579,113             $ 562,997             $ 532,585
                                                                           =========             ========              ========

</TABLE>


        Past due and non-accrual loans at December 31 are summarized as follows:

                                                    2001                  2000
      Past due loans:
      90 days and more and still accruing:
            Real estate                         $ 276,654             $ 457,486
            Installment loans                      24,194                 4,059
            Commercial loans                      194,404               158,299
                                                  -------               -------
                                                $ 495,252             $ 619,844
                                                  =======               =======
      Non accrual loans:
            Real estate - mortgage and
               construction loans               $ 770,024              $ 72,375
            Installment loans                           0                     0
            Commercial loans                            0                     0
                                                  -------               -------
                                                $ 770,024              $ 72,375
                                                  =======               =======


        Information regarding impaired loans for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>

      Impaired loans:                                                         2001                 2000                  1999
<S>                                                                        <C>                  <C>                   <C>
      Loans with no allowance allocated                                    $       0            $       0             $ 489,510
      Loans with allowance allocated                                       $ 770,024            $  72,375             $  51,229
      Amount of allowance for loan losses allocated                        $  76,501            $  10,774             $   7,684

      Impaired loans:
      Average balance during the year                                      $ 770,714            $  72,199             $ 489,551
      Interest Income recognized thereon                                   $   8,454            $   5,017             $   2,548
      Cash-basis interest income recognized                                $   8,454            $       0             $       0

</TABLE>



7.            Premises and equipment
        Classifications at December 31 are summarized as follows:
<TABLE>
<CAPTION>
                                                                              2001               2000                       1999
<S>                                                                    <C>                  <C>                       <C>
      Land                                                             $   132,931          $   132,931               $   132,931
      Buildings and improvements                                         1,134,555            1,030,120                   999,788
      Furniture, fixtures, equipment and software                        2,195,652            1,613,445                 1,501,221
      Construction in process                                                -                    6,852                    11,513
                                                                        ----------            ---------                 ---------
                                                                         3,463,138            2,783,348                 2,645,453
                     Less:  accumulated depreciation                   (1,676,120)           (1,407,591)               (1,240,242)
                                                                        ----------            ----------                ----------
            Net premises and equipment                                 $ 1,787,018          $ 1,375,757               $ 1,405,211
                                                                        ==========            ==========                ==========
</TABLE>


        Depreciation expense amounted to $268,529, $252,726 and $357,647 for the
        years ended December 31, 2001, 2000 and 1999, respectively.

        The Bank leased part of its main office in Ann Arbor to the University
        of Michigan. Under this lease agreement (which expired in September
        2001), the Bank was reimbursed for 40.4% of its occupancy expense. The
        Bank leases an ATM drive-thru location in Ann Arbor for approximately
        $25,000 per year and two off-site ATM locations for $10,900 per year.
        Midwest leases its office space for approximately $7,000 per year in
        Houghton, Michigan. Total rental expense for all operating leases was
        $50,995, $61,892 and $131,654 in 2001, 2000 and 1999. As of December 31,
        2001, the Company had no minimum rental commitments under non-cancelable
        operating leases.

        The Bank remains contingently liable in the event that the purchaser of
        one of its branch locations in Sault Ste. Marie does not meet its future
        obligations to the lessor. As of December 31, 2001, management believes
        that the purchaser was in compliance with these lease terms. The annual
        base rent for such branch is currently $32,000, and the future minimum
        rent due is $58,000.


8.            Time deposits
        Time deposit liabilities issued in denominations of $100,000 or more
        were $5,499,041 and $3,461,940 at December 31, 2001 and 2000
        respectively.

        At December 31, 2001, stated maturities of time deposits were:

                                      2002                        $19,275,343
                                      2003                          3,217,449
                                      2004                            557,410
                                      2005                              4,563
                                      2006                            328,337
                                Thereafter                            382,376
                                                                   ----------
                                                                     $23,765,478
                                                                   ==========

        The Bank had issued through brokers $10,656,000 and $13,021,000 of time
        deposits as of December 31, 2001 and 2000, respectively. These time
        deposits have maturities ranging from one to five months and are
        included

8.       Time deposits (continued)

        in the table above. These deposits are issued in denominations of less
        than $100,000.

        The Bank had deposits of $896,793 and $1,646,812 from directors,
        officers and their affiliates as of December 31, 2001 and 2000,
        respectively.


9.            Stock options
        In 1993, the Board of Directors approved the grant of options to
        purchase 60,000 shares of common stock to the non-executive directors.
        The exercise price of options granted was set at $2.08 per share, which
        was the then current bid price per share as reported by NASDAQ. The
        options are immediately exercisable and expire July 19, 2003. Under this
        initial grant, options to purchase 30,000 shares remain outstanding as
        of December 31, 2001. In 1995, the Company adopted a stock option and
        stock award plan (the 1995 Stock Plan), which provides for the grant of
        incentive stock options, as defined in Section 422(b) of the Internal
        Revenue Code of 1986, as amended, as well as the grant of non-qualified
        stock options and other stock awards. The plan provides for the grant to
        officers, directors and key employees of the Company, and independent
        contractors providing services to the Company, of options to purchase
        and other awards of common stock. The exercise price of options granted
        under the plan shall be determined by the Board of Directors, or a
        compensation committee thereof. Options shall expire on the date
        specified by the Board of Directors or such committee, but not more than
        10 years from the date of grant (or five years from the date of grant
        for incentive stock options if the grantee owned 10% of the Company's
        voting stock at the date of grant). Unless amended, the 1995 Stock Plan
        will terminate on November 15, 2005.

        The following table summarizes the activity relating to options to
purchase the Company's common stock:

                                                Number of
                                                Options


      Outstanding at December 31, 1998         180,750         $2.83

      Granted - 1999 ($0.92 Fair Value)         30,315          2.40
      Forfeited - 1999                         (60,000)         3.00
                                               --------
        Outstanding at December 31, 1999       151,065        $2.64
        `                                      --------

      Granted - 2000 ($0.65 Fair Value)         74,594          $2.08
      Exercised - 2000                         (15,000)          2.08
      Forfeited - 2000                         (45,750)          3.11
                                               --------
        Outstanding at December 31,2000         164,909         $2.30
                                               --------

      Granted - 2001 ($0.65 Fair Value)         100,000         $3.00
      Exercised - 2001                          (5,000)          1.75
      Forfeited - 2001                          (8,000)          2.00
                                               --------
        Outstanding at December 31, 2001        251,909         $2.60
                                               ========
9.              Stock options (continued)

        At December 31, 2001:
        Number of options immediately exercisable 117,209 Weighted average
        exercise price of immediately exercisable options $2.52 Range of
        exercise price of options outstanding $1.75 - $3.00 Weighted-average
        remaining life of options outstanding 3.1 years

        SFAS No. 123 requires pro forma disclosures for companies that do not
        adopt the fair value accounting method for stock-based employee
        compensation. Accordingly, the following pro forma information presents
        net loss and loss per share had the Standard's fair value method been
        used to measure compensation cost for stock options granted since 1996.
        Compensation cost recognized for stock options under APB No. 25 was $0
        for 2001and 2001, because options were granted at exercise prices equal
        to the underlying stock prices at date of grant. At December 31, 2001,
        the Company had 124,776 shares authorized for future grants.




                                           2001          2000             1999
           Estimated fair value stock options granted: Assumptions used:
               Risk-free interest rate   5.43%        5.37%            5.75%
               Expected option life      2.6 years    3.6 years        5.3 years
               Expected stock price
                   volatility            21.6%        24.6%            27.7%
               Expected dividends          $0           $0               $0

           Pro-forma net loss and loss per share, assuming FAS 123 fair value
              method was used for stock options:
                Net loss            $(378,573)      $(963,250)        $(932,405)
                Loss per share         $(.016)         $(0.46)           $(0.46)


10.       Employee stock ownership plan (ESOP)
        The employees' allocation of ESOP assets is based on their current
        compensation, after 1 year of service and upon reaching the age of 21.
        The annual contribution to the ESOP is at the discretion of the Board of
        Directors. For the year ended December 31, 1999, the Company made a
        contribution to the plan of 23,662 shares of University Bancorp common
        stock with an approximate fair market value at the time of the
        contribution of $50,282. Assets of the plan are comprised entirely of
        91,462 shares of the Company's stock at December 31, 2001 and 2000, all
        of which were fully allocated at December 31, 2001. Upon retirement from
        the plan, participants can receive distributions of their allocated
        shares of the Company's stock. The assets of the ESOP are held in trust
        and were valued at approximately $101,000, and $172,000 at December 31,
        2001 and 2000, respectively.


11.     Minority Interest
        The Bank owns an 80% interest in the common stock of Midwest Loan
        Services, with the remaining 20% owned by the President of Midwest. At
        December 31, 2001 and 2000, total common stockholders' equity of Midwest
        was $1,525,644 and $1,413,752 resulting in a $305,129 and $282,750
        minority interest reflected on the Company's consolidated balance sheet,
        respectively. The results of Midwest's operations for 2001, 2000 and
        1999 are included in the Company's consolidated statement of operations.


12.     Commitments and contingencies
        The Bank is party to financial instruments with off-balance sheet risk
        in the normal course of business to meet the financing needs of its
        customers. These financial instruments include commitments to buy, sell
        and fund loans, letters of credit and unused lines of credit. The Bank's
        exposure to credit loss in the event of non-performance is equal to or
        less than the contractual amount of these instruments. The Bank follows
        the same credit policy to make such commitments as that followed by
        loans recorded in the consolidated financial statements. The following
        is a summary of commitments as of December 31:

                                                2001                     2000
        Unused lines of credit             $ 2,808,000              $ 2,144,000
        Commitments to fund loans          $ 3,085,000              $ 3,240,000
           Total                           $ 5,893,000              $ 5,384,000


13.      Related party transactions
        The Company's Chairman and President also serve as officers and
        directors of Michigan BIDCO. As such, the Chairman and President are
        actively involved in the BIDCO's operations, including investment
        activity and estimation of the fair value of its equity investments.

        In connection with the Agency's investment in Michigan Capital Fund LPI,
        the Bank was not permitted by regulation to guarantee a loan from the
        Michigan Housing Development Authority. The loan to the Agency is
        personally guaranteed by the Company's Chairman and common stock of the
        Company held by a trust for the benefit of the President of the Company
        was pledged as additional security for the loan.

        In July 2000, the Company's Chairman purchased equity securities from
        the Company for $58,125, resulting in a gain to the Company of $20,625.

        During 2001, the Company issued $733,000 of preferred stock, of which
        $212,904 was originated from the conversion of equity conversion notes.
        The preferred shares were issued to the Company's Chairman, the
        Chairman's wife, the President and related family trusts. In November
        2001, the preferred shares of $1,458,000 were converted to common stock
        pursuant to the stock rights offering agreement.

        In November 2000, the Company issued $725,000 of preferred stock of
        which $535,000 was originated from the conversion of equity conversion
        notes. The

13.      Related party transactions (continued)

        preferred shares were issued to the Company's Chairman, the Chairman's
        wife, the President and related family trusts

        The Bank had loans of $15,830 and $106,291 to related officers and
        directors at December 31, 2001 and 2000, respectively.



14.             Income taxes
       Federal income taxes consist of the following:

                                        2001         2000           1999
      Current expense (benefit)        $   0        $   0          $   0
      Deferred expense (benefit)           0            0         32,524
      Total                            $   0        $   0        $32,524
      year

        The net deferred tax asset at December 31, 2001 and 2000 is comprised of
        the following:

                                                2001               2000
      Allowance for loan losses               178,183            164,583
      Net operating loss carry-forward        582,669            616,834
      Tax credit carryforward                 743,749            670,934
      Donation carryforward                    76,666             75,183
      Other                                    44,816             36,243
            Deferred tax assets             1,626,083          1,563,777


      Servicing rights                       (206,223)          (197,951)
           Deferred tax liabilities          (206,223)              (197,951)

           Net deferred tax asset         $ 1,419,860            $ 1,365,826
           Valuation allowance for
            deferred tax assets            (1,419,860)            (1,365,826)
           Net deferred tax asset               $   0                  $   0



        The Company has net operating loss carryforwards of approximately
        $1,714,000 which expire beginning in 2012; and general business credit
        carryforwards of approximately $744,000 which expire beginning in 2011.
        In addition, the Company has an alternative minimum tax (AMT) credit
        carryforward of approximately $115,000. Under current tax regulations,
        the AMT credit can be carried forward indefinitely. Management has
        established an allowance against deferred tax assets that are not
        considered realizable at December 31, 2001 and 2000.

        Financial statement tax expense amounts differ from the amounts computed
        by applying the statutory federal tax rate of 34% to pretax income
        because of

14.      Income taxes (continued)

        operating losses and valuation allowances recorded to reduce deferred
        tax assets as noted above.


15.       Short Term Borrowings
        The Bank has a line of credit available from the Federal Home Loan Bank
        (the FHLB) in the amount of $5 million and $6 million at December 31,
        2001 and 2000, respectively. At December 31, 2001, borrowings are
        secured by the pledge of specific mortgage loans held for investment
        with unpaid principal balances of $6.8 million and available-for-sale
        securities with a balance of $2.3 million.

        The Bank has a line of credit available from the Federal Reserve Bank of
        Chicago (the FRB) in the amount of $2.1 million. There were no amounts
        outstanding on this line from the FRB at December 31, 2001 and 2000.
        Borrowings are secured by the pledge of specific commercial loans held
        for investment with unpaid principal balances of $3.0 million. The
        following information provides a summary of short-term borrowings for
        the years indicated:


                                                    2001             2000
      Amount outstanding at the end of the
       year and  interest rate                $  91,566 2.95% $4,093,954  5.70%

      Maximum amount of borrowing outstanding
       at any month end during the year       $3,505,607      $5,852,017

         Average amount outstanding during the
          year and weighted average
          interest rate                      $1,931,660 4.52% $3,589,958   .73%


16.       Long Term Borrowings
        The Company has a note payable to North Country Bank & Trust (NCB&T)
        secured by the stock of the Bank with a balance of $430,000 and $532,000
        at December 31, 2001 and 2000, respectively. The note has a maturity
        date of February 15, 2005. Interest is payable quarterly at the prime
        rate (5.75%) of NCB&T plus 1.00 percent. Principal payments required are
        as follows:

                           2002                                     $132,000
                           2003                                     $132,000
                           2004                                     $132,000
                           2005                                     $ 34,000
                           Total                                    $430,000

        Dividends by the Bank to the holding company in excess of the prior
        year's annual net income are not permitted without prior permission from
        NCB&T under the terms of the Company's credit facility.


16.       Long Term Borrowings (continued)

        University Insurance and Investment Services Inc. has an obligation of
        $227,506 and $364,130 at December 31, 2001 and 2000, respectively,
        payable to the Michigan Capital Fund for Housing Nonprofit Housing
        Corporation in connection with its investment in a low-income housing
        limited partnership. Payments are due on demand, but are expected to be
        funded as follows:

                           2002                                     $136,624
                           2003                                     $ 90,882
                           Total                                    $227,506

        In December 2001, the Federal Home Loan Bank advanced the Company a
        $1,000,000, two year fixed rate bullet loan. The loan carries an
        interest rate of 3.62%

        University Bancorp issued equity conversion notes in the amount of
        $212,904 and $231,000 during 2001 and 2000, respectively. In both years,
        the notes were redeemed from the proceeds of the sale of convertible
        preferred stock. No conversion notes were issued by the Company as of
        December 31, 2001 and 2000.

        The following summarizes the expected maturity of long-term borrowings
        at December 31,2001 :

                           2002                                     $268,624
                           2003                                   $1,222,882
                           2004                                     $132,000
                           2005                                    $  34,000
                           Total                                  $1,657,506


17.      Earnings (loss) per common share
        Due to the net losses in 2001, 2000 and 1999 the stock options
        outstanding were considered anti-dilutive and are not included in loss
        per share calculations. As a result, both basic and diluted earnings per
        share available to common are equal to net loss divided by weighted
        average common shares outstanding.


18.       Regulatory matters
        University Bank is subject to various regulatory capital requirements
        administered by the federal banking agencies. Failure to meet minimum
        capital requirements can initiate certain mandatory, and possibly
        additional discretionary, actions by regulators that, if undertaken,
        could have a direct material effect on the Company'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 practices. The Bank's capital amounts and
        classification are also subject to qualitative judgments by regulators
        about components, risk weightings, and other factors.


18.       Regulatory matters (continued)

        The Bank is also subject to prompt corrective action capital requirement
        regulations set forth by the FDIC. The FDIC requires the Bank to
        maintain a minimum of total capital and Tier 1 capital (as defined) to
        risk-weighted assets (as defined), and of Tier I capital (as defined) to
        average total assets (as defined). Management believes, as of December
        31, 2001, that the Bank meets all capital adequacy requirements to which
        it is subject. As of December 31, 2001, the most recent guidelines from
        the FDIC categorized the Bank as "well capitalized" under the regulatory
        framework for prompt corrective action. At December 31, 2000 the Bank
        was classified as "adequately capitalized." To be categorized as "well
        capitalized," the Bank must maintain minimum total risk-based, Tier 1
        risk-based, and Tier 1 leverage ratios as set forth in the table. There
        are no conditions or events since that notification that management
        believes have changed the Bank's category.


<TABLE>
<CAPTION>

                                                                                To be Adequately            To Be Well
                                                                                   Capitalized              Capitalized
                                                                                   Under Prompt             Under Prompt
                                                                                  Corrective Action       Corrective Action
                                                          Actual                  Provisions                  Provisions
                                                    [GRAPHIC OMITTED]           [GRAPHIC OMITTED]             [GRAPHIC OMITTED]
                                             Amount          Ratio      Amount            Ratio     Amount            Ratio
       As of December 31, 2001:
       Total capital (to risk weighted
<S>                                               <C>            <C>           <C>            <C>          <C>              <C>
       assets)                                    $3,720,000     10.4 %        $2,870,000     8.0 %        $3,597,000       10.0 %
       Tier I capital (to risk weighted
       assets)                                     3,271,000      9.1 %         1,431,000     4.0 %         2,147,000        6.0 %
       Tier I capital (to average assets)          3,271,000      7.1 %         1,834,000     4.0 %         2,292,000        5.0 %

       As of December 31, 2000:
       Total capital (to risk weighted
       assets)                                    $3,557,000      9.6 %        $2,948,000     8.0 %        $3,685,000       10.0 %
       Tier I capital (to risk weighted
       assets)                                     3,096,000      8.4 %         1,474,000     4.0 %         2,211,000        6.0 %
       Tier I capital (to  average assets)         3,096,000      6.5 %         1,598,000     4.0 %         2,398,000        5.0 %
</TABLE>

        The Bank presently has an agreement with its regulators that no
        dividends to the Company will be declared without the ratio of Tier 1
        capital to average assets at 7% or more and regulatory approval. At
        December 31, 2001, the Bank met this requirement.


19.      Management's Plan Regarding Continuing Operations

        At December 31, 2001, University Bancorp had an accumulated deficit of
        $2,205,444 and recurring losses from operations for the past 5 years.
        Future operations of University Bancorp are intended to continue.
        Management has reviewed operating results, prepared projections of
        possible future results, performed other analyses of its operations to
        reduce operating costs and divested certain of its unprofitable
        subsidiaries. Management of the Company has developed a plan to improve
        core earnings by adding low-cost deposits, adjusting fees, growing the
        loan portfolio of the Bank, and eliminating inefficient or redundant
        costs at the Bank level. Both the Bank and Midwest Loan Services are
        projected to have profits in 2002, however, the Company's continued
        existence is dependent upon its ability to achieve profitable operations
        and maintain adequate capital levels.


20.      Fair Value of Financial Instruments

        The following methods and assumptions were used to estimate fair values
        for financial instruments. The carrying amount is considered to estimate
        fair value for cash and short-term instruments, demand deposits,
        short-term borrowings, accrued interest, and variable rate loans or
        deposits that reprice frequently and fully. Securities fair values are
        based on quoted market prices or, if no quotes are available, on the
        rate and term of the security and on information about the issuer. For
        fixed rate loans or deposits and for variable rate loan or deposits with
        infrequent repricing or repricing limits, the fair value is estimated by
        the discounted cash flow analysis using current market rates for the
        estimated life and credit risk. Fair values for impaired loans are
        estimated using discounted cash flow analyses of underlying collateral
        values, where applicable. Fair value of loans held for sale is based on
        market estimates. Fair value of mortgage servicing rights is estimated
        using discounted cash flows based on current market interest rates net
        of estimated costs of servicing loans. Fair value of mortgage
        subservicing rights is based on a multiple of servicing contract
        revenue. The fair value of debt is based on currently available rates
        for similar financing. The fair value of off-balance sheet items is
        based on the fees or cost that would normally be charged to enter into
        or terminate such agreements. Fair value of unrecognized financial
        instruments include commitments to extend credit and the fair value of
        letters of credit are considered immaterial.


20.      Fair Value of Financial Instruments (continued)

        The carrying amounts and fair values of the Company's financial
instruments were as follows:

                                                      December 31, 2001
                                                Carrying             Fair
        Financial Assets                         Amount              Value
        Cash and short term investments         $ 838,000          $ 838,000
        Securities available for sale           2,427,000          2,260,000
        Federal Home Loan Bank stock              848,000            848,000
        Loans held for sale2,138,000            2,138,000          2,138,000
        Loans, net                             34,447,000         36,549,000
        Mortgage servicing rights                 607,000            607,000
        Accrued interest receivable               863,000            863,000

        Financial Liabilities
        Deposits                               40,198,000         40,855,000
        Short term borrowings                      92,000             92,000
        Long term borrowings                    1,658,000          1,658,000
        Accrued interest payable                  177,000            177,000

                                                      December 31, 2000
                                                 Carrying            Fair
        Financial Assets                          Amount             Value
        Cash and short term investments       $ 2,546,000       $  2,546,000
        Securities available for sale           1,945,000          1,945,000
        Federal Home Loan Bank stock              848,000            848,000
        Loans held for sale268,000                268,000            268,000
        Loans, net                             35,644,000         34,946,000
        Mortgage servicing rights                 582,000            582,000
        Accrued interest receivable               308,000            308,000

        Financial Liabilities
        Deposits                               38,179,000         38,157,000
        Short term borrowings                   4,094,000          4,094,000
        Long term borrowings                      926,000            926,000
        Accrued interest payable                  426,000            426,000

21.      Segment Reporting

        The Company's operations include three primary segments: retail banking,
        mortgage banking, and merchant banking. Through its banking subsidiary's
        branch in Ann Arbor, the Company provides traditional community banking
        services such as accepting deposits, making loans, and providing cash
        management services to individuals and local businesses. Mortgage
        banking activities includes servicing of residential mortgage loans for
        others and discontinued operations have been excluded for 1999 (See Note
        2). Merchant banking is conducted entirely through Michigan BIDCO, which
        makes loans to growing businesses. As additional consideration for the
        loans it makes, BIDCO typically receives equity or options in each
        business. (See Note 3)



21.      Segment Reporting (continued)

        The Company's three reportable segments are strategic business units
        that are separately managed as they offer different products and
        services and have different marketing strategies. In addition, both the
        merchant banking segment and mortgage banking segment service a
        different customer base from that of the retail banking segment.

        The segment financial information provided below has been derived from
        the internal profitability reporting system used by management to
        monitor and manage the financial performance of the Company. The
        accounting policies of the three segments are the same as those
        described in the summary of significant accounting policies. The Company
        evaluates segment performance based on profit or loss before income
        taxes, not including nonrecurring gains and losses. Certain indirect
        expenses have been allocated based on actual volume measurements and
        other criteria, as appropriate. The Company accounts for transactions
        between segments at current market prices. Segment profit is measured
        before allocation of corporate overhead and income tax expense.

                              Information about reportable segments for the year
ended December 31, 2001 follows:
<TABLE>
<CAPTION>

                                                          Retail         Mortgage         Merchant
                                                         Banking          Banking          Banking             Totals
<S>                                                   <C>             <C>                                  <C>
        Interest income                               $3,313,473      $   229,624                          $3,543,097
       Other non-interest income                         769,026        3,300,935      $ (114,551)          3,955,410
        Interest expense                               1,804,856                0                           1,804,856
        Provision for loan losses                         40,000                0                              40,000
        Salaries and benefits                          1,543,918        1,706,795                           3,250,713
        Occupancy                                        336,109          128,074                             464,183
        Data processing                                  247,338           38,862                             286,200
        Legal and audit                                  102,028           25,184                             127,212
        Advertising                                       85,006           26,856                             111,862
       Other operating expense                           442,635        1,277,420                           1,720,055
        Income (loss) before tax expense               (552,275)          360,253        (114,551)          (306,573)
        Income tax expense (benefit)                   (122,830)          122,830                                   0
        Segment profit (loss)                          (429,445)          237,423        (114,551)          (306,573)
        Segment assets                                43,955,154        1,667,577                          45,622,731
        Capital expenditures                             288,753          391,037                             679,790
        Depreciation                                     159,332          109,197                             268,529
        Amortization                                     129,497          312,233                             441,730
</TABLE>








21.      Segment Reporting (continued)

        Information about reportable segments for the year ended December 31,
2000 follows:
<TABLE>
<CAPTION>

                                                          Retail         Mortgage         Merchant
                                                         Banking          Banking          Banking             Totals
<S>                                                   <C>              <C>               <C>               <C>
        Interest income                               $3,229,954       $   21,977        $  63,514         $3,315,445
       Other non-interest income                         474,721        1,940,712          234,896          2,650,329
        Interest expense                               2,025,162            7,661           41,624          2,074,447
        Provision for loan losses                        111,000                0                0            111,000
        Salaries and benefits                          1,065,556          773,569           88,935          1,928,060
        Occupancy                                        231,873           82,403            5,813            320,089
        Data processing                                  276,937           55,438            3,641            336,016
        Legal and audit                                  368,267           23,758           16,405            408,430
        Advertising                                       59,903           42,252            1,022            103,177
       Other operating expense                         1,098,755          473,588           26,889          1,599,202
        Income (loss) before tax expense             (1,532,778)          504,050          114,081          (914,647)
        Income tax expense (benefit)                   (204,523)          165,485           39,038                  0
        Segment profit (loss)                        (1,328,255)          338,565           75,043          (914,647)
        Segment assets                                45,271,725        2,398,928                0         47,670,653
        Capital expenditures                             168,214          105,783                0            273,997
        Depreciation                                     123,826           82,935            6,553            213,314
        Amortization                                      17,959          153,170                0            171,129
</TABLE>

        Information about reportable segments for the year ended December 31,
1999 follows:
<TABLE>
<CAPTION>
                                                       Retail             Mortgage         Merchant
                                                       Banking            Banking          Banking            Totals
<S>                                                   <C>               <C>             <C>                <C>
        Interest income                               $2,642,275        $ 570,403       $  190,669         $3,403,347
        Other non-interest income                        282,600        2,874,491          897,036          4,054,127
        Interest expense                               1,488,019          366,817          111,725          1,966,561
        Provision for loan losses                         90,000            2,648                -             92,648
        Salaries, wages & benefits                       888,497        1,829,907          192,728          2,911,132
        Occupancy                                        262,116          136,392           10,105            408,613
        Data processing                                  285,817           82,877            7,750            376,444
        Legal and audit                                  191,663          215,885           16,086            423,633
        Advertising                                      116,101           28,292            2,545            146,938
       Other operating expense                           204,155        1,606,714          203,592          2,014,461
        Income (loss) before tax expense               (601,492)        (824,638)          543,174          (882,956)
        Income tax expense (benefit)                   (171,546)         (26,961)          231,031             32,524
        Segment profit (loss)                          (429,946)        (797,677)          312,143          (915,480)
        Segment assets                                35,997,640        1,596,457        3,228,441         40,822,538
        Capital expenditures                             195,409           39,626            7,681            242,716
        Depreciation                                     202,579          151,427            3,641            357,647
        Amortization                                      60,923          153,336                0            214,259

</TABLE>

22.      Quarterly Financial Data -Unaudited
       The following tables represent summarized data for each of the quarters
       in 2001 and 2000 (in thousands, except loss per share data).

<TABLE>
<CAPTION>
                                                                             2001
                                                      Quarter          Quarter           Quarter        Quarter
                                                        Ended            Ended              Ended         Ended
                                                     March 31          June 30      September 30    December 31
                                              -------------------------------------------------------------------
<S>                                                     <C>              <C>             <C>              <C>
Interest income                                         $ 944            $ 831           $ 1,015          $ 753
Interest expense                                          553              505               418            329
                                              -------------------------------------------------------------------
Net interest income                                       391              326               597            424
Provision for losses                                       22               22                22           (26)
                                              -------------------------------------------------------------------
Net interest income after
   Provision for losses                                   369              304               575            450
Loan set-up and other fees                                494              630               199            248
Loan servicing and subservicing fees                      580              751               358            457
Gain on sale of loans                                       9               22                19             17
Merchant banking/BIDCO                                      -                -                 -          (115)
Other non-interest income                                  54               69                64             99
Non-interest expense
                                                        1,480            1,720             1,418          1,342
                                              -------------------------------------------------------------------
Income tax expense                                          -                -                 -              -
                                              -------------------------------------------------------------------
Earnings (loss) from continuing operations                 26                              (204)          (185)
                                                                              56
Preferred stock requirements                               11               16                18              7
                                              -------------------------------------------------------------------
Net earnings (loss) available to common
shareholders                                             $ 15             $ 40           $ (222)        $ (192)
                                              ===================================================================
Basic and diluted loss per share                       $ 0.01           $ 0.02          $ (0.11)       $ (0.06)
                                              ===================================================================
Weighted average shares outstanding                 2,027,801        2,062,878         2,092,312      2,922,676
                                              ===================================================================
</TABLE>



<PAGE>



22.   Quarterly Financial Data -Unaudited (continued)
<TABLE>
<CAPTION>

                                                                             2000
                                                      Quarter          Quarter           Quarter        Quarter
                                                        Ended            Ended              Ended         Ended
                                                     March 31          June 30      September 30    December 31
                                              -------------------------------------------------------------------
<S>                                                     <C>              <C>               <C>            <C>
Interest income                                         $ 772            $ 819             $ 844          $ 880
Interest expense                                          462              480               533            584
                                              -------------------------------------------------------------------
Net interest income                                       310              339               311            296
Provision for losses                                        1               65                22             23
                                              -------------------------------------------------------------------
Net interest income after
   Provision for losses                                   309              274               289            273
Loan set-up and other fees                                132              173               342            422
Loan servicing and subservicing fees                      156              235               293            390
Gain on sale of loans                                       7               12                18              3
Merchant banking/BIDCO                                    210               25                 0              0
Other non-interest income                                  48               52                92             41
Non-interest expense                                    1,028            1,146             1,031          1,502
                                              -------------------------------------------------------------------
Income tax expense                                          9              (4)               (1)              0
                                              -------------------------------------------------------------------
Earnings (loss) from continuing operations              (175)            (371)                 4          (373)
Preferred stock requirements                                0                0                 0              4
                                              -------------------------------------------------------------------
Net earnings (loss) available         to
common shareholders                                   $ (175)          $ (371)               $ 4        $ (377)
                                              ===================================================================
Basic and diluted loss per share                     $ (0.09)         $ (0.18)            $ 0.00       $ (0.18)
                                              ===================================================================
Weighted average shares outstanding                 2,023,515        2,027,801         2,027,801      2,027,801
                                              ===================================================================
</TABLE>


23.     Recently issued Accounting Standards

        In June of 2001, the Financial Accounting Standards Board (FASB) issued
        Statement of Financial Accounting Standards No. 141, "Business
        Combinations." Statement 141 requires that the purchase method of
        accounting be used for business combinations initiated after June 30,
        2001. In June of 2001, the FASB also issued Statement No. 142,"Goodwill
        and Other Intangible Assets" which is effective generally beginning
        January 1, 2002. Statement 142 requires that goodwill and intangible
        assets with indefinite useful lives no longer be amortized but, instead,
        tested for impairment at least annually in accordance with the
        provisions of the statement. The Company has $63,914 of goodwill at
        December 31, 2001, therefore the adoption of these statements is not
        expected to materially impact the Company's results of operations or
        financial position.

        In June of 2001, the FASB issued Statement No. 143, "Accounting for
        Asset Retirement Obligations." Statement 143 requires entities to record
        the fair value of a liability for an asset retirement obligation in the
        period in which it is incurred. When the liability is initially
        recorded, the entity capitalizes the cost by increasing the carrying
        amount of the related long-lived asset. Over time, the liability is
        accreted to its present value each period and the capitalized cost is
        depreciated over the remaining useful

23.      Recently issued Accounting Standards (continued)


        life of the related asset. Upon settlement of the liability, the entity
        either settles the obligation for the amount recorded or incurs a gain
        or loss. Statement 143 is effective for fiscal years beginning after
        June 15, 2002. Adoption of this statement is not expected to impact the
        Company's results of operations or financial position.

        In August of 2001, the FASB issued Statement No. 144, "Accounting for
        the Impairment or Disposal of Long-Lived Assets." Statement 144
        supersedes certain previously issued accounting pronouncements. The
        statement was issued to establish a single accounting model for
        long-lived assets to be disposed of by sale. It broadens the
        presentation of discontinued operations in the income statement to
        include a component of an entity (rather than a segment of a business).
        A component of an entity comprises operations and cash flows that can be
        clearly distinguished, operationally and for financial reporting
        purposes, from the rest of the entity. Statement 144 also requires that
        discontinued operations be measured at the lower of the carrying amount
        or fair value less cost to sell. The statement is effective
        prospectively for fiscal years beginning after December 15, 2001 and
        will only impact the Bank if future transactions occur that involve
        disposal of long-lived assets.

24.       Parent Company Only Condensed Financial Information

                                                 Condensed Balance Sheet
                                               December 31,       December 31,
                                                  2001               2000
                                              ---------------- ----------------
          ASSETS
          Cash and cash equivalents           $   96,045        $    15,860
          Securities available for sale              233                233
          Investment in University Bank        2,923,596          2,493,426
          Investment in Michigan BIDCO            29,152             77,157
          Goodwill, net                             -               139,412
          Receivable from University Bank        286,196            149,572
          Other assets                             3,107             58,602
                                               ----------        -----------
             Total Assets                     $ 3,338,329       $ 2,934,262
                                               ==========        ===========

          LIABILITIES AND STOCKHOLDERS' EQUITY
          Notes payable                       $   430,000       $   562,000
          Accounts payable                        168,631           318,601
          Accrued interest payable                  3,196            11,379
                                               ----------        ----------
          Total Liabilities                       601,827           891,980
          Stockholders' Equity                  2,736,502         1,950,380
                                               ----------        ----------
             Total Liabilities and
               Stockholders' Equity          $  3,338,329       $ 2,842,360
                                               ==========        ==========


<PAGE>



24.       Parent Company Only Condensed Financial Information (continued)

                         Condensed Statements of Income
<TABLE>
<CAPTION>

                                                                                   2001             2000              1999
                                                                              ---------------- ----------------  ----------------
          INCOME:
<S>                                                                               <C>                <C>              <C>
             Interest and dividends on investments                                $      407         $   4,072        $   22,133
             Net security gains                                                      -                  20,625          (16,102)
             Other income                                                           (122,465)            4,047               355
                                                                              ---------------- ----------------  ----------------
                         Total Income                                               (122,058)           28,744             6,386

          EXPENSES:
             Interest                                                                  52,503           89,883            78,392
             Amortization of goodwill                                               (139,412)          139,412                 -
             Salaries and benefits                                                         -                -            51,826
             Public listing                                                            45,902           33,920            24,126
             Professional fees                                                         43,330           31,765           184,251
             Other miscellaneous                                                        4,788            5,913             7,215
                                                                              ---------------- ----------------  ----------------
                         Total Expense                                                  7,111          300,893           345,810
          Loss before federal income taxes
              (benefit) and equity in undistributed
              net loss of subsidiaries                                              (129,169)        (272,149)         (339,424)
          Federal income taxes (benefit)                                             -                -                   38,659
                                                                              ---------------- ----------------  ----------------
          Loss before equity in
               undistributed net loss of subsidiaries                               (129,169)        (272,149)         (378,083)
          Equity in undistributed net loss
               of subsidiaries.                                                     (185,318)        (642,498)         (345,642)
                                                                              ---------------- ----------------  ----------------

          Net loss from continuing operations                                       (314,487)        (914,647)         (723,725)

          Discontinued Operations:
               Income (loss) from Varsity Mortgage and
               Varsity Funding)                                                      -                -                (191,755)
                                                                              ---------------- ----------------  ----------------

          Net loss                                                                $  (314,487)      $(914,647)       $ (915,480)
                                                                              ================ ================  ================
</TABLE>





24.        Parent Company Only Condensed Financial Information (continued)

                                      Condensed Statement of Cashflows
<TABLE>
<CAPTION>
                                                                                                   For Year Ended
                                                                                       2001             2000           1999
                                                                                  ---------------- --------------- --------------
      Cash flow provided by (used in) investing activities:
<S>                                                                                  <C>              <C>            <C>
      Net Income (Loss)                                                              $  (314,487)     $ (914,647)    $ (915,480)
      Adjustments to reconcile net loss to net cash provided by
      (used in) operating activities:
           Amortization of goodwill                                                       139,412         139,412              -
           Loss (gain) on sale of investments                                                   0        (20,625)         16,102
           Decrease/(Increase) in receivable from affiliate                             (136,624)              -               -
           Decrease/(Increase) in other assets                                             55,495        (55,018)         67,675
           Increase(Decrease) in other liabilities                                      (158,153)          59,180          1,314
           Decrease(Increase) investment in subsidiaries                                  185,317         642,577        364,772
           Decrease(Increase) investment in Michigan BIDCO                                122,465         (3,760)       (19,955)
                                                                                  ---------------- --------------- --------------
                     Net cash provided by (used in) operating activities                (106,575)       (152,881)      (485,572)
                                                                                  ---------------- --------------- --------------
      Cash flow from investing activities:
           Purchase of available for sale securities                                     (66,652)        (78,000)              -
           Proceeds from sale of available for sale securities                                  0          98,625         74,550
                                                                                  ---------------- --------------- --------------
                     Net cash provided by (used in) investing activities                 (66,652)          20,625         74,550
                                                                                  ---------------- --------------- --------------
      Cash flow from financing activities:
           Principal payment on notes payable                                           (132,000)       (132,000)      (132,000)
            ssuance of equity conversion bonds
------     I                                                                              184,082         231,000        304,000
           Conversion of equity conversion bonds                                        (184,082)              -               -
           Issuance of preferred stock                                                    733,000           2,032              -
           Conversion of preferred stock                                               (1,458,000)              -              -
           Payment of preferred dividend                                                 (52,244)              -               -
           Issuance of common stock                                                     1,162,656          31,250         50,282
           Capital increase from buy-out of minority interest in BIDCO                          -               -        170,872
                                                                                  ---------------- --------------- --------------
                     Net cash provided by (used in) financing activities                  253,412         132,282        393,154
                                                                                  ---------------- --------------- --------------
                     Net changes in cash and cash equivalents                              80,185              26       (17,868)
               Cash and cash equivalents:
                 Beginning of year                                                         15,860          15,834         33,702
                                                                                  ---------------- --------------- --------------
                 End of year                                                         $     96,045       $  15,860     $   15,834
                                                                                  ================ =============== ==============
              Supplemental disclosure of cash flow information: Cash paid during
               the year for:
                 Interest                                                        $         60,686 $       103,504 $       69,046
</TABLE>







Item 8. - Financial Statements and Supplementary Data

          The financial statements provided pursuant to this item are listed
          under Item 14(a) below and appear beginning on page 44.

Item      9. - Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosures.

          None

PART III.

Item 10. - Directors and Executive Officers of the Registrant

         The information required by this item is incorporated by reference
         herein from the portions of the Company's Proxy Statement for its 2002
         Annual Meeting (the "Proxy Statement") to be under the captions:

         Election of Directors
         Executive Officers
         Section 16(a) Beneficial Ownership Reporting Compliance

Item 11. - Executive Compensation

         The information required by this item is incorporated by reference
         herein from the portions of the Company's Proxy Statement to be under
         the captions:

         Executive Compensation
         Compensation Plans

Item 12. -  Security Ownership of Certain Beneficial Owners and Management

         The information required by this item is incorporated by reference
         herein from the portion of the Company's Proxy Statement to be under
         the caption:

         Security Ownership of Certain Beneficial Owners and
         Management

Item 13. - Certain Relationships and Related Transactions

         The information required by this item is incorporated by reference
         herein from the portion of the Company's Proxy Statement to be under
         the caption:

         Certain Relationships and Related Transactions



<PAGE>


PART IV.

Item 14. - Exhibits, Financial Statement Schedules and Report on Form 8-K

(a)      Index of Financial Statements:
                  The following statements are filed as part of this Report:

                  Audited consolidated balance sheets as of December 31, 2001
                  and December 31, 2000, and consolidated statements of
                  operations,comprehensive income (loss), stockholders' equity
                  and cash flows for the years ended December 31, 2001, 2000,
                  and 1999, of the Company.

(b)      Reports on Form 8-K:

                  None

         (c) Exhibits:

         (3) Certificate of Incorporation and By-laws:

         3.1          Composite Certificate of Incorporation of the Company, as
                      amended (incorporated by reference to Exhibit 3.1 to the
                      Company's Quarterly Report on Form 10-Q for the quarter
                      ended June 30, 1996).

         3.1.1        Certificate of Amendment, dated June 10, 1998, of the
                      Company's Certificate of Incorporation (incorporated by
                      reference to Exhibit 3.1.1 to the Company's Quarterly
                      Report on Form 10-Q for the quarter ended June 30, 1998).

         3.2          Composite By-laws of the Company (incorporated by
                      reference to Exhibit 3.2 to the Company's Annual Report
                      on Form 10-K for the year ended December 31, 1989).

         (10) Material Contracts.

         10.1         Loan Agreement and Promissory Note dated December 31, 1997
                      issued to North Country Bank & Trust (incorporated by
                      reference to Exhibit 10.1 to the Company's Annual Report
                      on Form 10-K for the year ended December 31, 1997).

         10.2         University Bancorp, Inc. Employee Stock Ownership Plan
                      (the "ESOP"), as amended November 27, 1990 (incorporated
                      by reference to Exhibit 10.2 to the Company's Annual
                      Report on Form 10-K for the year ended December 31, 1990).
                      *

         10.2.1       Amendment to the ESOP, effective as of December 31, 1991
                      (incorporated by reference to Exhibit 10.2.A to the
                      Company's Annual Report on Form 10-K for the year ended
                      December 31, 1991). *

         10.3         University Bank 401(k) Profit Sharing Plan, adopted August
                      1, 1996, effective as of January 1, 1996 (incorporated by
                      reference to Exhibit 10.3 to the Company's Annual Report
                      on Form 10-K for the year ended December 31, 1996). *

         10.4         Letter regarding grant of options to outside directors,
                      dated as of July 20, 1993 (incorporated by reference to
                      Exhibit 10.6 to the Company's Annual Report on Form 10-K
                      for year ended December 31,1993).*

         10.5         1995 Stock Plan of the Company (incorporated by reference
                      to Exhibit A to the definitive Proxy Statement of the
                      Company for 1996 Annual Meeting of Stockholders). *

         10.5.1       Form of Stock Option Agreement related to the 1995 Stock
                      Plan (incorporated by reference to Exhibit 10.7.1 to the
                      Annual Report on Form 10-K for the year ended December 31,
                      1995). *

         10.6         Letter, dated December 1, 1989, from Federal Reserve Bank
                      of Minneapolis (incorporated by reference to Exhibit
                      10.9).

         10.7         Lease Agreement (the "Cascade Lease Agreement") between RG
                      Properties, Inc., as agent for Sault Associates, a
                      Michigan Limited Partnership, and University Bank, dated
                      September 30, 1992 (incorporated by reference to exhibit
                      10.9 to the Company's Annual Report on Form 10-K for the
                      year ended December 31, 1992).

         10.7.1       First Amendment to the Cascade Lease Agreement, dated
                      January 5, 1993 (incorporated by reference exhibit
                      10.9.1).

         10.8         Federal Income Tax Allocation Agreement Between Newberry
                      State Bank and Newberry Holding Inc. dated March 21, 1992
                      (incorporated by reference to Exhibit 10.11).

         10.8.1       Federal Income Tax Allocation Agreement Between Newberry
                      Holding Inc. and University Bancorp, Inc. dated May 21,
                      1991(incorporated by reference to Exhibit 10.11.1).

         10.9         Purchase and Sale Agreement, dated November 1, 1995,
                      concerning common stock of Midwest Loan Services, Inc.,
                      among its stockholders and University Bank and Newberry
                      Bancorp, Inc (incorporated by reference to Exhibit 10.16
                      of the Company's Annual Report on Form 10-K for the year
                      ended December 31, 1995).

         21           Subsidiaries of Registrant: List of subsidiaries filed
                      herewith.

         23           Report of Independent Auditors, Crowe, Chizek and Company,
                      LLP, dated March 17, 2000 regarding the audit of the
                      consolidated financial statements of University Bancorp,
                      Inc. for the year ended December 31, 1999.

         23.1         Report of Independent Auditors, Richard C. Woodbury, P.C.,
                      dated March 8, 2001 regarding Midwest Loan Services, Inc.

                      * Denotes a management compensatory plan or arrangement.


                                   SIGNATURES

     Pursuant to the requirements of Sections 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.


                              UNIVERSITY BANCORP, INC.


                              By:      /s/Stephen Lange Ranzini
                                       Stephen Lange Ranzini,
                                       President


                              Date: March 29, 2002

     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.

         Signature                    Title                        Date

/s/Stephen Lange Ranzini            Director, President,      March 29, 2002
Stephen Lange Ranzini

/s/Joseph L. Ranzini                Director, Secretary,      March 29, 2002
Joseph L. Ranzini                   Chairman

/s/Keith Brenner                    Director                  March 29, 2002
Keith E. Brenner

/s/Michael Talley                   Director                  March 29, 2002
Michael Talley

/s/Robert Goldthorpe                Director                  March 29, 2002
Robert Goldthorpe

/s/Dr. Joseph L. Ranzini            Director                  March 29, 2002
Dr. Joseph Lange Ranzini

/s/Paul Lange Ranzini               Director                  March 29, 2002
Paul Lange Ranzini



<PAGE>


                                Index of Exhibits

                                                                    Sequentially
         Exhibit Number and Description                           Numbered Page

(3)      Certificate of Incorporation and By-laws:

3.1      Composite Certificate of Incorporation of the Company, as amended
         (incorporated by reference to Exhibit 3.1 to the June 30, 1996 10-Q").

3.1.1    Certificate of Amendment, dated June 10, 1998, of the Company's
         Certificate of Incorporation (incorporated by reference to Exhibit
         3.1.1 to the June 30, 1998 10-Q").

3.2      Composite By-laws of the Company (incorporated by
         reference to Exhibit 3.2 to the 1989 10-K).

(10)     Material Contracts.

10.1     Loan Agreement and Promissory Note dated December 31, 1997 issued to
         North Country Bank & Trust (incorporated by reference to Exhibit 10.1
         to the 1997 10-K"))

10.2     University Bancorp, Inc. Employee Stock Ownership
         Plan (the "ESOP"), as amended November 27, 1990
         (incorporated by reference to Exhibit 10.2 to the
         1990 10-K).

10.2.1   Amendment to the ESOP, effective as of December 31, 1991 (incorporated
         by reference to Exhibit 10.2.A to the 1991 10-K).

10.3     University Bank 401(k) Profit Sharing Plan, adopted August 1, 1996,
         effective as of January 1, 1996 (incorporated by reference to Exhibit
         10.3 to the 1996 10-K).

10.4     Letter regarding grant of options to outside directors, dated as of
         July 20, 1993 (incorporated by reference to Exhibit 10.6 to the
         Company's Annual Report on Form 10-K for the year ended December 31,
         1993 (the "1993 10-K")).

10.5     1995 Stock Plan of the Company (incorporated by reference to Exhibit A
         to the definitive Proxy Statement of the Company for the 1996 Annual
         Meeting of Stockholders (the "1996 Proxy).

10.5.1   Form of Stock Option Agreement related to the 1995 Stock Plan
         (incorporated by reference to Exhibit 10.7.1 to the the 1995 10-K).

10.6     Letter, dated December 1, 1989, from Federal Reserve Bank of
         Minneapolis (incorporated by reference to Exhibit 10.9 to the 1989
         10-K).

10.7     Lease Agreement (the "Cascade Lease Agreement")
         between RG Properties, Inc., as agent for Sault
         Associates, a Michigan Limited Partnership, and
         University Bank, dated September 30, 1992
         (incorporated by reference to exhibit 10.9 to the
         1992 10-K).

10.7.1   First Amendment to the Cascade Lease Agreement, dated January 5, 1993
         (incorporated by reference exhibit 10.9.1 to the 1992 10-K).

10.8     Federal Income Tax Allocation Agreement Between
         Newberry State Bank and Newberry Holding Inc. dated
         March 21, 1992 (incorporated by reference to
         Exhibit 10.11 to the 1991 10-K).

10.8.1   Federal Income Tax Allocation Agreement Between
         Newberry Holding Inc. and University Bancorp, Inc.
         dated May 21, 1991 (incorporated by reference to
         Exhibit 10.11.1 to the 1991 10-K).

10.9     Purchase and Sale Agreement, dated November 1,
         1995, concerning Common Stock of Midwest Loan
         Services, Inc., among its stockholders and
         University Bank and Newberry Bancorp, Inc
         (incorporated by reference to Exhibit 10.16 of the
         1995 10-K).

21       Subsidiaries of Registrant.                                        85

23       Report of Independent Auditors, Crowe, Chizek and Company, LLP     86

23.1     Report of Independent Auditors, Richard C. Woodbury, P.C.          87



<PAGE>



                     Exhibit 21. Subsidiaries of Registrant.

    University Bank, a Michigan state chartered bank.

    University Insurance & Investment Services, Inc., a Michigan Corporation
      (100% owned by Bank)

    Midwest Loan Services, Inc., a Michigan Corporation (80% owned by
       University Bank)



<PAGE>



                   Exhibit 23. Report of Independent Auditors.

                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
University Bancorp, Inc.
Ann Arbor, Michigan


     We have audited the accompanying consolidated statements of operations,
comprehensive income (loss), stockholders' equity and cash flows of University
Bancorp, Inc. for the year ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of University Bancorp, Inc. for the year ended December 31, 1999 in
conformity with generally accepted accounting principles.


Crowe, Chizek and Company LLP

Grand Rapids, Michigan
March 17, 2000



<PAGE>


                  Exhibit 23.1 Report of Independent Auditors.


Board of Directors
Midwest Loan Services, Inc.
Houghton, MI 49931


     We have audited the accompanying balance sheet of Midwest Loan Services,
Inc. as of December 31, 2000 and 1999, and the related statements of income,
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

     In our opinion, the 2000 and 1999 financial statements referred to above
present fairly, in all material respects, the financial position of Midwest Loan
Services, Inc., as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

     Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information included in
the report (shown on pages 15-22) is presented for the purpose of additional
analysis and is not a required part of the basic financial statements of Midwest
Loan Services, Inc. Such information has been submitted to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.

     In accordance with Government Auditing Standards, we have also issued a
report dated March 8, 2001 on our consideration of Midwest Loan Services, Inc.,
internal controls and the reports dated December 31, 2000 and 1999 on its
compliance with laws and regulations.

[OBJECT OMITTED]
Richard C. Woodbury, CPA
March 8, 2001