42

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-KSB

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                  For the fiscal year ended December 31, 2006

                                       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.
           (Name of Small Business Issuer as specified in its charter)
         Delaware                                             38-2929531
------------------------------------                 ---------------------------
   (State of Incorporation)                               (I.R.S. Employer
                                                         Identification No.)

                    2015 Washtenaw, Ann Arbor, Michigan 48104
               ---------------------------------------------------
               (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 if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act Yes ___ No __X_

     Indicate by check mark if the  registrant  is not  required to file reports
pursuant to Section 13 or Section  15(d) of the  Exchange  Act.  Yes      No  X
                                                                    ---     ---

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

     Indicate by check mark if the registrant is a large  accelerated  filer, an
accelerated  filer, or a non accelerated  filer.  See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the  Exchange  Act.  Large
accelerated filer ____Accelerated filer ___ Non-accelerated filer _X_

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act). [ ]

                                       1
<PAGE>

     The number of shares  outstanding  of the  Registrant's  Common Stock as of
March 30 2007:  4,248,378 shares. The aggregate market value of the voting stock
held by  non-affiliates  of the Registrant based on $1.90 per share, the closing
price for the  Registrant's  Common  Stock on March 30,  2007,  as  reported  by
NASDAQ, was approximately $2,932,738.

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

Portions  of  the  Registrant's  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders  to be held June 15, 2007, are  incorporated by reference into Part
III of this report.


                               Page 1 of 78 pages
                 Exhibit index on sequentially numbered page 67

                                       2
<PAGE>



PART I.

Item 1. - Business

General

     University  Bancorp,  Inc.  The  Company  is a  Delaware  corporation  that
operates as a bank holding company for its wholly-owned  subsidiary,  University
Bank

     University Bank. The Bank is a state chartered community bank. The Bank was
founded  in 1890 as "The  Newberry  Bank"  and was  chartered  by the  State  of
Michigan  in 1908 as "The  Newberry  State  Bank".  In 1994,  we sold the bank's
offices  in  Newberry,  Michigan  and Sault  Ste.  Marie,  Michigan.  In 1995 we
relocated the Bank's main office to Ann Arbor,  Michigan and, changed the Bank's
name to  "University  Bank" to more closely  align its identify with its current
place of business.  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").   Midwest  specializes  in  the
origination,  servicing and  sub-servicing  of mortgage loans for various credit
unions, financial institutions and mortgage brokers. Most of their servicing and
sub-servicing  portfolio  is  comprised of  residential  mortgage  loans sold to
Fannie Mae, Freddie Mac and other private  residential  mortgage  conduits,  the
most  important  of which is a jumbo and sub prime loan conduit  established  by
Lehman Brothers.


     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,
and this added a property  casualty  agency  license  to the  original  life and
health agency license,  enabling the Agency to offer 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  stock  and  bond
investment accounts through a clearing  arrangement with Equitas America LLC and
Pershing, a division of the Bank of New York.


     University Islamic Financial Corporation.  On December 30, 2005, University
Bank formed University Islamic Financial  Corporation  (UIFC). The Bank owns 80%
of the common  stock of UIFC.  UIFC  engages in Islamic  Banking with an initial
focus on its existing  product set:  soliciting  Islamic  Sharia'a  FDIC-insured
Deposits  held  by  University  Bank  and  originating   Islamic  Sharia'a  home
financings as agent for University Bank. UIFC's products have received favorable
legal rulings  (fatwa) from some of the leading  Islamic  legal  scholars in the
U.S.  and the  world.  In  February  2006,  University  Bank  executed  a master
commitment with the Federal Home Loan Mortgage Corporation to create a secondary
market for UIFC's  Sharia'a

                                       3
<PAGE>

compliant home financing transactions in Michigan with the intent to expand this
program over time.

Employees

     The Company employed 81 full-time equivalents as of March 29, 2006:

                  University Bank, Ann Arbor                24
                  Midwest Loan Services                     46
                  University Insurance & Investment          3
                  University Islamic Financial Corporation   7

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  Sharia'a  compliant   profit-sharing   deposits  for  Muslim
depositors. The Bank also offers free access to 24-Hour ATM machines,  telephone
banking,  internet banking, debit cards, online bill payment,  Western Union(TM)
money  transfer  services  and Gold  VISA  accounts.  From time to time to raise
liquidity,  the Bank relies on brokers to sell CDs. At December  31,  2006,  the
Bank had approximately $1.5 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.  The Bank also offers  Sharia'a
compliant  mortgage   alternative  loan  transactions   (MALTs  (TM))for  Muslim
customers.

Classifications of the loan portfolio as of December 31, 2006 are as follows:

                                              Amount
                                           Outstanding(1)        % of Total
       Commercial, Real Estate & Other       $15,705,255            30.84%
       Residential Construction                1,031,027             2.02%
       Residential Real Estate                29,166,983            57.27%
       Residential Home Equity                 4,632,170             9.10%
       Consumer                                  122,904             0.24%
       Credit Card                               268,858             0.53%
                                             -----------           -------
         Gross Loans                         $50,927,197           100.00%
                                             ===========           =======

(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 (see "Risk Factors" below).

                                       4
<PAGE>
     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% at the time of  origination.  The
primary risk of commercial  loans is that the area's economy  declines and rents
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% or  private  mortgage
insurance is considered. To meet the Bank's goals for first time homebuyers, the
Bank has  originated 97% to 100% loan to value  residential  loans and currently
has under $2 million of these loans in its loan  portfolio.  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,  with a few exceptions  with higher ratios for borrowers
with strong  credit.  As of December 31, 2006, the Bank had a portfolio of $14.7
million of mortgage  alternative loan transactions  that are  Sharia'a-compliant
mortgage  alternatives  for Muslim  customers.  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 at the time of  origination.  The Bank controls the risk of
construction  lending by  performing  inspections  prior to  disbursing  interim
construction funds to avoid cost overruns.

     The Bank makes few unsecured loans, typically for borrowers who have a high
net worth,  but even in these cases, the Bank usually 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 national or regional 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  that 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,  an
unscrupulous  borrower can easily  dissipate the collateral,  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

                                       5
<PAGE>

business  loans,  a ratio of income to all debt  payments  of greater  than 1.25
times is  required.  Therefore,  the Bank  typically  has both  income and asset
backing to secure its loans. However,  there can always be valid reasons to have
exceptions  to each rule.  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  and  Midwest   originate   internally  or  via  other  financial
institutions residential home loans that generally qualify for sale to secondary
market  investors  under the  underwriting  criteria  of the  Federal  Home Loan
Mortgage  Corporation  (FHLMC), the Federal National Mortgage Association (FNMA)
and the Government National Mortgage Association (GNMA). Midwest also originates
jumbo and  non-standard  home loans  under the  underwriting  criteria of Lehman
Brothers and has  originated  a small  portfolio of Alt-A home loans that it has
sold to FNMA. 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,  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
insured  mortgages in 1994. The Bank has also been approved as a seller/servicer
of Government  National Mortgage  Association  mortgages for many years but only
began  using its  license  in 1999 to  originate  and sell these  loans  without
retaining the servicing  rights.  Midwest is also licensed with FNMA,  FHLMC and
GNMA.

Mortgage Servicing and Sub-servicing

     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  `sub-servicing'.  The  Bank's
80%-owned subsidiary, Midwest, specializes in sub-servicing 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.

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 and mortgage-backed securities backed by federal agency obligations.
The Bank's President, who is a licensed Registered

                                       6
<PAGE>
Representative,  manages  these  investments.  All  purchase/sale  decisions are
subject to the review and prior approval of the Asset Liability Committee of the
Bank and the Board of Directors.  The securities  portfolio provides a source of
liquidity to meet Bank's  operating  needs.  At December 31, 2006, the portfolio
had a net unrealized  loss of $27,296 versus a net unrealized loss of $34,721 at
December 31, 2005.

     Information  regarding  securities where cost exceeded more than 10% of the
Company's stockholders' equity at December 31, 2006 is as follows:

Issuer           Coupon   Yield  Final Maturity   Market Value    Amortized Cost
------           ------   -----   -------------   -------------   --------------
FHLBI equity (1)  VAR     5.23%     None           $714,600          $714,600




     (1) The  rate  varies  quarterly.  The Bank is  required  to  maintain  the
     investment in Federal Home Loan Bank of  Indianapolis  (FHLBI) 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 upon five-year prior notice.


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 Bank's main office is near the University of Michigan  Central  Campus.
These institutions employ  approximately  20,000 persons. The Bank is located in
an area that has strong  competition  from local credit unions and banks as well
as a number of large national banks. The University of Michigan Credit Union has
an onsite  presence at the University of Michigan and Midwest  Financial  Credit
Union has an onsite presence at the University of Michigan Hospital Complex.

     Banks  owned by  out-of-state  holding  companies  dominate  the Ann  Arbor
banking  market.  The University of Michigan Credit Union is the largest locally
owned  financial  institution.   The  only  locally-owned   community  financial
institutions,  excluding  University  Bank,  are  University of Michigan  Credit
Union,  Bank of Ann Arbor,  Huron River Area  Credit  Union,  Midwest  Financial
Credit Union, Automotive Federal Credit Union and several smaller credit unions.
Huron River Area Credit Union was placed into receivership by the NCUA and state
regulators in early 2007.

                                       7
<PAGE>

Mortgage Banking and Islamic Banking

     The Bank and Midwest'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 its portfolio helps it 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,  Midwest  and 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.  Our 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 to meet its customers'  needs.
The Bank also is licensed as a HUD Title 1 and Multi-family seller/servicer, but
has no plans at this time to expand utilization of HUD or GNMA programs.

     Islamic Banking. Competition for Islamic financing products is less intense
than for  traditional  mortgage  products  as  products  cannot be  successfully
offered to the market without  recognition from leading  Sharia'a  (Islamic Law)
scholars.  In addition,  documents must be created and customized for each state
that an  originator  intends to offer  products in. The primary  competition  in
Islamic home finance is from Guidance  Financial,  a mortgage banking firm based
in  Reston,  Virginia,  and Devon  Bank,  a  community  bank  based in  Chicago,
Illinois.  Currently, we offer Islamic home financing products in Michigan only,
but our business plan in 2007 contemplates expansion of this product nationwide.

     Mortgage  Servicing and  Sub-servicing.  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

                                       8
<PAGE>

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  are  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 decreases
profitability  of  mortgage  servicing  by  increasing  amortization  charges on
purchased mortgage servicing rights.

     In the  sub-servicing  business,  Midwest competes  primarily with about 30
firms nationwide,  including specialized sub-servicing 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, and
some of them are also located in rural areas with low prevailing wages.  Midwest
specializes  in  subservicing  for  credit  unions  and is  among  the top  four
subservicers  for  credit  unions  and is only firm that  specializes  solely on
providing service to credit unions.

     Midwest 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.  However,  the prevailing wages and occupancy costs in the
upper  peninsula of Michigan  are  generally  lower than the  national  average.
Midwest  has  developed a unique  business  extranet  website  for its  business
partners and their retail customers.  Through its website at www.subservice.com,
Midwest  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'  mortgage
servicing operation has a competitive advantage.

Regulation

     Primary  Regulators  of University  Bancorp.  The Company is a 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
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

                                       9
<PAGE>

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  applications.  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 Capital 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.  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

                                       10
<PAGE>

depository  institutions  from  the  risks  of the  new  non-banking  activities
permitted to affiliates.

     Public  Company  Regulation.  Our  common  stock  is  registered  with  the
Securities and Exchange  Commission ("SEC") under the Securities Act of 1933, as
amended,  and the  Securities  Exchange Act of 1934,  as amended (the  "Exchange
Act"). We are therefore subject to the information, proxy solicitation,  insider
trading and other  restrictions  and  requirements of the SEC under the Exchange
Act.  The  Sarbanes-Oxley  Act of 2002  provides  for  numerous  changes  to the
reporting,  accounting, corporate governance and business practices of companies
as well as financial and other  professionals who have involvement with the U.S.
public markets.

     The  Sarbanes-Oxley Act was enacted in 2002. This Act is not a banking law,
but applies to all public companies,  including the Corporation.  Sarbanes-Oxley
is designed to restore investor confidence.  Sarbanes-Oxley adopts new standards
of corporate governance and imposes new requirements on the board and management
of public companies.  Under the  Sarbanes-Oxley  Act the chief executive officer
and chief  financial  officer of a public  company  must  certify the  financial
statements of the company.  Definitions of "independent directors" were adopted,
and responsibilities and duties for the audit and other committees of the board.
In addition,  the reporting  requirements  for insider stock  transactions  were
revised, requiring most transactions to be reported within two business days.

     Section 404 of the  Sarbanes-Oxley Act requires a company to include in its
annual  reports a report by management on the  company's  internal  control over
financial  reporting  and  an  accompanying  auditor's  report.  The  Commission
extended the original  Section 404 compliance dates for all issuers three times.
Under the latest extension, non-accelerated filers will thus be required to file
management and audit reports under Section 404 with their annual reports for the
first year ending on or after July 15, 2007.  (For  example,  a  non-accelerated
filer with a December  31 year will be  required  to include  the reports in its
annual  report filed in early 2008,  for the year ended  December 31, 2007.) The
Company,  based on the size of its market  capitalization  is considered a small
public company and thus is classified as a non-accelerated filer.

     Complying  with  Sarbanes-Oxley  will  result  in  increased  costs  to the
Corporation in an amount likely to be between $50,000 and $150,000.

     As a NASDAQ Capital Market(TM) listed corporation,  we are subject to rules
of that market on director  independence,  board committee structure,  price per
share and the amount of shares held by the public to remain listed. In addition,
we must pay an annual  listing fee. This fee has increased over the past several
years from $4,000 a year to $27,500 a year.

     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

                                       11
<PAGE>

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 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.

o        the Community Reinvestment Act,
o        the Federal Truth-in-Lending Act,
o        the Home Mortgage Disclosure Act,
o        the Gramm-Leach Bliley Act (and related privacy regulations),
o        the Patriot Act,
o        the Check 21 Act,
o        The Anti-Money Laundering 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  or  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) were recently
signed into law.  These  changes will increase the FDIC  insurance  coverage for
retirement accounts,  index future insurance coverage to inflation,  provide the
bank with rebates for past  premiums paid and merge the BIF with the Savings and
Loan  Insurance  Fund (SAIF).  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

                                       12
<PAGE>

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.   The  FDIC  makes  a  risk
classification  of all  insured  institutions  for each  semi-annual  assessment
period.

     In early 2006,  Congress passed the Federal Deposit  Insurance Act of 2005,
which made  certain  changes to the federal  deposit  insurance  program.  These
changes included merging the BIF and the Savings Association Insurance Fund (the
"SAIF"),  increasing  retirement  account coverage to $250,000 and providing for
inflationary  adjustments to general coverage  beginning in 2010,  providing the
FDIC with the authority to set the fund's reserve ratio with a specified  range,
and requiring  dividends to banks if the reserve ratio exceeds  certain  levels.
The new statue  grants  banks an  assessment  credit based on their share of the
assessment  base on December 31, 1996,  and the amount of the credit can be used
to reduce  assessments in any year subject to certain  limitations.  The FDIC is
required to issue regulations implanting the new Act.

     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.  Until
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. In addition, the Federal Home Loan Banks, including the
Federal Home Loan Bank of Indianapolis, in which University Bank is an investor,
pay 20% of their  annual net  income to a sinking  fund to retire the FICO bonds
until they are paid in full.

                                       13
<PAGE>

     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

                                       14
<PAGE>

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.  In
addition,  the Bank 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.  At December 31, 2006, the Bank had
accumulated  earnings of $14,186.  The Bank may not declare or pay any  dividend
until the cumulative  dividends on any issued  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. The Company
has an agreement  with the Federal  Reserve Bank of Chicago that  requires us to
seek permission before paying any cash dividends.

     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

                                       15
<PAGE>

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.

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,  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,
o        the Anti-Money Laundering Act,
o        the Federal Deposit Insurance Act,
o        the Patriot Act,
o        the Check 21 Act, and
o        the Gramm-Leach Bliley Act (and related privacy regulations).

     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.

                                       16
<PAGE>

     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  Regulator of Midwest.  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.

                                       17
<PAGE>

     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, the Securities & Exchange  Commission,  and the Insurance
Division of Michigan's Office of Financial and Insurance Services.


Item 2. - Properties

Properties

     In  December  2005,  the Bank moved its main  office and sole branch to the
historic Hoover Mansion located at 2015 Washtenaw Avenue,  Ann Arbor,  Michigan.
In June 2005, the Bank purchased Hoover,  LLC the owner of the Hoover Mansion, a
17,000 square foot facility.  Previously the bank was located in a facility that
it sold in a sale-leaseback transaction in 2003. In April 2005, the owner of the
property offered the Bank an $800,000 early  termination  buyout of the lease if
the Bank  could  vacate  the  property  by a date  certain.  The  agreement  was
subsequently  amended and the move out date was set at December  15,  2005.  The
Bank moved to the Hoover  Mansion on the 10th of December,  thus  satisfying the
agreement for the financial incentive.

     The Bank  subleases a small  portion of a site that  includes a  registered
historic  building in Ann Arbor,  at the corner of Washtenaw  Avenue and Stadium
Boulevard  as an ATM  drive-through  location.  The  minimum  lease  period ends
October 2010 with two optional five-year  extensions.  The Bank also owns 1/3 of
the Company that owns the site, Tuomy, LLC.

     The Bank  leases an ATM  location  in Ann Arbor at the  corner of State and
Liberty near the University of Michigan Campus under a year-to-year lease.

     Midwest 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.

Contractual Obligations

The following  table  summarizes  the existing  contractual  obligations  of the
Company:

<TABLE>
<CAPTION>
                                                   Payments Due By Period
                                       ------------------------------------------------------
                                        Less than                                  More than
                            Total        a year        2008-2009    2010-2011        5 years
                         -----------   -----------   -----------   -----------   ------------
<S>                      <C>           <C>           <C>           <C>           <C>
Operating leases         $    91,730   $    61,140   $    23,390   $     7,200   $         -
Certificates of deposit   15,601,320     9,609,103     2,286,572     3,296,124       409,522
                         -----------   -----------   -----------   -----------   -----------
Totals                   $15,693,051   $ 9,670,243   $ 2,309,962   $ 3,303,324   $   409,522
                         ===========   ===========   ===========   ===========   ===========

</TABLE>
                                       18
<PAGE>

Item 3. - Legal Proceedings

     At December 31, 2006 the Company had no outstanding  legal proceedings that
would have a material affect on the financial statements.


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

     No matters were  submitted  during the fourth  quarter of 2006 to a vote of
our shareholders.



PART II.

Item 5. - Market for Registrant's Common Equity and Related Stockholder Matters
          and Small Business Issuer Purchases of Equity Securities

Common Stock and Dividend Information

     Our common stock trades on the NASDAQ Capital 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, 2005 are listed below:

                                         High               Low
2007
First Quarter through March 16          $2.37              $1.85

2006
First Quarter                            2.95               1.76
Second Quarter                           2.90               1.95
Third Quarter                            2.54               2.04
Fourth Quarter                           2.38               1.90

2005
First Quarter                            2.25               1.66
Second Quarter                           2.35               1.75
Third Quarter                            2.00               1.52
Fourth Quarter                           2.00               1.53

     As of the March 16, 2007 we had  approximately  622 stockholders  including
approximately  483 beneficial  owners of shares held by brokerage firms or other
institutions.

     Our shareholders authorized a 1 for 2 reverse stock split in November 2002;
however,  management has opted, at this time, not to implement the reverse stock
split. No cash dividends have been paid on our common stock. We do not currently
anticipate declaring or paying cash dividends on our common stock in 2007.

Certain Sales of Equity Securities

     In 2006, the Company issued 100,500 shares of common stock as  compensation
for services  rendered to a company that assisted in the development of UIFC and
its products. There were no repurchases of common stock in 2006.

     Also during  2006,  the Company  sold 7,200  shares of  preferred  stock at
$1,000 per share.  The Company issued 2,681  additional  preferred shares to the
preferred shareholder as 9.0% paid-in-kind dividends.  There were no repurchases
of preferred stock in 2006.


                                       19
<PAGE>


Item 6. - 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.

     This report includes  "forward-looking  statements" as that term is used in
the securities laws. All statements  regarding our expected financial  position,
business and strategies are forward-looking  statements.  In addition, the words
"anticipates," believes," "estimates," "seeks," "expects" "plans," intends," and
similar  expressions,  as they relate to us or our  management,  are intended to
identify  forward-looking  statements.  The  presentation  and discussion of the
provision  and  allowance  fort loan  losses and  statements  concerning  future
profitability  or  future  growth  or  increases,  are  examples  of  inherently
forward-looking  statements  in that they involve  judgments  and  statements of
belief as to the outcome of future events. Our ability to predict results or the
actual effect of future plans or strategies  is  inherently  uncertain.  Factors
which  could have a material  adverse  affect on our  operations  and out future
prospects  include,  but are not limited to changes in: interest rates,  general
economic  conditions,   legislative/regulatory   changes,  monetary  and  fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal  Reserve  Board,  the quality or  composition  of the loan or investment
portfolios,  demand for loan products,  deposit flows,  competition,  demand for
financial  services in our market area and accounting  principles,  policies and
guidelines. These risks and uncertainties should not be considered in evaluating
forward-looking  statements  and  undue  reliance  should  not be placed on such
statements.  Further  information  concerning  us and  our  business,  including
additional  factors  that could  materially  affect our  financial  results,  is
included in our other filings with the Securities and Exchange Commission.

                          Critical Accounting Policies

     Our  discussion  and  analysis of our  financial  condition  and results of
operations are based upon our financial statements,  which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The  preparation  of these  financial  statements  requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses,  and the related  disclosures.  On an on-going  basis, we
evaluate  these  estimates,  including  those  related to the allowance for loan
losses,  servicing  rights,  other real estate  owned and  deferred  tax assets.
Estimates are based on historical  experience,  information  received from third
parties and on various  other  assumptions  that are  believed to be  reasonable
under the  circumstances,  which form the basis for making  judgments  about the
carrying  values of assets and  liabilities  that are not readily  apparent from
other sources.  Actual results may differ from these  estimates  under different
assumptions or conditions.

                                       20
<PAGE>

     ALLOWANCE  FOR LOAN LOSSES - The  allowance  for loan losses is  determined
based on management  estimates of the amount required for losses inherent in the
portfolio.  These  estimates are 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.

     SERVICING  RIGHTS - Servicing  rights are evaluated  quarterly for possible
impairment  and are valued based on the lower of amortized cost or fair value of
the rights, using independent appraisals and grouping of the underlying loans as
to type,  term and  interest  rates.  Assumptions  as to  prepayment  speeds and
retention rates may change and thereby impact the valuation. Any impairment of a
grouping is reported as a valuation allowance.

     OTHER REAL ESTATE OWNED - Real estate properties  acquired in collection of
a loan are  recorded at fair value upon  acquisition  based on  appraisals.  Any
reduction to fair value from the carrying  value of the related loan at the time
of  foreclosure  is accounted for as a loan loss.  Subsequent  reductions in the
value of the real  estate  owned are  charged  to  earnings  when  probable  and
estimable.  Changes in real estate  value in the future may impact the  carrying
value.

     DEFERRED TAX ASSETS - Deferred  tax assets are recorded  based on estimates
of future  taxable  income  and  utilization  of  existing  net  operating  loss
carry-forwards.  A valuation  allowance  adjusts  deferred tax assets to the net
amount that is more likely than not to be realized.  Actual  results will impact
the estimates of these deferred tax assets.

RISK FACTORS

     Our  business  involves a high  degree of risk.  The reader of this  report
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 carefully consider these prior to purchasing any shares.

University Bank Has Incurred  Significant Losses And May Never Achieve Sustained
Profitability

     University Bank sold its profitable Upper Peninsula operations in late 1994
and  relocated to Ann Arbor in early 1996.  University  Bank had a net loss from
operations  each  year  between  1995  and 2001  and  again  in 2004  and  2006.
University  Bank had a profit  in 2002,  2003 and 2005.  Management  of the Bank
believes the transfer  into the bank of the remainder of the $30 million in zero
interest   cost  escrow   deposits   controlled  by  Midwest  Loan  Services  in
mid-December 2006 should result in the bank achieving  sustained  profitability,
but there is no assurance  that expenses  will not rise or other income  sources
will not fall as a result of some unanticipated future event.

                                       21
<PAGE>

University  Bancorp had an  accumulated  deficit from  operations of $950,038 at
December 31, 2006.

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

     Insiders  hold a majority of the shares  outstanding  of the  Company.  The
Ranzini Group (Mr.  Stephen Lange Ranzini,  Dr. Joseph Lange  Ranzini,  Mr. Paul
Lange Ranzini,  Orpheus Capital, L.P., City Fed Financial and the Ranzini Family
Trust dated 12/20/89)  beneficially owns 2,637,718,  or 62.15% of the issued and
outstanding  shares at March 16,  2007.  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 that may be offered for the common stock by a potential acquirer.

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

     There can be no assurance that University  Bancorp will not need additional
capital  in the  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.

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 are not subject to the same
degree of regulation as University  Bank. 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 TCF National Bank,  National City Bank,  Comerica Bank, Chase
Bank,  LaSalle Bank and Key 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  Michigan  Economy and the Ann Arbor Area  Economy are Likely to Shrink Over
the Next Few Years

     In early 2007, Pfizer and ABN Amro Mortgage,  the largest and third largest
private sector employers in Ann Arbor, announced the closure of their operations
in Ann Arbor,  with the loss of  approximately  5,200 jobs. The future impact on
the area economy of these cutbacks is expected to have a material adverse impact
on the Ann Arbor economy. Michigan's economy has declined for six years in a row
and  current  projections  are  that  ongoing  structural  cutbacks  in the auto
industry will cause further job losses through at least 2010. The overall impact
on banks  located in areas of economic  decline is to restrain  growth and cause
greater than historical loan losses.

                                       22
<PAGE>

The Year Ended December 31, 2006 Compared to the Years Ended December 31, 2005

Summary of Results of Operations

     The  Company's  net loss  was  $401,698  in  2006,  versus  net  income  of
$1,989,169  in 2005.  Basic  earnings  (loss)  per  share for 2006 and 2005 were
$(0.10) and $0.48, respectively.

     The following  table  summarizes  the pre-tax  income (loss) of each profit
center  of the  Company  for the  years  ended  December  31,  2006 and  2005(in
thousands):

                                        2006        2005
                                       ------      ------
         Community Banking             $(953)      $1,361
         Midwest Loan Services          1,016         646
         Corporate Office               (485)        (118)
                                       ------      ------
         Total                         $(422)      $1,889
                                       ======      ======

 Earnings  during 2006 were  restrained  by start-up  expenses at University
Islamic  Financial  Corporation  and the  restructuring  of an agreement  with a
company that assisted in the initial  development of the Islamic  subsidiary and
products.  Community Banking reported a pre-tax loss of $953,000 during the year
ended December 31, 2006 compared to pre-tax net income of $1,361,000  during the
same period in 2005. There were two material  transactions in 2005 that enhanced
results in that year. In 2005,  the Bank was provided  with a lease  termination
buyout and  recorded  income of  $800,000  from this  agreement.  As part of the
agreement the Bank moved out of its lease  facility  into another  facility that
was purchased in June 2005. This income was partly offset by additional costs of
$300,000 incurred in carrying two headquarters for six months of 2005 during the
transition  between  the two  locations.  The  second  transaction  occurred  in
December  2005. The Bank spun off its Islamic  banking  division into a separate
corporation capitalized with $10,000,000. The Bank sold off 20% of its shares in
this corporation to outside investors for $3,000,000.  The transaction  resulted
in a $1,000,000  capital  gain.  This income was  partially  offset by a cost of
$80,000  incurred  to buyout  the rights to profit  sharing  in future  mortgage
alternative  securitization  income of a  consulting  firm that  assisted  us in
forming the Islamic Banking Division.

     The operating  profit of Midwest  increased to $1,016,000  from $646,000 in
2005. Due to increasing rates,  mortgage originations income was down in 2006 as
compared to 2005.  However,  this decrease was offset by an increase in revenues
from  mortgage  loan  servicing  and  sub-servicing.  At Midwest,  the volume of
mortgage  loans  serviced  increased  24.2% to 32,461 at December  31, 2006 from
26,144 loans as of December 31, 2005.

     Within the Corporate Office a large contract modification expense increased
the year to date pre-tax loss in 2006 to $350,000 from a pre-tax loss of $55,000
in 2005.  In April 2006,  the  Company  agreed to modify a  relationship  with a
company that assisted in the development of the Islamic  Banking  subsidiary and
products. Under the original agreement, University Islamic Financial Corporation
was to pay a share of  revenue  earned  from  all  future  mortgage  alternative
products sold in the secondary market.  University Islamic Financial Corporation
agreed to pay this company  $100,000 in cash and the Company paid 100,500 shares
of University Bancorp,  Inc. common stock and stock options totaling 48,563 with
a strike price  starting at $2.50 and  increasing to $3.50 through June 30, 2015
to eliminate  this  provision in the  agreement,  as well as to acquire the firm
providing trustee

                                       23
<PAGE>

services for some of the Islamic  financings.  By modifying the  agreement,  the
Company will materially reduce future expenses related to the agreement.

     Income tax (benefit) in 2006 was $(20,000) and $(100,000) in 2005. In 2006,
the Company recorded a deferred tax benefit of $40,000. The benefit results from
the expected  utilization of the net operating  carry-forward in future periods.
This  benefit was offset by a current tax  expense of  $20,000.  In 2005,  a tax
benefit was  recognized  because of the operating  profit in 2005 and 2003,  and
therefore  a  portion  of  existing  net  operating  loss   carry-forwards  were
reasonably expected to reduce future amounts of taxable income.

Net Interest and Financing Income

2006 as compared with 2005

     Net interest and financing  income  increased to $2,759,432  for year ended
December  31, 2006 from  $2,319,755  for the same  period in 2005.  The yield on
average  earning  assets  increased  from  6.90% in 2005 to 6.99% in 2006.  This
increase  occurred as interest and profit bearing  assets  re-priced in a higher
rate environment in 2006 than had prevailed in earlier periods. Overall, average
interest  and  profit  bearing  assets  increased  from  $47,438,660  in 2005 to
$58,026,347 in 2006. The increase  occurred  primarily in Federal Funds and Bank
Deposits.  This category  increased by  $6,231,322.  The source for the increase
came  primarily  from  an  increase  in  custodial  demand  deposits  which  are
controlled by Midwest.  In  mid-December,  these custodial  demand deposits rose
from  approximately  $12  million  to $30  million as  Midwest  transferred  the
remainder of the custodial  demand  deposits that it controlled to the Bank from
another financial institution.  The financial impact in 2007 and future years of
this  transfer  and the  resulting  increase  in  custodial  demand  deposits is
expected  to be  material,  since each  increase  of $1  million in the  average
monthly balance increases net interest income by approximately $45,000 per year.

     The cost of interest bearing and profit sharing liabilities  increased from
2.07% for the 2005 period to 2.41% in 2006.  Average interest bearing and profit
sharing  liabilities  increased from $46,106,469 in 2005 to $53,719,641 in 2006.
As noted above, interest bearing demand deposits increased due to an increase in
custodial funds held by Midwest as part of its duties as a mortgage servicer and
subservicer.

     The net yield on earning  assets  decreased  slightly from 4.89% in 2005 to
4.76%  in  2006.  The  decrease  in  the  net  interest  and  profit  margin  is
attributable  primarily  to a  significant  increase  in Federal  Funds and Bank
Deposits. This asset category is short term in nature and has a lower yield than
longer term asset categories such as loans. Accordingly,  as interest rates rose
throughout 2005 and 2006, the yield on interesting bearing deposits increased at
a faster pace than the overall yield on interest bearing assets. Overall, due to
the growth in the volume of earning  assets,  net interest and financing  income
increased from $2,319,755 in 2005 to $2,759,442 in 2006.


     The following  tables  present for the average  balances,  the interest and
profit earned or paid, and the weighted average yield for the period indicated:

                                       24
<PAGE>

NET INTEREST AND PROFIT INCOME

                                                             2006
                                               ---------------------------------
                                               Average       Interest    Average
                                               Balance       Inc(Exp)     Yield
                                             -----------   ----------   --------
Interest and Profit Earning Assets:
          Commercial Loans                   $17,961,252   $1,589,030     8.85%
          Real Estate Loans (1)               29,866,139    1,930,141     6.46%
          Installment Loans                    1,549,014      121,527     7.85%
                                             -----------   ----------   --------
              Total Loans                     49,376,405    3,640,698     7.37%
                                             -----------   ----------   --------
     Investment Securities                     1,610,048       63,108     3.92%
     Federal Funds & Bank Deposits             7,039,894      349,672     4.97%
                                             -----------   ----------   --------

        Total Interest Bearing  and
        Profit Sharing Assets                 58,026,347    4,053,478     6.99%
                                             -----------   ----------   --------
Interest Bearing and Profit Sharing Liabilities:
     Deposit Accounts:
         Demand                               21,111,824      145,743     0.69%
         Savings                                 329,838        3,283     1.00%
         Time                                 14,219,749      651,025     4.58%
         Money Market Accts                   17,977,564      491,408     2.73%
         Short-term Borrowings                    80,666        2,587     3.21%
         Long-term Borrowings                          0            0     0.00%
                                             -----------   ----------   --------
         Total Interest Bearing and Profit
          Sharing Liabilities                 53,719,641    1,294,046      2.41%
                                             -----------   ----------   --------
Net earning assets, net interest and profit
   income , and net spread                   $ 4,306,706   $2,759,432      4.58%
                                             ===========   ==========
Net Interest and Profit Margin                                             4.76%

     (1) Actual yields; not adjusted to take into account tax-equivalent yields.

                                       25
<PAGE>



NET INTEREST AND PROFIT INCOME
                                                            2005
                                             -----------------------------------
                                               Average      Interest     Average
                                               Balance      Inc(Exp)     Yield
                                             -----------   ----------   --------
Interest and Profit Earning Assets:
          Commercial Loans                   $16,910,945   $1,416,280      8.37%
          Real Estate Loans (1)               25,762,012    1,605,405      6.23%
          Installment Loans                    2,038,274      160,747      7.89%
                                             -----------   ----------   --------
              Total Loans                     44,711,231    3,182,432      7.12%
                                             -----------   ----------   --------
     Investment Securities                     1,918,857       55,784      2.91%
     Federal Funds & Bank Deposits               808,572       34,675      4.29%
                                             -----------   ----------   --------
Total Interest Bearing  and
        Profit Sharing Assets                 47,438,660    3,272,891      6.90%
                                             -----------   ----------   --------
Interest Bearing and Profit Sharing Liabilities:
     Deposit Accounts:
         Demand                               10,202,304       32,146      0.32%
         Savings                                 471,145        4,612      0.98%
         Time                                 14,888,596      492,222      3.31%
         Money Market Accts                   19,312,868      380,621      1.97%
         Short-term Borrowings                 1,225,219       43,203      3.53%
         Long-term Borrowings                      6,337          332      5.24%
                                             -----------   ----------   --------
Total Interest Bearing and Profit
 Sharing Liabilities                          46,106,469      953,136      2.07%
                                             -----------   ----------   --------
Net earning assets, net interest and profit
   income , and net spread                   $ 1,332,191   $2,319,755      4.83%
                                             ===========   ==========
Net Interest and Profit Margin                                             4.89%

     (1) Actual yields; not adjusted to take into account tax-equivalent yields.


     The tables above do not specify the average level of  non-interest  bearing
demand  deposits,  which were  $6,467,744  and  $3,641,640,  for the years ended
December 31, 2006 and 2005, respectively.

     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:

                                       26
<PAGE>



RATE VOLUME TABLE
                                                      2006 - 2005
                                         -----------------------------------
                                           Change       Change
                                           Due To       Due To      Total
                                           Volume        Rate       Change
                                         ---------   ---------   ---------
Interest and Financing Income:
   Commercial Loans                      $  90,562   $   82,188   $ 172,750
   Real Estate Mortgage Loans              263,446       61,290     324,736
   Installment/Consumer Loans             (38,389)        (831)    (39,220)
   Investment Securities                   (9,966)       17,290       7,324
   Federal Funds & Bank Deposits           308,659        6,338     314,997
                                         ---------   ----------   ---------
     Total Interest and Financing Income   614,312      166,275     780,587
                                         ---------   ----------   ---------

Interest Bearing and Profit Sharing Liabilities:
   Demand Deposits                          53,742       59,855      113,596
   Savings Deposits                        (1,405)           76      (1,329)
   Time Deposits                          (23,002)      181,805      158,803
   Money Market Accounts                  (27,860)      138,647      110,787
   Short-term Borrowings                  (37,041)      (3,575)     (40,615)
   Long-term Borrowings                      (332)       -            (332)
                                         ---------   ----------   ---------
     Total Interest and Profit
         Sharing Expense                  (35,898)     376,808     340,910
                                         ---------   ----------   ---------
     Net Interest and Financing Income   $ 650,210   $(210,533)  $ 439,677
                                         =========   ==========  =========

Loan Portfolio
     Information regarding the Bank's loan portfolio as of December 31, 2006 and
2005 is set forth under Note 5 to University  Bancorp's  consolidated  financial
statements included with this report.

Provision for Loan Losses
     The Bank  charges  to  operations  a  provision  for 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 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 5 of
the  Consolidated  Financial  Statements  for additional  information  regarding
impaired  and past due loans.  Non-performing  loans  amounted  to  $59,605  and
$349,681 at December  31, 2006 and 2005,  respectively.  At December  31,  2005,
there were loans  totaling  $10,172  that were past due over 90 days,

                                       27
<PAGE>

but  still  accruing  interest.  Payments  were made to bring  these  loans to a
current status shortly after year-end.

     The provision for loan losses was $153,297 in 2006 and $17,209 for the same
period in 2005. The provision  increased due to applying  historical loss ratios
to the  growth  in the  loan  portfolio  and  weak  economic  conditions  in the
southeastern Michigan area which increased management's estimates for future
losses from economic factors.

     Loans charged off, net of recoveries,  were $36,721 and $20,916 in 2006 and
2005, respectively.  The allowance for possible loan losses totaled $465,992 and
$349,416  at the  end of  2006  and  2005,  respectively.  The  following  table
summarizes  the loan loss expense for the Bank for the years ended  December 31,
2006 and 2005.

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES ($ amounts in thousands)
                                           2006           2005
                                           ----           ----
Balance at beginning of the period        $ 349          $ 353
Charge offs - Domestic:
  Commercial loans                           43             23
  Real estate mortgages                       -             11
  Installment loans                           -              -
                                           ----           ----
    Subtotal                                 43             34
                                           ----           ----
Recoveries - Domestic:
  Commercial loans                            6             12
  Real estate mortgages                       -              -
  Installment loans                           1              1
                                           ----           ----
    Subtotal                                  7             13
                                           ----           ----
Net charge offs                              36             21
                                           ----           ----
Provision for loan losses                   153             17
                                           ----           ----
Balance at end of period                  $ 466          $ 349
                                           ====           ====
Ratio of net charge offs during
  period to average loans
  outstanding during period               0.07%          0.05%

ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES ($ amounts in thousands)


                             Allocated portion of    Percentage of loans
                                 allowance           in each category to
                                at December 31         total loans
                             --------------------    ------------------
                                   2006    2005       2006     2005
                                  ----     ----      ------   ------
Loan category:
Domestic:
  Commercial loans                $ 274    $  69     33.44%   32.28%
  Real estate mortgages              97      136     63.03%   64.00%
  Installment loans                  19       22      3.53%    3.72%
  Allocated for economic factors     76      122       N/A       N/A
                                  -----    -----    -------  -------
                                  $ 466    $ 349    100.00%  100.00%
                                  =====    =====    =======  =======

                                        At                  At
                                  December 31, 2006   December 31, 2005
                                  -----------------   -----------------

Total loans (1)                      $50,927,197       $45,652,326
Reserve for loan losses              $   465,992       $   349,416
Reserve/Loans %                            0.92%             0.76%
(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. As a result of the

                                       28
<PAGE>

weak Michigan  economy and recent  negative  developments  in the Ann Arbor area
economy (see "Risk  Factors"  above),  the Bank's  future loss ratios may exceed
historical 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.

Non-Interest Income and Non-Interest Expense

     Non-interest  income. Total non-interest income decreased to $4,467,845 for
the year ended December 31, 2006 from $5,891,330 for the same period in 2005. In
2005, non-interest income was impacted by two large non-recurring  transactions.
Excluding  the two  non-recurring  transactions,  non-interest  income showed an
overall  increase in 2006 over 2005,  principally  due to growth of the mortgage
loan servicing operation at Midwest.  Fees from loan servicing and sub-servicing
increased at Midwest as the number of customers increased. In 2005, other income
was  significantly  higher than in 2006 due to income derived from the buyout of
the Bank's lease from a developer  and a gain from the sale of Bank owned shares
in the  Islamic  Banking  subsidiary.  The Bank  agreed to  terminate  its lease
agreement  early in  exchange  for  $800,000.  The Bank  moved out of its leased
facility in December  2005 and moved to another  facility  that it  purchased in
June 2005. Also, the Bank earned  $1,000,000 from the sale of 20% of the Islamic
Banking subsidiary for $3,000,000.

      Mortgage banking. At December 31, 2006, Midwest was sub-servicing 32,461
mortgages, an increase of 24.2% from 26,144 mortgages at December 31, 2005. The
balance of loans sub-serviced was $4.0 billion at December 31, 2006 as compared
with over $3.2 billion at December 31, 2005.

     Securities.  There were no sales of marketable  and  non-marketable  equity
securities in 2006 and 2005.

     At  December  31,  2006 net  unrealized  losses  in the  available-for-sale
securities  were $27,296 and net unrealized  gains were $0. At December 31, 2005
net unrealized losses in our available-for-sale  securities were $34,721 and net
unrealized gains were $0.

     Non-interest  expense  increased to $7,495,678 in the period ended December
31, 2006 from  $6,304,707  for the same period in 2005.  The increase was due to
the growth in the servicing activity at Midwest and development  activity of the
Islamic  Banking  subsidiary.  The  growth in the  number of loans  serviced  at
Midwest has resulted in additional salaries and benefits and other costs related
to servicing  mortgage  loans.  In the Islamic  banking  subsidiary,  additional
expenses  were  incurred  in  the   development   of  products  and  a  contract
modification  agreement  where,  in April 2006,  the Company  agreed to modify a
relationship  with a company  that  assisted in the  development  of the Islamic
Banking  subsidiary  and  products.  The cost of this  agreement  in the  second
quarter of 2006 totaled $260,844. This amount is included in other expense

Income Taxes

     Income tax (benefit)  expense in 2006 was $(20,000) and $(100,000) in 2005.
In 2006,  the Company  recorded a deferred  tax benefit of $40,000.  The benefit
results from the expected  utilization  of the net  operating  carry-forward

                                       29
<PAGE>

in future periods.  This benefit was offset by a current tax expense of $20,000.
In 2005, a tax benefit was  recognized  because of the operating  profit in 2005
and 2003, and therefore a portion of existing net operating loss  carry-forwards
were reasonably expected to reduce future amounts of taxable income.

     At December 31,  2006,  the Company had net  operating  loss and tax credit
carry-forwards  that could be utilized to shelter  approximately  $3.8 of future
taxable  income.  Realization  of income tax  benefits  are not  recorded in the
financial  statements  as  realization  of  these  benefits  is  dependent  upon
generating sufficient future taxable income. See footnote 13 to the financial
statements for more information.

Liquidity and Capital Resources

     Liquidity.  Loans receivable,  net of reserves and excluding loans held for
sale,  increased to $50.46 million in 2006 from $45.30 million in 2005. Cash and
cash equivalents  including  Federal Funds sold on an overnight basis at the end
of 2006 were $27.38 million,  while securities were $672,588.  At year-end 2006,
the Bank had an  unused  line of  credit  from the  Federal  Home  Loan  Bank of
Indianapolis  of $3.2  million,  and an unused  line of credit  from the Federal
Reserve Bank of Chicago of $5.0 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 $2,066 in cash at the end of 2006
to meet cash needs,  primarily  operating  expenses  including  audit and NASDAQ
listing fees.  Management  intends that the cash on hand,  the exercise of stock
options and possible  sale of additional  preferred  stock will be sufficient to
cover  our  operating  expenses  during  2007  and  2008.  The  Company's  total
stockholders'  equity at  December  31,  2006 was  approximately  $5.25  million
compared to $5.30 million at December 31, 2005.

     As of December 31, 2006 and 2005,  the Bank was in compliance  with all the
regulatory  capital  requirements that were applicable (i.e.,  total capital and
Tier 1 capital to risk-weighted assets of at least 8% and 4%, respectively,  and
Tier 1 capital to average  assets of at least 4%). The Bank is  considered to be
"well-capitalized"  under prompt  corrective  action  provisions for each of the
ratios.  Set forth below are the Bank's regulatory  capital ratios as of the end
of 2006 and 2005, based on FDIC  guidelines.  The Bank's overall capital ratios
declined  in 2006  versus  2005 as a result of the 35.3%  increase in the Bank's
total assets.


                                       30
<PAGE>


           CAPITAL RATIOS                                 2006            2005
                                                         ------          ------
 Tier 1/Total Average Assets                              9.77%          14.00%
 Tier 1/Total Risk-Weighted Assets                       15.66%          17.63%
 Tier 1 & 2/Total Risk-Weighted Assets                   16.55%          18.44%

Recently Issued Accounting Standards

     Financial  Accounting  Standards  Board's (FASB) Final  Interpretation  No.
48,"Accounting for Uncertainty in Income Taxes" ("FIN 48"). This  interpretation
was issued on July 13, 2006. FIN 48 clarifies the accounting for  uncertainty in
income taxes recognized in the financial  statements in accordance with FASB No.
109, "Accounting for Income Taxes." This



<PAGE>

interpretation  provides  guidance on the financial  statement  recognition  and
measurement  of a tax  position  taken or  expected to be taken in a tax return.
Further,  FIN 48 provides guidance on de-recognition,  classification,  interest
and penalties,  accounting in interim periods,  disclosures and transition. This
interpretation  is effective for fiscal years beginning after December 15, 2006.
The  cumulative  effects,  if any,  of  applying  FIN 48 will be  recorded as an
adjustment to retained earnings as of the beginning of the period of adoption.

     Financial  Accounting Standards Board Statement No. 156 - Accounting
for Servicing of Financial Assets. This Statement amends FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments
of  Liabilities,  with  respect  to the  accounting  for  separately  recognized
servicing  assets  and  servicing   liabilities.   This  standard  requires  all
separately  recognized servicing assets and liabilities to be initially measured
at fair value and either amortized over the period of estimated servicing income
and assessed for  impairment  each reporting  period,  or measured at fair value
each reporting period with changes in fair value reported in earnings the period
in which changes  occur.  This standard is effective for fiscal years  beginning
after  September  15,  2006.  The  Company is in the process of  evaluating  the
expected effect of this  pronouncement and is currently unable to determine the
impact,  if any,  that they may have on its  results  of  operations,  financial
position and cash flows.


     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards  No.  157,  Fair Value  Measurements  (FASB  157).  FASB 157  enhances
existing guidance for measuring assets and liabilities  using fair value.  Prior
to the issuance of FASB 157,  guidance for applying fair value was  incorporated
in several accounting  pronouncements.  FASB 157 provides a single definition of
fair value,  together with a framework for measuring it, and requires additional
disclosure about the use of fair value to measure assets and  liabilities.  FASB
157 also  emphasizes  that  fair  value is a  market-based  measurement,  not an
entity-specific  measurement,  and  sets  out a fair  value  hierarchy  with the
highest  priority  being quoted prices in active  markets.  Under FASB 157, fair
value measurements are disclosed by level within that hierarchy.  While FASB 157
does not add any new fair value  measurements,  it does change current practice.
Changes to practice include:  (1) a requirement for an entity to include its own
credit standing in the measurement of its liabilities; (2) a modification of the
transaction price  presumption;  (3) a prohibition on the use of block discounts
when valuing  large  blocks of  securities  for  broker-dealers  and  investment
companies; and (4) a requirement to adjust the value of restricted stock for the
effect of the restriction  even if the restriction  lapses within one year. FASB
157 is effective  for  financial  statements  issued for fiscal years  beginning
after  November 15, 2007,  and interim  periods  within those fiscal years.  The
Company  has not  determined  the impact of adopting  FASB 157 on its  financial
statements.

     In September 2006, the FASB issued FASB No. 158, Employers'  Accounting for
Defined  Benefit  Pension and Other  Postretirement  Plans (FASB  158),  which
amends  FASB  87 and  FASB  106 to  require  recognition  of the  overfunded  or
underfunded  status of pension  and other  postretirement  benefit  plans on the
balance  sheet.  Under  FASB 158,  gains and  losses,  prior  service  costs and
credits,  and any remaining  transition  amounts under FASB 87 and FASB 106 that
have  not  yet  been  recognized  through  net  periodic  benefit  cost  will be
recognized in accumulated other comprehensive income, net of tax effects,  until
they are amortized as a component of net periodic cost. The  measurement  date -
the date at which the  benefit  obligation  and plan  assets  are  measured


                                       31
<PAGE>

- is required to be the  company's  fiscal year end.  FASB 158 is effective  for
publicly-held  companies for fiscal years ending after December 15, 2006, except
for the measurement date provisions, which are effective for fiscal years ending
after  December  15,  2008.  Adoption  of this  FASB is not  expected  to have a
material impact on the Company's financial statements.

     In February  2007,  the FASB issued FASB No. 159, The Fair Value Option for
Financial Assets and Financial  Liabilities.  This statement permits entities to
choose to measure many  financial  instruments  and certain  other items at fair
value. An entity shall report unrealized gains and losses on items for which the
fair value  option has been  elected in  earnings at each  subsequent  reporting
date.  This  statement  is effective  as of the  beginning of an entity's  first
fiscal year that begins after November 15, 2007.  Early adoption is permitted as
of the  beginning  of a fiscal year that begins on or before  November 15, 2007,
provided  the entity also elects to apply the  provisions  of FASB No. 157.  The
Company is continuing to evaluate the impact of this statement.

     In September  2006,  the Securities  and Exchange  Commission  (SEC) issued
Staff Accounting  Bulleting No. 108 ("SAB 108").  SAB 108 provides  interpretive
guidance  on how  the  effects  of the  carryover  or  reversal  of  prior  year
misstatements  should be  considered  in  quantifying  a potential  current year
misstatement.  Prior to SAB 108,  companies  might  evaluate the  materiality of
financial  statement  misstatements using either the income statement or balance
sheet approach, with the income statement approach focusing on new misstatements
added in the  current  year,  and the  balance  sheet  approach  focusing on the
cumulative  amount  of  misstatement  present  in  a  company's  balance  sheet.
Misstatements  that  would be  material  under one  approach  could be viewed as
immaterial under another  approach,  and not be corrected.  SAB 108 now requires
that companies view financial  statement  misstatements  as material if they are
material according to either the income statement or balance sheet approach. The
Company has adopted SAB 108, with no impact on the Company's  financial position
or results of operations.


                                       32
<PAGE>




Item 7. - Consolidated Financial Statements





                       UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                       ------------------------------------------

                        CONSOLIDATED FINANCIAL STATEMENTS
                        ---------------------------------

                           DECEMBER 31, 2006 and 2005

                                       33
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
University Bancorp, Inc.

We have  audited the  accompanying  consolidated  balance  sheets of  University
Bancorp, Inc. and Subsidiaries (the "Company") as of December 31, 2006 and 2005,
and the related  consolidated  statements of  operations,  comprehensive  income
(loss),  stockholders'  equity  and cash  flows  for the two year  period  ended
December  31,   2006.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting.  Our audits included consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
consolidated financial statements,  assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of University Bancorp,
Inc. and Subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for the two year period ended December 31, 2006,
in conformity with accounting principles generally accepted in the United States
of America.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
adopted  statement of Financial  Accounting  Standards No. 123(R),  "Share Based
Payments," effective January 1, 2006.



/s/ UHY LLP


Southfield, Michigan
April 9, 2007


                                       34
<PAGE>




<TABLE>
<CAPTION>


                    UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2006 and 2005

                                                                                December 31,          December 31,
ASSETS                                                                             2006                  2005
                                                                                -----------          -----------
<S>                                                                             <C>                  <C>
Cash and due from banks                                                         $27,381,113          $ 7,746,666
Investment securities available for sale, at market                                 672,588              833,762
Federal Home Loan Bank Stock                                                        714,600              941,200
Loans and financings held for sale, at the lower of cost or market                1,951,629            1,446,575
Loans and financings                                                             50,927,197           45,652,326
Allowance for loan losses                                                         (465,992)            (349,416)
                                                                                -----------          -----------
     Loans and financings, net                                                   50,461,205           45,302,910

Premises and equipment, net                                                       2,696,062            2,802,816
Mortgage servicing rights, net                                                    1,516,100            1,471,808
Real estate owned, net                                                              289,212              276,987
Accounts receivable                                                                 253,866            2,585,524
Accrued interest and profit receivable                                              304,863              205,069
Prepaid expenses                                                                    384,113              285,015
Goodwill                                                                            103,914              103,914
Other assets                                                                        616,616              537,666
                                                                                -----------          -----------
      TOTAL ASSETS                                                              $87,271,741          $64,539,912
                                                                                ===========          ===========

                                                                 -Continued-

</TABLE>

                                       35
<PAGE>


<TABLE>
<CAPTION>

                  UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2006 and 2005

                                                                                December 31,          December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY                                               2006                  2005
                                                                                -----------          -----------
Liabilities:
Deposits:
<S>                                                                             <C>                  <C>
  Demand - non interest bearing                                                 $ 5,086,312          $ 2,919,887
  Demand - interest bearing and profit sharing                                   57,925,964           34,485,047
  Savings                                                                           268,585              418,308
  Time                                                                           15,601,321           18,197,803
                                                                                -----------          ------------
     Total Deposits                                                              78,882,182           56,021,045
Accounts payable                                                                     59,384              395,604
Accrued interest and profit sharing payable                                          73,532              110,619
Other liabilities                                                                   368,837              210,190
                                                                                -----------          -----------
     Total Liabilities                                                           79,383,935           56,737,458
Minority Interest                                                                 2,636,559            2,501,873
Stockholders' equity:
  Preferred stock, $0.001 par value;
    $1,000  liquidation value;
    Authorized - 500,000 shares;
    Issued - 37,672 shares in 2006 and
             27,791 shares in 2005                                                       38                   28
  Common stock, $0.01 par value;
    Authorized - 5,000,000 shares;
    Issued - 4,363,562 shares in 2006 and
             4,263,062 shares in 2005                                                43,635               42,630
  Additional paid-in-capital                                                      6,488,960            6,149,990
  Additional paid-in-capital - stock options                                         36,478                 -
  Treasury stock - 115,184 shares in 2006
    and 2005                                                                      (340,530)            (340,530)
  Accumulated deficit                                                             (950,038)            (516,816)
  Accumulated other comprehensive loss,
    unrealized losses on securities
    available for sale, net                                                        (27,296)             (34,721)
                                                                                -----------          -----------
     Total Stockholders' Equity                                                   5,251,247            5,300,581
                                                                                -----------          ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $87,271,741          $64,539,912
                                                                                ===========          ===========
See notes to consolidated financial statements.

</TABLE>
                                       36
<PAGE>


<TABLE>
<CAPTION>


                                   UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                                    Consolidated Statements of Operations
                                For the Years Ended December 31, 2006 and 2005

                                                                                  2006                   2005
                                                                                -----------          ------------

Interest and financing income:

<S>                                                                             <C>                  <C>
  Interest and fees on loans and  financing income                              $ 3,640,698          $  3,182,432
  Interest on investment securities:
   U.S. Government agencies                                                          19,829                16,107
   Other securities                                                                  43,279                39,677
  Interest on Federal funds and other                                               349,672                34,675
                                                                                -----------          ------------
     Total interest income and financing income                                   4,053,478             3,272,891
                                                                                -----------          ------------
Interest and profit sharing expense:
  Interest and profit sharing on deposits:
   Demand deposits                                                                  637,151               412,767
   Savings deposits                                                                   3,283                 4,612
   Time certificates of deposit                                                     651,025               492,222
  Short term borrowings                                                               2,587                43,203
  Long term borrowings                                                                    -                   332
                                                                                -----------          ------------
     Total interest and profit sharing expense                                    1,294,046               953,136
                                                                                -----------          ------------
     Net interest and financing income                                            2,759,432             2,319,755
Provision for loan losses                                                           153,297                17,209
                                                                                -----------          ------------
     Net interest and financing income after
     provision for loan losses                                                    2,606,135             2,302,546
                                                                                -----------          ------------
Other income:
   Loan servicing and sub-servicing
      fees                                                                        2,390,681             1,736,285
  Initial loan set-up and other fees                                              1,303,583             1,396,813
  Net gain on sale of mortgage loans                                                100,450               308,648
  Insurance & investment fee income                                                 248,077               200,585
  Deposit service charges and fees                                                   90,521               107,100
  Gain on the sale and leaseback of
   premises                                                                               -               210,315
  Other                                                                             334,533             1,931,584
                                                                                -----------          ------------
     Total other income                                                           4,467,845             5,891,330
                                                                                -----------          ------------
                                -Continued-
</TABLE>
                                       37
<PAGE>

<TABLE>
<CAPTION>

                    UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                Consolidated Statements of Operations (continued)
                 For the Years Ended December 31, 2006 and 2005

                                                                                   2006                 2005
                                                                                -----------          ------------

Other expenses:
<S>                                                                             <C>                  <C>
  Salaries and benefits                                                         $ 3,442,951          $ 3,000,918
  Occupancy, net                                                                    524,979              517,167
  Data processing and equipment expense                                             611,377              570,008
  Legal and audit                                                                   307,219              343,135
  Consulting fees                                                                   254,943              287,117
  Mortgage banking                                                                  172,910              190,671
  Servicing rights amortization                                                     239,075              137,736
  Advertising                                                                       239,183              162,296
  Memberships and training                                                          151,230               90,902
  Travel and entertainment                                                          193,790              148,159
  Supplies and postage                                                              310,826              240,322
  Insurance                                                                         175,027              153,280
  Other operating expenses                                                          737,482              401,241
                                                                                -----------          ------------
     Total other expenses                                                         7,360,992            6,242,952
                                                                                -----------          ------------
Income(loss) before income taxes and minority interest                            (287,012)            1,950,924
Income tax (benefit)                                                               (20,000)             (100,000)
                                                                                -----------          ------------
Income(loss) before minority interest                                             (267,012)            2,050,924
Minority interest in consolidated subsidiaries' earnings                           134,686                61,755
                                                                                -----------          ------------
     Net Income(loss)                                                           $ (401,698)          $ 1,989,169
                                                                                ===========          ============
Basic earnings(loss)per common share                                            $    (0.10)          $      0.48
                                                                                ===========          ============
Diluted earnings(loss)per common share                                          $    (0.10)          $      0.47
                                                                                ===========          ============
Weighted average shares outstanding -Basic                                        4,222,771            4,146,504
Weighted average shares outstanding -Diluted                                      4,222,771            4,184,430

See notes to consolidated financial statements.
</TABLE>
                                       38
<PAGE>



                    UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
              Consolidated Statements of Comprehensive (Loss)Income
                 For the Years Ended December 31, 2006 and 2005




                                                  2006                   2005
                                                ----------            ----------
Net (loss)income                                $(401,698)            $1,989,169
Other comprehensive income:
 Net unrealized gains on
 securities available for sale -
 net of deferred taxes of $0 and
 $0, respectively                                   7,425                 16,636
                                                ----------            ----------
Comprehensive (loss)income                      $(394,273)            $2,005,805
                                                ==========            ==========


See notes to consolidated financial statements.


                                       39
<PAGE>

<TABLE>
<CAPTION>



                    UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                 For the years ended December 31, 2006 and 2005



                                              Preferred Stock      Common Stock                                Treasury Stock
                                                $.001 Par                                      Additional
                                                  Value          $.01 Par Value                Paid In
                                               ---------------  ----------------   Additional   Capital-
                                               Number of   Par   Number of   Par     Paid In     Stock     Number of
                                                Shares    Value   Shares    Value    Capital    options    Shares        Cost
                                               ----------------  ---------  ------  ---------  ---------  ---------  --------
<S>             <C>                                        <C>   <C>       <C>     <C>         <C>        <C>        <C>
Balance January 1, 2005                             -      $-    4,240,641 $42,406 $5,841,331  $    -     (115,184)  $(340,530)
                                               ---------  -----  ---------  ------  ---------  ---------  ---------  ---------
Issuance of preferred stock at $1,000 per
share, net of expenses of $10,000                 27,791    28                        267,883

Preferred stock dividend

Issuance of common stock at weighted average
price of $1.11 per share, net of expenses of
$0.00                                                               22,421     224     40,776

Decrease in unrealized loss on securities
available for sale, net of tax
Net Income
                                               ---------  -----  ---------  ------  ---------  ---------  ---------  ---------
December 31, 2005                                 27,791    28   4,263,062  42,630  6,149,990             (115,184)  (340,530)
                                               ---------  -----  ---------  ------  ---------  ---------  ---------  ---------
Issuance of preferred stock at $1,000 per share    7,200     7                         71,993

Preferred stock dividend

Conversion of accrud preferred stock
dividends into shares of preferred stock           2,681     3                         26,782

Issuance of common stock in exchange for
services - weighted average price of
$2.40 per share on effective date                                  100,500   1,005    240,195

Stock Option awards                                                                             36,478

Decrease in unrealized loss on securities
available for sale, net of tax

Net Income
                                               ---------  -----  ---------  ------  ---------  ---------  ---------  ---------
December 31, 2005                                 37,672   $38   4,363,562 $43,635 $6,488,960   $36,478   (115,184) $(340,530)
                                               =========  =====  =========  ======  =========  =========  =========  =========

                                  -CONTIUNED-


</TABLE>


                    UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                 For the years ended December 31, 2006 and 2005

<TABLE>
<CAPTION>




                                                          Accumulated
                                                          Retained
                                                           Earnings    Comprehensive  Stockholders'
                                                          (Deficit)       Loss           Equity
                                                          ------------    ---------    ----------
<S>             <C>                                       <C>             <C>          <C>
Balance January 1, 2005                                   $(2,490,224)    $(51,357)    $3,001,626
                                                          ------------    ---------    ----------
Issuance of preferred stock at $1,000 per                                                 267,911
share, net of expenses of $10,000

Preferred stock dividend                                      (15,761)                   (15,761)

Issuance of common stock at weighted average
price of $1.11 per share, net of expenses of
$0.00                                                                                      41,000

Decrease in unrealized loss on securities
available for sale, net of tax                                               16,636        16,636

Net Income                                                   1,989,169                  1,989,169
                                                          ------------    ---------    ----------
Balance, December 31, 2005                                   (516,816)     (34,721)    $5,300,581
                                                          ------------    ---------    ----------
Issuance of preferred stock at $1,000 per share                                            72,000

Preferred stock dividend                                      (31,524)                   (31,524)

Conversion of accrued preferred stock
dividends into shares of preferred stock                                                   26,785

Issuance of common stock in exchange for
services - weighted average price of
$2.40 per share on effective date                                                         241,200

Stock option awards                                                                        36,478

Decrease in unrealized loss on securities
available for sale, net of tax                                                7,425         7,425

Net Loss                                                     (401,698)                  (401,698)
                                                          ------------    ---------    ----------
Balance, December 31, 2006                                $ (950,038)    $(27,296)    $5,251,247
                                                          ============    =========    ==========


See notes to consolidated financial statements.

</TABLE>

                                       40


<PAGE>

<TABLE>
<CAPTION>

                    UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                 For the years ended December 31, 2006 and 2005

                                                                                     2006            2005
                                                                                ------------    -------------
       Operating activities:
<S>                                                                             <C>             <C>
       Net income (loss)                                                        $  (401,698)    $   1,989,169
       Adjustments to reconcile net income(loss) to net cash provided by
       operating activities:
           Depreciation                                                              382,219          337,592
           Amortization                                                              239,075          137,736
           Provision for loan loss                                                   153,297           17,209
           Net gain on sale of mortgages                                           (100,450)         (308,648)
           Gain on the sale and leaseback of premises                                   -            (210,315)
           Net gain on other real estate owned                                     (105,414)          (9,294)
           Net accretion on securities                                                 (315)          (1,143)
           Deferred income tax (benefit)                                                -           (100,000)
           Originations of mortgage loans                                       (44,313,744)     (55,785,241)
           Proceeds from mortgage loan sales                                      43,909,140       55,493,714
           Stock awards                                                                5,479              -
           Non-e,ployee stock awards                                                 272,199              -
           Net change in:
             Other assets                                                          2,071,189      (2,892,916)
             Other liabilities                                                      (79,974)        2,482,328
                                                                                ------------    -------------
       Net cash provided by operating activities                                   2,031,003        1,150,191
                                                                                ------------    -------------
       Investing activities:
             Proceeds from maturities of
               investment securities                                                 168,914          290,624
             Proceeds from sale of other real estate
               owned                                                                472,997          713,611
             Loans granted, net of repayments                                    (5,691,400)      (3,132,020)
             Premises and equipment expenditures                                   (275,465)      (2,283,704)
                                                                                ------------    -------------
       Net cash used in investing activities                                     (5,324,954)      (4,411,489)
                                                                                ------------    -------------
                                                    -Continued-

</TABLE>

                                       41
<PAGE>

<TABLE>
<CAPTION>

                    UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                 For the years ended December 30, 2006 and 2005

                                                                               2006               2005
                                                                                ------------    -------------
     Financing activities:
<S>                                                                               <C>               <C>
           Net increase in deposits                                               22,861,137       11,433,246
           Net decrease in short term borrowings                                          -       (2,416,000)

           Principal payments on long term borrowings                                     -          (34,000)
           Dividends on preferred stock                                              (4,739)         (12,361)
           Issuance of preferred stock                                                72,000          264,510
           Issuance of common stock                                                       -            41,000
                                                                                ------------    -------------
            Net cash provided by financing
             activities                                                           22,928,398        9,276,395
                                                                                ------------    -------------

               Net change in cash and cash
                 equivalents                                                      19,634,447        6,015,097
     Cash and cash equivalents:
          Beginning of year                                                        7,746,666        1,731,569
                                                                                ------------    -------------
          End of year                                                           $ 27,381,113    $   7,746,666
                                                                                ============    =============

     Supplemental disclosure of cash flow information:
           Cash paid for interest                                               $  1,331,133    $     892,813
           Cash paid for federal income taxes                                   $     41,253    $           -

     Supplemental disclosure of non-cash transactions:
           Decrease in unrealized loss on securities available
            for sale, net of deferred taxes of $0 and $0, respectively          $      7,425    $      16,636
           Mortgage loans converted to other real estate owned                  $    379,808    $     458,577
           Fixed assets converted to basis in partnership                       $       -       $      90,000
           Dividends on preferred stock converted to additional shares
           of preferred stock                                                   $     26,785    $       3,400

See notes to consolidated financial statements.
</TABLE>
                                       42
<PAGE>



                    UNIVERSITY BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                 For the years ended December 31, 2006 and 2005

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
          Hoover, LLC.  ("Hoover") and two 80% owned subsidiaries,  Midwest Loan
          Services,   Inc.   ("Midwest")   and  University   Islamic   Financial
          Corporation ("UIFC").  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.

          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.

          The  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 is engaged in the  business  of  servicing  and  sub-servicing
          residential  mortgage loans.  Midwest began operations in 1992 and was
          acquired by  University  Bank in December,  1995.  Midwest is based in
          Houghton,  Michigan, and also originates mortgage loans for itself and
          other financial institutions, including the Bank (See Note 2).

                                       43
<PAGE>

1. Summary of significant accounting policies (continued)

          UIFC is engaged  in Islamic  Banking  and was formed on  December  30,
          2005.  Its current  products are  Islamically  compliant  FDIC-insured
          deposits and home financings (as agent for the Bank), mutual funds (as
          agent for a third-party fund distribution company) and home financings
          (as principal for its own account).

          Hoover owns the Bank's headquarters facility and was purchased in June
          2005.

          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 valuation of other real estate owned,  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,  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  at the  date of
          purchase.  All  securities  are  classified  as available  for sale at
          December 31, 2006 and 2005.  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.

                                       44
<PAGE>


1. Summary of significant accounting policies (continued)

          Mortgage banking activities
          Mortgage banking activities  include 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.  Loan
          servicing  and  sub-servicing  fees are  contractually  based  and are
          recognized monthly as earned over the life of the loans.

          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
          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, 2006:

                Buildings and building improvements   39 years
                Land and leasehold improvements       15 years or term of lease
                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  foreclosure.  Any reduction to fair value from the
          carrying value of the related loan is accounted for as a loan loss.

                                       45
<PAGE>




1. Summary of significant accounting policies (continued)

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


          Goodwill
          The Company  evaluates  the  carrying  value of  goodwill  during each
          quarter of each year and between quarterly evaluations if events occur
          or  circumstances  change  that would more  likely than not reduce the
          fair value of the  reporting  unit  below its  carrying  amount.  When
          evaluating whether goodwill is impaired, the Company compares the fair
          value of the reporting unit to which the goodwill is assigned,  to the
          reporting unit's carrying amount,  including  goodwill.  An impairment
          loss would be recognized when the carrying amount of goodwill  exceeds
          its fair value. The Company's  evaluation of goodwill completed during
          the 2006 and 2005 resulted in no impairment losses.

          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
          carry-forwards.  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  carry-forwards 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  employees 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. The Bank made no matching contributions for
          the years ended December 31, 2006 and 2005.

          Employee 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

                                       46
<PAGE>

          recorded at the shares' fair value.  The Company made no  contribution
          in 2006 and 2005.

          Stock options
          The Company has adopted FASB No. 123(R),  "Share-Based Payment", which
          is  a  revision  of  FASB  No.  123,   "Accounting   for  Stock  Based
          Compensation",  and  supersedes  APB Opinion No. 25,  "Accounting  for
          Stock  Issued to  Employees",  and was issued in  December  2004.  The
          revisions  require that the compensation  cost relating to share-based
          payment transactions be recognized in the financial  statements.  That
          cost  will be  measured  based on the  fair  value  of the  equity  or
          liability  instruments  issued.  For the year ended December 31, 2006,
          the Company recorded $36,478 of compensation  expense related to stock
          options.

          Prior  to the 2006  year,  the  Company  adopted  the  disclosure-only
          provisions of FASB No. 123. Accordingly, if the Company had elected to
          recognize  compensation cost based on the fair value of the options at
          grant  date,  the  Company's  earnings  and  earnings  per share  from
          continuing  operations,  assuming dilution,  for the year period ended
          December  31,  2005  would have been the pro forma  amounts  indicated
          below:


       Net income, as reported              $1,989,169

       Deduct: Total stock-based employee
       compensation expense determined
       under fair value based method for
       all awards, net of tax                    6,000
                                            ----------
       Pro forma net income                 $1,983,169
                                            ==========

       Earnings per share:                         Basic       Diluted
                                                  ------       -------
       As reported                                $0.48         $0.47
       Pro forma                                  $0.48         $0.47

          Dividend restriction

          Banking  regulations require the maintenance of certain capital levels
          and may limit the amount of dividends  that may be paid by a bank to a
          holding company or by a holding company to shareholders.  In addition,
          a bank cannot pay a dividend until it has net retained  earnings equal
          to 20% of capital  and  surplus.  The Bank's  capital  and surplus was
          $5,280,767 at both December 31, 2006 and 2005,  and retained  earnings
          of the Bank were  $14,186 and  $65,170 at December  31, 2006 and 2005,
          respectively.

          Earnings(loss) per share

          Basic  earnings  per  share  represents  income  available  to  common
          stockholders  divided by the weighted  average number of common shares
          outstanding  during the period.  Diluted  earnings  per share  reflect
          additional  common shares that would have been outstanding if dilutive
          potential common shares had been issued,  as well as any adjustment to
          income that would result from the assumed  issuance.  Potential common
          shares that may be issued by the Company  relate solely

                                       47
<PAGE>
1. Summary of significant accounting policies (continued)
          to outstanding  stock options,  and are determined  using the treasury
          stock method.  Earnings per common share have been  computed  based on
          the following:

                                                     2006           2005
                                                 -----------     ----------
       Net income (loss)                          $(401,698)     $1,989,169
       Less: Preferred dividends                      31,524         15,761
                                                 -----------     -----------
       Net income(loss available to
          Common shareholders)                    $(433,222)     $1,973,408
                                                  ==========     ==========

                                                    2006            2005
                                                 -----------     ----------
       Weighted average shares outstanding         4,222,771      4,146,504
       Net dilutive effect of stock options           -              37,926
                                                  ----------     ----------
       Diluted average shares outstanding          4,222,771      4,184,430
                                                  ==========     ==========

       For December 31, 2006, the Company incurred a net loss. Accordingly,
       anti-dilutive impact of the effect of stock options is not shown.

          Comprehensive  Income(Loss)
          Comprehensive income(loss) includes both the net income (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 2005 consolidated  financial statements and notes
          have been reclassified to conform to the 2006 presentation.

2.        Secondary Market Operations
          Midwest provides  servicing and  sub-servicing of real estate mortgage
          loans for University  Bank and several other  financial  institutions.
          The unpaid  principal  balance of these loans was  approximately  $4.0
          billion  and  $3.2   billion  as  of  December   31,  2006  and  2005,
          respectively.  Custodial escrow balances maintained in connection with
          these respective loans was $57.1 million and 40.7 million, at December
          31,  2006 and 2005  respectively  Most of these  Funds are off balance
          sheet and maintained at University Bank. The following  summarizes the
          operations of Midwest for the years ended December 31:


                                       48
<PAGE>

2.       Secondary Market Operations  (continued)


                                                     2006                2005
                                                  ----------         ----------
      Loan servicing and sub-servicing fees       $2,396,603         $1,747,113
      Loan set-up and other fees                   1,915,867          1,416,870
      Interest income                                 65,764             42,393
      Gain on sale of loans                          100,450            314,820
                                                  ----------         ----------
           Total income                            4,478,684          3,521,196

      Salaries and benefits                        1,812,724          1,560,356
      Amortization of servicing rights               254,047            135,155
      Interest expense                               114,377             35,429
      Other operating expenses                     1,630,354          1,364,341
                                                  ----------         ----------
           Total expenses                          3,811,502          3,095,281
                                                  ----------         ----------
       Income of  Midwest                         $  667,182         $  425,915
                                                  ==========         ==========

          University Bank and Midwest sell 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
          $152.7  million  and  143.4  million  at  December  31,  2006 and 2005
          respectively.

          The following summarizes the activity pertaining to mortgage servicing
          rights,  along  with  the  aggregate  activity  in  related  valuation
          allowances.  Table  A is  calculated  net of the  valuation  allowance
          described in Table B.

      Table A                                        2006                2005
                                                  ----------         ----------
      Mortgage servicing rights:
      Balance, January 1                          $1,471,808         $1,097,786
      Additions - originated                         283,367            462,283
      Amortization expense                         (203,075)           (215,261)
      Adjustment for asset impairment change        (36,000)            127,000
                                                  ----------         ----------
      Balance, December 31                        $1,516,100         $1,471,808
                                                  ==========         ==========

      Table B
      Valuation allowances:
      Balance, January 1                          $  389,000         $  516,000
      Additions                                       36,000           (127,000)
                                                  ----------         ----------
      Balance, December 31                        $  425,000         $  389,000
                                                  ==========         ==========

          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.  The  amortization  of these
          rights is based upon the level of  principal  pay downs  received  and
          expected  prepayments of the mortgage loans.  The servicing rights are
          recorded at the lower of cost or market.

                                       49
<PAGE>

3. 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, 2006 and 2005:

     December 31, 2006
                                    Amortized     Unrealized         Fair
                                      Cost      Gains    Losses      Value
                                    --------  --------  --------   --------
     U.S. agency mortgage-backed
             securities             $699,884  $   -     $(27,296)  $672,588
                                    ========  ========  =========  ========


December 31, 2005
                                    Amortized     Unrealized         Fair
                                      Cost      Gains    Losses      Value
                                    --------  --------  --------   --------
     U.S. agency mortgage-backed
             securities             $868,483  $   -     $(34,721)  $833,762
                                    ========  ========  =========  =========


          At December 31, 2006 and 2005, the fair value of securities pledged to
          secure certain  borrowings  were $672,588 and $833,762,  respectively.
          The balance of these borrowings at December 31, 2006 and 2005 were $0.
          Unrealized  losses at  December  31,  2006 and 2005 have  existed  for
          longer than twelve months. This decline is considered temporary as the
          values of the mortgage-backed securities fluctuate based on changes in
          current  interest  rates and  prepayment  assumptions  related  to the
          underlying mortgages.  Furthermore,  the Company expects to hold these
          securities  sufficiently  long  enough  to  recover  these  unrealized
          losses.

      Sales of available for sale securities:     2006            2005
                                                  ----            ----
               Proceeds                           $0              $0
               Realized gains                      0               0
               Realized losses                     0               0

          The scheduled  maturity date of the  securities  available for sale at
          December 31, 2006 is:

                                                 Amortized              Fair
                                   Cost Value
                     2007-2011                     $     0          $      0
                     2012-2016                      32,108            31,325
                     After 2016                    667,776           641,263
                                                   -------           -------
                                                  $699,884          $672,588
                                                  ========          ========

4.   Accounts Receivable
          Accounts  receivable were $253,866 and $2,585,524 at December 31, 2006
          and 2005, respectively. These balances included the following:
                                                     2006            2005
              Stock subscription receivable from
              sale of stock in University Islamic
              Financial Corporation                 $   -           $1,500,000
              Lease termination receivable              -            1,000,000
              Other                                  253,866            85,524
                                                    --------        ----------
              Total                                 $253,866        $2,585,524
                                                    ========        ==========

                                       50
<PAGE>

5.      Loans
          Major classifications of loans are as follows as of December 31:
                                                    2006                2005
                                                 -----------        -----------
      Commercial                                 $15,705,255        $12,547,975
      Real estate - mortgage                      32,126,182         29,126,299
      Real estate -construction                    1,031,027          1,958,485
      Installment                                  1,795,875          1,707,461
      Credit cards                                   268,858            312,106
                                                 -----------        -----------
         Gross Loans                              50,927,197         45,652,326
      Allowance for loan losses                    (465,922)           (349,416)
                                                 -----------        -----------
         Net Loans                               $50,461,205        $45,302,910
                                                 ===========        ============

          Changes in the allowance for loan losses were as follows:
                                                     2006               2005
                                                  ----------         ----------
      Balance, beginning of year                  $  349,416         $  353,124
      Provision charged to operations                153,297             17,209
      Recoveries                                       7,139             12,701
      Charge-offs                                   (43,860)            (33,618)
                                                  ----------         ----------
      Balance, end of year                        $  465,992         $  349,416
                                                  ==========         ==========

          At December 31, 2005,  there are loans totaling $10,172 that were past
          due over 90 days but still accruing interest. These loans were brought
          current  shortly after December 31, 2005.  There are no past due loans
          over 90 days  and  still  accruing  interest  at  December  31,  2006.
          Non-accrual loans at December 31 are summarized as follows:



                                                     2006                2005
                                                  ----------         ----------
      Non accrual loans:
      Real estate - mortgage and
         construction loans                       $   59,605         $  317,013
      Commercial loans (non real estate)                -                32,668
                                                  ----------         ----------
                                                  $   59,605         $  349,681
                                                  ==========         ==========

          Information  regarding impaired loans for the years ended December 31,
          is as follows:

      Impaired loans:                                   2006              2005
      --------------                                 ----------       ----------
      Loans with no allowance allocated              $   -            $     -
      Loans with allowance allocated                 $1,240,055       $ 263,344
      Amount of allowance for loan losses allocated  $  243,507       $  30,871

      Impaired loans:
      Average balance during the year                $ 917,591        $ 555,715
      Interest Income recognized thereon             $ 123,786        $    -
      Cash-basis interest income recognized          $ 110,145             -

                                       51
<PAGE>

6. Premises and equipment, net:
          Classifications at December 31 are summarized as follows:
                                                     2006               2005
                                                  ----------         ----------
      Land                                        $  365,000        $   397,811
      Buildings and improvements                   1,725,099          1,761,717
      Furniture, fixtures, equipment and
      software                                     3,252,640          3,023,891
                                                  ----------         ----------
                                                   5,342,739          5,183,419
      Less:  accumulated depreciation             (2,646,677)        (2,380,603)
                                                  ----------         ----------
                   Net premises and equipment     $2,696,062         $2,802,816
                                                  ==========         ==========

          In June 2005, the Bank purchased Hoover,  LLC, the owner of the Hoover
          Mansion,  a 17,000 square foot  structure.In  December  2005, the Bank
          moved its main office and sole branch to the historic  Hoover  Mansion
          located at 2015 Washtenaw  Avenue,  Ann Arbor, MI. Previously the bank
          was located in a facility that it sold in a sale-leaseback transaction
          in 2003.

          Depreciation  expense  amounted to $382,219 and $337,592 for the years
          ended December 31, 2006 and 2005, respectively.

          The Bank leases an ATM drive-thru location in Ann Arbor for $7,200 per
          year and one off-site ATM location for $9,000 per year. Midwest leases
          its  office  space for  approximately  $53,940  per year in  Houghton,
          Michigan.  Total rental  expense for all operating  leases was $63,942
          and  $195,958  in 2006 and 2005,  respectively.  The  following  table
          summarizes the existing contractual obligations of the Company:

                                    --------- Payments Due By Period -----------
                                    Less than                        More than
                          Total      a year    2008-2009  2010-2011     5 years
                         --------   --------  --------   --------     ---------
    Operating leases     $ 91,730   $ 61,140  $ 23,390   $ 7,200     $      -
                         ========   ========  ========   ========     =========


7.   Time deposits
          Time deposit  liabilities  issued in denominations of $100,000 or more
          were  $8,126,622  and  $11,454,283  at  December  31,  2006  and  2005
          respectively.

          At December 31, 2006, stated maturities of time deposits were:

                               2007              $9,609,103
                               2008               1,938,677
                               2009                 347,895
                               2010               2,574,606
                               2011                 721,518
                         Thereafter                 409,522
                                                -----------
                                                $15,601,321
                                                ===========

          The Bank had issued through brokers  $1,530,471 and $5,926,000 of time
          deposits as of December  31, 2006 and 2005,  respectively.  These time
          deposits  have  maturities  ranging  from one to five  months  and are
          included  in  the  table   above.   These   deposits   are  issued  in
          denominations of less than $100,000.

          The Bank had deposits of $1,157,765  and  $1,705,400  from  directors,
          officers  and  their  affiliates  as of  December  31,  2006 and 2005,
          respectively.

                                       52
<PAGE>

8.       Stock options
          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).  The 1995  Stock Plan
          terminated  on November 15, 2005,  however,  all  outstanding  options
          under  the plan  remain  outstanding  until  expiration,  exercise  or
          forfeiture.  The following table  summarizes the activity  relating to
          options to purchase the Company's common stock:



                                                  Number of     Weighted Average
                                                  Options        Exercise Price
                                                  ----------     ----------
      Outstanding at January 1, 2005                 196,000       $1.69
      Granted - 2005                                 118,463        3.00
      Exercised - 2005                               (4,000)        1.50
      Forfeited - 2005                               (3,500)        2.47
                                                  ----------
      Outstanding at December 31,2005                306,963        2.20
      Granted - 2006                                  48,563        3.00
      Exercised - 2006                                 -0-          0.00
      Forfeited - 2006                               (7,500)        2.47
                                                  ----------
      Outstanding at December 31, 2006               348,026        2.23
                                                  ==========
      -------------------------------------------------------------------------

        At December 31, 2006:
        Number of options immediately exercisable                  312,926
        Weighted average exercise price of immediately
         exercisable options                                         $2.24
       Range of exercise price of options outstanding         $1.00 - $3.00
       Weighted-average remaining life of options outstanding    4.56 years

        The following summarizes assumptions used to value stock options.

                                                    2006               2005
                                                    ----               ----

                     Risk-free interest rate        7.25%             7.25%
                     Expected option life           5.0 years         5.0 years
                     Expected stock price
                       volatility                   22.0%             22.0%
                     Expected dividends              $0                 $0

                                       53
<PAGE>

9. 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.  Assets of the plan are  comprised  entirely  of 77,018
          shares of the  Company's  stock at December 31, 2006 and 2005,  all of
          which were fully  allocated at December 31, 2006. 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  $160,000,  and  $139,000  at
          December 31, 2006 and 2005, respectively.

10      Minority Interest
          The Bank owns an 80% interest in the common stock of Midwest, with the
          remaining 20% owned by the President of Midwest.  At December 31, 2006
          and 2005,  total  stockholders'  equity of Midwest was  $3,293,328 and
          $2,626,146  resulting  in a $657,946 and  $524,265  minority  interest
          reflected on the Company's consolidated balance sheets,  respectively.
          The results of Midwest's  operations for 2006 and 2005 are included in
          the Company's consolidated statements of operations.

          Also,  included  in the  consolidated  financial  statements  are  the
          results for University Islamic Financial  Corporation (UIFC). The Bank
          also owns 80% of UIFC.  This  corporation  was formed on December  30,
          2005. An outside  investor owns the remaining 20% of the  corporation.
          At December 31, 2006,  total common  stockholders'  equity of UIFC was
          $22,267,069,   which   includes   $10,000,000   in  common  stock  and
          $12,374,000 of preferred stock. The minority  interest at December 31,
          2006 and 2005 was $1,978,613 and $1,977,608, respectively.

          The Consolidated  Statements of Operations  include minority  interest
          expense of $134,686 and $61,755 in 2006 and 2005, respectively.

11.     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:

                                                    2006        2005
                                             -----------    -----------
      Unused lines of credit                 $ 4,295,000    $ 4,514,000
      Commitments to fund loans                5,704,000      2,019,000
                                             -----------    -----------
           Total                             $ 9,999,000    $ 6,533,000
                                             ===========    ===========

                                       54
<PAGE>

12  Related party transactions
          The Bank had loans  outstanding  of  $117,927  and  $70,961 to related
          officers and  directors  at December 31, 2006 and 2005,  respectively.
          There were no related party loans that were originated during 2006 and
          2005. Available lines of credit to related parties at the December 31,
          2006 and 2005,  totaled  $208,000 and $169,000  respectively.  Related
          party  loans  were  made in the  normal  course of  business  and were
          performing pursuant to terms at December 31, 2006 and 2005.


13. Income taxes
          At December 31, 2006 an income tax benefit of $40,000 was recorded due
          to expected  utilization of net operating loss carry forwards  against
          2006 expected  taxable  income.  Additionally,  current tax expense of
          $20,000  was  recorded  for 2006.  The tax benefit  increased  the net
          deferred  tax  assets  included  in other  assets in the  consolidated
          balance  sheets.  The net  deferred tax asset at December 31, 2006 and
          2005 is comprised of the following:
                                                     2006               2005
                                                 -----------        -----------
      Allowance for loan losses                  $   158,437        $   129,584
      Net operating loss carry-forward               283,533            227,135
      Tax credit carry-forward                     1,357,065          1,234,497
      Deferred gain on sale leaseback                      -                207
      Donation carry-forward                           6,604             10,646
      Depreciation                                     5,111                  -
      Other                                           52,185            135,083
                                                 -----------        ------------
            Deferred tax assets                    1,862,935          1,737,152
                                                 -----------        -----------
      Servicing rights                             (515,474)           (500,415)
      Depreciation                                        -            (22,438)
      Other                                         (48,843)                  -
                                                 -----------        ------------
           Deferred tax liabilities                (564,317)           (522,853)
                                                 -----------        -----------
           Net deferred tax asset                  1,298,618          1,214,299
           Valuation allowance                   (1,158,618)         (1,114,299)
                                                 -----------        ------------
           Net deferred tax asset                $   140,000        $   100,000
                                                 ===========        ============

       The components of income tax expense (benefit) for each year ended
       December 31 are as follows:

                                                    2006                 2005
                                                 -----------        ------------
      Current expense                            $    20,000        $          -
      Deferred expense (benefit)                    (84,319)             541,488
      Change in valuation allowance                   44,319           (641,488)
                                                 -----------        ------------
           Income tax benefit                    $  (20,000)        $  (100,000)
                                                 ===========        ============

          The Company has net operating  loss  carry-forwards  of  approximately
          $834,000,  which expire beginning in 2012, and general business credit
          carry-forwards of approximately $1,357,000,  which expire beginning in
          2011.  Financial statement tax expense amounts differ from the amounts
          computed by applying the  statutory  federal tax rate of 34% to pretax
          income because of operating losses and valuation  allowances  recorded
          to reduce deferred tax assets as noted above.

                                       55
<PAGE>

14.   Short Term Borrowings
          The Bank had a line of credit  available  from the  Federal  Home Loan
          Bank (the  FHLB) in the  amount of $3.2  million  and $3.7  million at
          December  31,  2006 and 2005,  respectively.  At  December  31,  2006,
          borrowings were secured by the pledge of specific  mortgage loans held
          for  investment  with unpaid  principal  balances of $4.0  million and
          available-for-sale securities with a balance of $672,588.

          The Bank had a line of credit  available from the Federal Reserve Bank
          of Chicago (the FRB) in the amount of $5.0 million and $6.7 million at
          December 31, 2006 and 2005,  respectively.  Borrowings  are secured by
          the  pledge of  specific  commercial  loans held for  investment  with
          unpaid principal balances of $5.9 million as of December 31, 2006. The
          following  information provides a summary of short-term borrowings for
          the years indicated:


                                               2006             2005
                                               ----             ----

      Amount outstanding at the end of
       the year and interest rate           $        -       $       -

      Maximum amount of borrowing outstanding
       at any month end during the year     $        -       $3,800,000

      Average amount outstanding during the
       year and weighted average rate       $81,000 3.21% $1,225,000 3.69%


15.      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.

          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).  As of December 31,
          2006, the Bank met all capital  adequacy  requirements  to which it is
          subject as the Bank  presently  has a written  understanding  with its
          regulators  that the Bank will maintain the ratio of Tier 1 Capital to
          average assets at 7% or more.


                                       56
<PAGE>

<TABLE>
<CAPTION>


                                                                            To Be Adequately                       To Be Well
                                                                    Capitalized Under Prompt Corrective     Capitalized Under Prompt
                                                     Actual                Action Provisions            Corrective Action Provisions
                                                Amount      Ratio        Amount            Ratio                Amount        Ratio
                                              -------------------         -----------------------             ----------------------
 As of December 31, 2006:
<S>                                           <C>           <C>           <C>               <C>               <C>             <C>
  Total capital (to risk weighted assets)     $8,142,000    16.7%         $3,911,000        8.0 %             $4,889,000      10.0 %
  Tier I capital (to risk weighted assets)     7,676,000    15.7%          1,955,000        4.0 %              2,933,000       6.0 %
  Tier I capital (to average assets)           7,676,000     9.8%          3,122,000        4.0 %              3,903,000       5.0 %
As of December 31, 2005:
  Total capital (to risk weighted assets)     $7,947,000    18.4%         $3,448,000        8.0 %             $4,310,000      10.0
  Tier I capital (to risk weighted assets)     7,598,000    17.6%          1,724,000        4.0 %              2,586,000       6.0 %
  Tier I capital (to average assets)           7,598,000    14.0%          2,171,000        4.0 %              2,714,000       5.0 %
</TABLE>

15.  Regulatory Matters (continued)

          As of December 31, 2006 and 2005, the most recent  guidelines from the
          FDIC categorized the Bank as "well  capitalized"  under the regulatory
          framework for prompt  corrective  action.  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  above
          table.

16.      Management's Plan Regarding Continuing Operations
          At  December  31,  2006,  the Company  had an  accumulated  deficit of
          950,038.  University  Bancorp's operations are intended to continue in
          the  future.  Management  has  reviewed  operating  results,  prepared
          projections of possible  future  results,  performed other analyses of
          its operations to reduce operating costs and entered new product lines
          of business.

          Management  of the  Company  has  implemented  a plan to improve  core
          earnings by moving to University  Bank  additional  low-cost  mortgage
          escrow  deposits  held by Midwest,  growing the loan  portfolio of the
          Bank,  liquidating  other real estate owned and  improving the synergy
          between  its  subsidiary  operations.  Both the Bank and  Midwest  are
          projected to have net income in 2007, however, the Company's continued
          operation  is  dependent  upon  its  ability  to  maintain  profitable
          operations and retain adequate capital levels.

17.      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

                                       57
<PAGE>
17.      Fair Value of Financial Instruments(continued)
          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  sub-servicing  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  includes  commitments  to extend
          credit  and  the  fair  value  of  letters  of  credit  is  considered
          immaterial.


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

                                                  December 31, 2006
                                                Carrying       Fair
        Financial Assets                        Amount         Value
        ----------------                    -----------   -----------
        Cash and due from banks             $27,381,000   $27,381,000
        Securities available for sale           673,000       673,000
        Federal Home Loan Bank stock            715,000       715,000
        Loans held for sale                   1,952,000     1,952,000
        Loans, net                           50,461,000    49,699,000
        Mortgage servicing rights             1,516,000     1,516,000
        Accrued interest receivable             305,000       305,000

        Financial Liabilities
        Deposits                             78,882,000    78,895,000
        Accrued interest payable                 73,000        73,000

                                                  December 31, 2005
                                                Carrying       Fair
        Financial Assets                        Amount         Value
        ----------------                    -----------   -----------
        Cash and short term investments     $ 7,747,000   $ 7,747,000
        Securities available for sale           834,000       834,000
        Federal Home Loan Bank stock            941,000       941,000
        Loans held for sale                   1,447,000     1,447,000
        Loans, net                           45,303,000    44,948,000
        Mortgage servicing rights             1,472,000     1,472,000
        Accrued interest receivable             205,000       205,000

        Financial Liabilities
        Deposits                             56,021,000    56,136,000
        Accrued interest payable                111,000       111,000

                                       58
<PAGE>

18.      Segment Reporting

          The Company's operations include two primary segments:  retail banking
          and mortgage 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 (See Note 2).

          The Company's two  reportable  segments are strategic  business  units
          that are  separately  managed as they  offer  different  products  and
          services and have different  marketing  strategies.  In addition,  the
          mortgage banking segment services 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  two  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 years ended
          December 31, 2006 and 2005 follows:
<TABLE>
<CAPTION>

      2006
      ----                                   Retail         Mortgage
                                             Banking          Banking         Eliminations    Totals
                                            -----------      -----------      -----------   -----------

<S>                                         <C>                 <C>           <C>           <C>
     Interest income                        $ 4,009,528         $ 65,764      $  (21,814)   $ 4,053,478
     Gain (loss) on the sale of
        mortgage loans                                -          100,450               -        100,450
     Other non-interest income                  797,714        4,312,470        (742,789)     4,367,395
     Interest expense                         1,896,200          114,377        (716,531)     1,294,046
     Provision for loan losses                  153,297                -               -        153,297
     Salaries and benefits                    1,630,227        1,812,724               -      3,442,951
     Occupancy, net                             381,350          143,629               -        524,979
     Other operating expense                  2,049,037        1,392,077           86,634     3,527,748
     Income(loss) before tax
        expense                             (1,302,869)        1,015,877        (134,706)      (421,698)
     Income tax (benefit) expense              (16,649)          348,695        (352,046)        20,000
     Segment profit(loss)                   (1,286,220)          667,182         217,340       (401,698)
     Segment assets                          83,366,458        3,905,283               -     87,271,741
     Capital expenditures                       173,453          102,012               -        275,465
     Depreciation                               242,892          139,327               -        382,219
     Amortization                              (14,972)          254,047               -        239,075

                                       59
<PAGE>

18.      Segment Reporting (contiued)

      2005
      ----                                   Retail         Mortgage
                                             Banking          Banking         Eliminations    Totals
                                            -----------      -----------      -----------   -----------
     Interest income                        $ 3,265,522      $    42,393      $   (35,024)  $ 3,272,891
     Gain (loss) on the sale of
        mortgage loans                          (6,172)          314,820                -       308,648
     Other non-interest income                2,647,645        3,163,983          (228,946)   5,582,682
     Interest expense                         1,133,677           35,429         (215,970)      953,136
     Provision for loan losses                   17,209                -                -        17,209
     Salaries and benefits                    1,440,562        1,560,356                -     3,000,918
     Occupancy, net                             356,791          154,376            6,000       517,167
     Other operating expense                  1,652,639        1,125,193            8,790     2,786,622
     Income before tax
        expense                                1,306,117         645,842          (62,790)    1,889,169
     Income tax (benefit) expense              (100,000)         219,927         (219,927)     (100,000)
     Segment profit                            1,406,117         425,915          157,137     1,989,169
     Segment assets                           61,914,922       2,624,990                -    64,539,912
     Capital expenditures                      2,177,081         106,623                -     2,283,704
     Depreciation                                171,755         165,837                -       337,592
     Amortization                                  2,581         135,155                -       137,736


</TABLE>


19.      Quarterly Financial Data - Unaudited
          The  following  tables  represent  summarized  data  for  each  of the
          quarters  in 2006 and 2005 (in  thousands,  except  income  (loss) per
          share data).
<TABLE>
<CAPTION>


2006                                            Quarter           Quarter            Quarter             Quarter
----                                             Ended             Ended              Ended               Ended
                                                March 31          June 30          September 30        December 31
                                             ---------         ---------           ---------         ---------
<S>                                              <C>             <C>                   <C>               <C>
Interest income                              $     913         $     998           $     922         $   1,220
Interest expense                                   275               328                 313              378

                                             ---------         ---------           ---------         ---------
Net interest income                                638               670                 609               842
Provision for losses                                20                29                  57                47
                                             ---------         ---------           ---------         ---------
Net interest income after
Provision for losses                               618               641                 552               795
Loan set-up and other fees                         310               324                 423               247
Loan servicing and sub-servicing fees              529               608                 619               635
Gain on sale of loans                               39                 -                 (1)                62
Other non-interest income                          171               104                 157               242
Non-interest expense                             1,654             1,906               1,883             2,053
                                             ---------         ---------           ---------         ---------
Income tax expense(benefit)                       -                 -                   -                 (20)
                                             ---------         ---------           ---------         ---------
Net (loss) available to common shareholders  $      13            ($229)              ($133)              ($52)
                                             =========         =========           =========         ==========
Basic and diluted loss per share                 $0.00           ($0.06)             ($0.03)            $(0.01)
                                             =========         =========           =========         ==========
Weighted average shares outstanding          4,147,878         4,245,065           4,248,378         4,248,378
                                             =========         =========           =========         =========
</TABLE>
          Significant 4th quarter event.  During the fourth quarter of 2006, net
          interest income increased significantly. In mid-December 2006, Midwest
          Loan  Services  transferred  the  remainder of the  approximately  $30
          million in  custodian  funds  under its control of its  servicing  and

                                       60
<PAGE>
19. Quarterly Financial Data - Unaudited (continued)

          subservicing  customers to University  Bank from another  bank.  These
          deposits  were  invested  in  interest  bearing  assets,  particularly
          Federal Funds and Bank  Deposits.  The average  balance for this asset
          category increased  substantially  during the fourth quarter resulting
          in an increase in net interest income.




<TABLE>
<CAPTION>


2005                                         Quarter           Quarter            Quarter             Quarter
----                                         Ended             Ended              Ended               Ended
                                             March 31          June 30            September 30        December 31
                                             ---------         ---------           ---------         ---------
<S>                                          <C>               <C>                <C>                <C>
Interest income                              $     802         $     813          $      830         $     828
Interest expense                                   220               239                 278               216
                                             ---------         ---------           ---------         ---------
Net interest income                                582               574                 552               612
Provision for losses                                15                 2                   -              -
                                             ---------         ---------           ---------         ---------
Net interest income after
Provision for losses                               567               572                 552              612
Loan set-up and other fees                         398               346                 391              262
Loan servicing and sub-servicing fees              369               445                 441              481
Gain on sale of loans                              104                93                  93               19
Other non-interest income                          152               138                 129            2,031
Non-interest expense                             1,426             1,654               1,598            1,627
                                             ---------         ---------           ---------         ---------
Income tax expense                               -                 -                   -                 (100)
                                             ---------         ---------           ---------         ---------
Net (loss) available to common shareholders  $     164             ($60)                  $8         $   1,878
                                             =========         =========           =========         =========
Basic and diluted loss per share                 $0.04           ($0.02)               $0.00         $    0.46
                                             =========         =========           =========         =========
Weighted average shares outstanding          4,138,849         4,143,878           4,143,878         4,144,269
                                             =========         =========           =========         =========
</TABLE>

          Significant  4th quarter  event.  In the fourth  quarter of 2005, the
          Company executed two transactions  resulting in a material increase in
          other non-interest  income. In the first transaction,  the Bank agreed
          to terminate its lease agreement  early in exchange for $800,000.  The
          Bank moved out of its leased  facility in December 2005 and into a new
          facility  that it  purchased  in June  2005.  This early move out also
          resulted in  recognition of the remainder of the deferred gain on sale
          leaseback in the 4th quarter.  This amounted to $129,272. In the other
          transaction,  the  Bank  profited  $1,000,000  from  the  sale  of 20%
          interest  in  the  Islamic  Banking  subsidiary  for a sale  price  of
          $3,000,000.

                                       61
<PAGE>


20.       Parent Company Only Condensed Financial Information

                                                    Condensed Balance Sheet
                                                 December 31,       December 31,
                                                    2006                2005
                                                 -----------        -----------
   ASSETS
   Cash and cash equivalents                     $     2,066        $     3,747
   Investment in University Bank                   5,267,331          5,310,893
   Other assets                                        8,941              2,791
                                                 -----------        -----------
      Total Assets                               $ 5,278,338        $ 5,317,431
                                                 ===========        ===========
   LIABILITIES AND STOCKHOLDERS' EQUITY
   Accounts payable                              $    27,091        $    16,850
                                                  -----------        -----------
      Total Liabilities                               27,091             16,850
   Stockholders' Equity                            5,251,247          5,300,581
                                                 -----------        -----------
      Total Liabilities and Stockholders' Equity $ 5,278,338        $ 5,317,431
                                                 ===========        ===========

                                       62
<PAGE>




20   Parent Company Only Condensed Financial Information (continued)
                         Condensed Statements of Income

                                                     2006              2005
                                                 -----------        -----------
     INCOME:
        Interest and dividends on investments    $       222        $        48
        Other                                         24,000             41,975
                    Total (loss)income                24,222             42,023

     EXPENSES:
        Stock compensation                           277,681                  -
        Interest                                          75                332
        Public listing                                44,787             41,288
        Professional fees                             45,313             53,139
        Other miscellaneous                            7,077              1,953
                                                 -----------        -----------
                    Total Expense                    374,933             96,712
     Loss before federal income taxes
          and equity in undistributed
          net income(loss)of subsidiaries          (350,711)            (54,689)
     Federal income taxes                              -                   -
                                                 -----------        -----------
     Loss before equity in undistributed
          net income(loss) of subsidiaries         (350,711)            (54,689)
     Equity in undistributed net income(loss)
          of subsidiaries                           (50,987)          2,043,858
                                                 -----------         ----------
     Net income(loss)                            $ (401,698)         $1,989,169
                                                 ===========         ==========

                                       63
<PAGE>





20. Parent Company Only Condensed Financial Information (continued)
                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                     2006              2005
                                                                                   -----------        -----------
      Operating activities:
<S>                                                                                <C>                <C>
      Net income(loss)                                                            $  (401,698)        $ 1,989,169
      Adjustments to reconcile net income(loss) to net cash used in
      operating activities:
       Stock awards                                                                     5,479                 -
       Non-employee stock awards                                                      272,199                 -
       Net change in:
        Other assets                                                                   (6,150)                346
        Other liabilities                                                              10,241              (7,008)
        Investment in subsidiaries                                                     50,987          (2,043,858)
                                                                                   -----------        ------------
         Net cash used in operating activities                                        (68,942)            (61,351)
                                                                                   -----------        -----------
      Investing activities:
       Additional investment in subsidiary                                                -              (199,677)
                                                                                   -----------        ------------
         Net cash used in investing activities                                            -              (199,677)
                                                                                   -----------        -----------
      Financing activities:
       Principal payment on notes payable                                                 -               (34,000)
       Dividends on preferred stock                                                    (4,739)            (12,361)
       Issuance of preferred stock                                                     72,000             264,510
       Issuance of common stock                                                           -                41,000
                                                                                   -----------        -----------
         Net cash provided by financing activities                                     67,261             259,149
                                                                                   -----------        -----------
                 Net change in cash and cash equivalents                               (1,681)             (1,879)
           Cash and cash equivalents:
             Beginning of year                                                          3,747               5,626
                                                                                   -----------        -----------
             End of year                                                           $    2,066         $     3,747
                                                                                   ===========        ===========
          Supplemental disclosure of cash flow information:
           Cash paid during the year for:
             Interest                                                              $       75          $      589
           Dividends on preferred stock converted to
             additional shares of preferred stock                                  $   26,785          $    3,400

</TABLE>

                                       64
<PAGE>



Item 8.        Changes in and Disagreements with Accountants on Accounting and
               Financial Disclosures.

               None


ITEM 8A.       Controls and Procedures.

         (a)   Evaluation of Disclosure Controls and Procedures.


               Disclosure  controls are  procedures  that are  designed  with an
               objective of ensuring that  information  required to be disclosed
               in our company's  periodic  reports filed with the Securities and
               Exchange  Commission,  such as this  report  on Form  10-KSB,  is
               recorded,  processed,  summarized,  and reported  within the time
               periods  specified by the  Securities  and  Exchange  Commission.
               Disclosure  controls  also  are  designed  with an  objective  of
               ensuring that such information is accumulated and communicated to
               our company's  management,  including our chief executive officer
               and  chief   financial   officer,   in  order  to  allow   timely
               consideration regarding required disclosures

               As of the end of the period covered by this report, an evaluation
               was carried out under the supervision and with the  participation
               of  the  Company's  management,  including  our  Chief  Executive
               Officer and Chief Financial Officer,  of the effectiveness of the
               design and operation of our  disclosure  controls and  procedures
               (as defined in Rules 13a-14(c) under the Securities  Exchange Act
               of 1934). Based upon that evaluation, the Chief Executive Officer
               and Chief Financial Officer concluded that the operation of these
               disclosure controls and procedures were effective.


         (b)   Changes in Internal Controls.

               Except as described above,  there were no significant  changes in
               the Company's  internal controls over financial  reporting during
               the fourth  quarter of the fiscal year ended  December  31, 2006,
               that  have  materially  affected,  or are  reasonably  likely  to
               materially  affect, the Company's internal control over financial
               reporting.  However,  management intends to implement the changes
               described below.  The Company has recorded  material post closing
               audit adjustments to the consolidated  financial  statements.  In
               addition,  the Company has not timely filed  certain SEC reports,
               including  the Form  10-K for 2006 with the  Securities  Exchange
               Commission  (SEC) within the required due dates. The above items,
               under Section 404 of the Sarbanes  Oxley Act of 2002,  constitute
               significant  deficiencies and collectively material weaknesses in
               internal controls over financial reporting.  The Company seeks to
               implement  a short and  long-term  correction  of these  internal
               control  deficiencies  and believes it can make  progress  toward
               correction of these matters


Item 8B. -     Other Information

               None
                                       65
<PAGE>

PART III.

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

         The information required by this item is incorporated by reference
herein from the portions of the Company's Proxy Statement for its 2006 Annual
Meeting (the "Proxy Statement") to be under the captions:

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

We have adopted a Code of Ethics for all employees. A copy of the Code of Ethics
is available upon request by writing to the Chief Financial Officer, University
Bancorp, Inc., 2015 Washtenaw, Ann Arbor, Michigan 48104.


Item 10. - 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 11. -  Security Ownership of Certain Beneficial Owners and Management and
            Related Stockholder Matters

         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

                      Equity Compensation Plan Information

The University  Bancorp,  Inc. 1995 Stock Option Plan authorizes stock options
for issuance to employees,  consultants and directors in exchange for services.

The following table sets forth certain information regarding the above
referenced equity compensation plan as of December 31, 2006.

                                       66
<PAGE>


<TABLE>
<CAPTION>
..

              Equity Compensation Plan Information
                                        (a)                   (b)                     (c)
                                                                                  Number of
                                   Number of                                    securities remaining
                                securities to be                                 available for future
                               issued upon exercise    Weighted-average         issuance under equit
                                 of outstanding       exercise price of          compensation plans
                                options, warrants    outstanding options,       (excluding securities
Plan Category                      and Rights        warrants and rights       reflected in column (a))
-------------                   ------------------   ---------------------    --------------------------
Equity compensation
plans approved by
<S>                                 <C>                     <C>                       <C>
security holders                   348,026                  $2.23                     0
Equity compensation
plans not approved
by security holders                   0                      NA                       0
      Total                        348,026                  $2.23                     0

</TABLE>

Item 12. - Certain Relationships and Related Transactions and Director
           Independence

         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
            Corporate Governance

Item 13. - Exhibits

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

               Audited  consolidated  balance sheets as of December 31, 2006 and
               December 31, 2005,  and  consolidated  statements of  operations,
               comprehensive (loss) income,  stockholders' equity and cash flows
               for the two year period  ended  December 31, 2006 and 2005 of the
               Company.


               Schedules to the consolidated  financial  statements  required by
               Article 9 of  Regulation  S-X are not required  under the related
               instructions  or  are  inapplicable,   and  therefore  have  been
               omitted.


         (b)   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).

                                       67
<PAGE>

         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         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).

         10.4.1       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).

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


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

         10.6.1       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).

21       Subsidiaries of Registrant: List of subsidiaries filed herewith.


23.1     Consent of UHY LLP, Independent Registered Public Accounting Firm
                      Registered Public Accounting Firm

31.1     Certification pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002

31.2     Certification pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002


                                       68
<PAGE>

32.1     Certificate of the Chief Executive Officer and of University
         Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted
         pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2     Certificate of the Chief Financial Officer of University
         Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted
         pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

<PAGE>

ITEM 14: Principal Accountant Fees and Services.

     Information relating to principal accountant fees and services is contained
on page 20, under the caption "Independent Public Accountants" in the University
Bancorp,  Inc. definitive Proxy Statement relating to the 2007 Annual Meeting of
Stockholders  and  the  information  within  that  section  is  incorporated  by
reference.




                                       69

<PAGE>


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 and Chief Executive Officer

                              Date:    April 16, 2007

                              By:      /s/Nicholas K. Fortson
                                       -----------------------------------
                                       Nicholas K. Fortson
                                       Chief Financial Officer

                              Date:    April 16, 2007

     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       April 16, 2007
Stephen Lange Ranzini

/s/ Charles McDowell                Director, Chairman        April 16, 2007
---------------------------
Charles McDowell

/s/ Gary Baker                      Director                  April 16, 2007
------------------------
Gary Baker

/s/ Michael Talley                  Director                  April 16, 2007
---------------------------
Michael Talley

/s/Dr. Joseph Lange Ranzini         Director                  April 16, 2007
------------------------------
Dr. Joseph Lange Ranzini

/s/Paul Lange Ranzini               Director                  April 16, 2007
---------------------------
Paul Lange Ranzini



                                       70
<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     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.

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

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

10.6     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).

                                       71
<PAGE>

10.6.1   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).

21       Subsidiaries of Registrant.                                       73

23.1     Consent of UHY LLP, Independent Registered Public Accounting
              Firm

31.1     Certification pursuant to Section 302 of the Sarbanes-Oxley
         Act of 2002                                                      75

31.2     Certification pursuant to Section 302 of the Sarbanes-Oxley
         Act of 2002                                                      76

32.1        Certificate of the Chief Executive Officer and of University
         Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted
         pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       77

32.3     Certificate of the Chief Financial Officer of University
         Bancorp, Inc. pursuant to 18 U.S.C. Section 1350, as adopted
         pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       78





                                       72
<PAGE>




                     Exhibit 21. Subsidiaries of Registrant.

         University Bank, a Michigan banking corporation

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

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

         Hoover, LLC, a Michigan limited Liability Corporation (100% owned
         by Bank)

         University Islamic Financial Corporation, a Michigan Corporation (80%
         owned by Bank)




                                       73
<PAGE>


                                                                    EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUTING FIRM

W
We have issued our report  dated  April 9, 2007  accompanying  the  consolidated
financial  statements included in the annual report of University Bancorp,  Inc.
on Form 10-KSB for the years ended December 31, 2006 and 2005. We hereby consent
to the  incorporation by reference of said report in the Registration  Statement
of University Bancorp,  Inc. on Form S-8 (File No. 333-109930) effective October
23, 2003.


/S/ UHY LLP


Southfield, Michigan
April 13, 2007


                                       74
<PAGE>



                                                                    Exhibit 31.1
                          FORM 10-KSB 302 CERTIFICATION

I, Stephen Ranzini certify that:

1)                I have reviewed this annual report on Form 10-KSB of
                  University Bancorp, Inc.;

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

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

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

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

b)                evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

c)                disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of the annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.                The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the registrant's auditors
                  and the audit committee of registrant's board of directors (or
                  persons performing the equivalent functions):
a.                all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

b.                any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

     Date:    April 16, 2007              /s/Stephen Lange Ranzini
           ------------------             ----------------------------------
                                          Stephen Lange Ranzini
                                          President and Chief Executive Officer

                                       75
<PAGE>

                                                                    Exhibit 31.2
                          FORM 10-KSB 302 CERTIFICATION

I, Nicholas K. Fortson certify that:

1)                I have reviewed this annual report on Form 10-KSB of
                  University Bancorp, Inc.;

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

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

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

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

b)                evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

c)                disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of the annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

5.                The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation of internal
                  control over financial reporting, to the registrant's auditors
                  and the audit committee of registrant's board of directors (or
                  persons performing the equivalent functions):
a.                all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

b.                any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

     Date:    April 16, 2007              /s/Nicholas K. Fortson
           ------------------             ----------------------
                                          Nicholas K. Fortson
                                          Chief Financial Officer

                                       76
<PAGE>

                                                                    Exhibit 32.1






                             CERTIFICATION PURSUANT
                           TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In  connection  with  the  annual  report  of  University  Bancorp,   Inc.  (the
"Registrant")  on Form 10-KSB for the period  ended  December  31, 2006 as filed
with  the  Securities  and  Exchange  Commission,  hereof  (the  "Report"),  the
undersigned  officer certifies,  pursuant to 18 U.S.C.  Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
     15(d) of the Securities Exchange Act of 1934, and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
     material respects, the financial condition and results of operations of the
     Registrant.




                                           University Bancorp, Inc


Date:    April 16, 2007              By:   /s/ Stephen Lange Ranzini
      ------------------                   --------------------------
                                           Stephen Lange Ranzini
                                           President and Chief Executive Officer


                                       77
<PAGE>

                                                                    Exhibit 32.2


                             CERTIFICATION PURSUANT
                           TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In  connection  with  the  annual  report  of  University  Bancorp,   Inc.  (the
"Registrant")  on Form 10-KSB for the period  ended  December  31, 2006 as filed
with  the  Securities  and  Exchange  Commission,  hereof  (the  "Report"),  the
undersigned  officer certifies,  pursuant to 18 U.S.C.  Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
     15(d) of the Securities Exchange Act of 1934, and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
     material respects, the financial condition and results of operations of the
     Registrant.




                                           University Bancorp, Inc



Date:    April 16, 2007           By:       /s/ Nicholas K. Fortson
                                            -----------------------
                                            Nicholas K. Fortson
                                            Chief Financial Officer


                                       78
<PAGE>