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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
    1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

                         Commission file number: 0-32639

                               NORTH BANCORP, INC.
                 (Name of small business issuer in its charter)

             Michigan                                   38-2995259
 (State or other jurisdiction               (I.R.S. employer identification no.)
of incorporation or organization)

                  501 West Main Street, Gaylord, Michigan 49735
             (Address of principal executive offices with zip code)

                                  (989)732-3502
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   Common Stock,
                                                              $1.00 par value

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

Check if there is no 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 the 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. [X]

State issuer's revenues for its most recently completed fiscal year: $17,217,000

The aggregate market value of the voting and non-voting common equity held by
non-affiliates, computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of
February 28, 2003, was $10,517,920.

As of February 28, 2003, there were 525,896 shares of Common Stock of the Issuer
issued and outstanding.

Portions of the registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held May 20, 2003, to the extent expressly so stated herein,
are incorporated by reference into Part III of this report.

Transitional Small Business Disclosure Format (check one): Yes: [ ] No: [X]

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
<S>                                                                         <C>
PART I

Item 1      Description of Business                                           2
Item 2      Description of Property                                          14
Item 3      Legal Proceedings                                                15
Item 4      Submission of Matters to a Vote of Security Holders              15

PART II

Item 5      Market for Common Equity and Related Stockholder Matters         16
Item 6      Management's Discussion and Analysis of Financial Condition
              or Plan of Operation                                           18
Item 7      Financial Statements                                             34
Item 8      Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure                                       34

PART III

Item 9      Directors, Executive Officers, Promoters and Control Persons;
              Compliance With Section 16(a) of the Exchange Act              35
Item 10     Executive Compensation                                           35
Item 11     Security Ownership of Certain Beneficial Owners and Management   35
Item 12     Certain Relationships and Related Transactions                   35
Item 13     Exhibits and Reports on Form 8-K                                 35
Item 14     Controls and Procedures                                          35

Signatures                                                                   37

Exhibit Index                                                                40

Financial Statements                                                         F-1
</TABLE>

         WITH THE EXCEPTION OF THE STATEMENTS REGARDING HISTORICAL MATTERS AND
STATEMENTS REGARDING THE CORPORATION'S CURRENT STATUS, CERTAIN MATTERS DISCUSSED
HEREIN ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF
THE WORDS "ANTICIPATE", "BELIEVE", "ESTIMATE", "PLAN", "EXPECT", "INTEND", AND
SIMILAR EXPRESSIONS. ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER
MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH MATERIAL DIFFERENCES INCLUDE INTEREST RATE FLUCTUATIONS AND
ECONOMIC CONDITIONS, LOSS OF KEY PERSONNEL, COMPETITION, TECHNOLOGICAL CHANGES
AND CHANGES IN FEDERAL OR STATE REGULATIONS.

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PART I

ITEM 1.           DESCRIPTION OF BUSINESS.

THE CORPORATION

North Bancorp, Inc. (the "Corporation") is a bank holding company under the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). As a
bank holding company, the Corporation is subject to regulation by the Federal
Reserve Board of Governors. In 1975, First National Bank of Gaylord ("Bank") was
organized to offer a new banking alternative to the people of Otsego County,
Michigan. In 1991, North Bancorp, Inc. was organized to provide the Bank with
the corporate governance options of a one-bank holding company. The Bank formed
a wholly owned subsidiary, First of Gaylord Financial Services, Inc. in 1997 to
provide limited insurance agency services to the Bank. In 2002, Gaylord
Partners, Limited Partnership was formed as a special purpose subsidiary of the
Corporation to issue preferred securities to investors. The Corporation exists
primarily for the purpose of holding all the stock of the Bank, and of such
other subsidiaries as it may acquire or establish.

The Bank's primary market area is Otsego County and Roscommon County. The
majority of the Bank's deposits are derived from Otsego County. Similarly, the
majority of loans are to individuals and businesses located in Otsego County.
However, a significant amount of business is conducted in the various
neighboring counties, including Crawford, Montmorency, Cheboygan, Antrim,
Charlevoix, Kalkaska, Oscoda, and Roscommon counties.

Otsego County, located in the northern portion of the Lower Peninsula in
Michigan, is 230 miles north of Detroit, Michigan. Otsego County's population of
approximately 23,000 has a median age of 37.7 years, according to the 2000
Census. The area's largest employers include Georgia-Pacific (industrial wood
products), Reptron (component manufacturer), the City of Gaylord, and Otsego
County. The most prominent industries in Otsego County include the
manufacturing, tourism, retail, and service industries. Roscommon County,
located approximately 180 miles north of Detroit, Michigan, has a population of
approximately 25,500 and a median age of 47.2, according to the 2000 Census. The
area's largest employers include Houghton Lake Community Schools, Garish Higgins
Community Schools and Lear Corporation. Prominent industries include tourism,
manufacturing and various retail and service-related industries.

THE BANK

The Bank is a national banking association, which operates under the laws of the
United States of America, pursuant to a charter issued by the Office of the
Comptroller of the Currency. The Bank's deposits are insured to the maximum
extent allowed by the Federal Deposit Insurance Corporation ("FDIC").

The Bank provides a wide variety of commercial and consumer banking services to
individuals and small- to medium-sized businesses and governmental units. The
Bank's services include accepting time, demand and savings deposits, including
regular checking accounts, NOW and money market accounts, and certificates of
deposit. In addition, the Bank makes secured and unsecured commercial,
construction, mortgage and consumer loans and provides safe deposit facilities.
The Bank operates two locations in Gaylord, one location in Houghton Lake
(opened in 2002) and operates four automated teller machines (ATM's) in Otsego
County. All of the Bank's ATM's participate in the NYCE system, a regional
network, as well as other ATM networks throughout the country. The Bank has a
website at www.fnbgaylord.com.

LENDING ACTIVITIES

The Bank offers a diverse range of commercial, real estate and personal lending
products and services that emphasizes real estate supported loans. Loans are
concentrated in three major areas: (1) commercial real estate and commercial
loans; (2) residential real estate loans; and (3) consumer loans. The Bank's
board of directors has adopted a loan policy that contains general and specific
lending standards and is subject to review and revision. Extension of credit is
governed by this loan policy.

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The goal of the lending program is to meet the credit needs of the Bank's
community while using sound credit principles to protect asset quality. The
Bank's business and credit strategy is relationship-driven to provide a reliable
source of credit and a variety of lending alternatives. When extending credit,
decisions are based upon the client's ability to repay the loan from
non-speculative sources. The quality and integrity of the borrower is crucial in
the loan approval process. Management monitors the performance of the loan
portfolio through regular contacts with clients, continual portfolio review,
careful monitoring of delinquency reports and reliance on the loan review
function.

The Bank's legal lending limit is approximately $2,700,000 at December 31, 2002.
The board has presently established an "in-house" limit of $1,400,000, although
the Bank's loan policy permits the board to make exceptions on a case-by-case
basis up to the Bank's legal lending limit. Although there are no present plans
to do so, the board may from time to time raise or lower the "in-house" limit as
it deems prudent to comply with safe and sound banking practices, and to respond
to overall economic conditions. The size of the loans the Bank can offer to
potential customers is less than the loan size many competitors are able to
offer. These limits affect to some degree its ability to seek relationships with
the area's larger businesses. The Bank seeks to accommodate loan volumes in
excess of its lending limits through the sale of participations in such loans to
other banks. However, there is no assurance that such loan participations will
be available or be on terms favorable to the Bank.

Substantially all of the Bank's loans are to customers located within its
primary market area. The Bank has no foreign loans. The Bank conducts its
lending activities pursuant to a loan policy adopted by its board. This loan
policy grants individual loan officers authority to make secured and unsecured
loans in specific dollar amounts. Senior lending officers are required to
approve all credit decisions when the aggregate credit exposure is in excess of
$100,000. The loan officer committee approves credit decisions for loans from
$350,000 to $400,000. The loan and discount committee of the board or the board
of directors must approve all loans from $400,000 to the in-house limit
established by the loan policy or the legal lending limit, if the in-house limit
is waived by the board of directors.

Please refer to "Material Conditions Affecting the Corporation and Its
Performance" within "Management's Discussion and Analysis of Financial Condition
or Plan of Operation" for additional information regarding the lending function
and loan administration and underwriting weaknesses.

COMMERCIAL LOANS

The commercial loan portfolio consists primarily of loans secured by owner
occupied or investor commercial real estate. The portfolio also contains a
substantial amount of loans secured by other types of collateral, such as
equipment, inventory, and other business assets.

The risks associated with commercial loans vary depending on the borrower's
experience and financial situation, repayment ability, collateral, the economic
environment, competitive factors, type of business, and other related factors.
The Bank attempts to mitigate these risks by documenting as much information
about the borrower, any guarantor, collateral, loan purpose, financial strength,
and other information that management believes to be relevant. All information
is gathered and taken into account to develop an analysis of the overall risk
associated with a proposed commercial loan and whether approval is appropriate.
If a commercial loan is granted, the Bank's loan policy requires management to
maintain on-going monitoring of the various risks originally identified, as well
as any new risks. This on-going analysis may consist of subsequent, periodic
reviews of the borrower's financial statements and tax returns, and credit
history. Additionally, conversations with the borrower and periodic inspections
of any facilities may provide relevant information.

Lines of credit typically are limited to a percentage of the value of the assets
securing the line and are usually priced by a floating rate formula. Lines of
credit typically are reviewed annually and are supported by commercial real
estate, accounts receivable, inventory and equipment. Depending on the risk
profile of the borrower, the Bank may require periodic aging of receivables, and
inventory and equipment listings to verify the quality of the borrowing base
prior to advancing funds. Term loans are typically also secured by the assets of
the clients' businesses. Term loans typically have maturities between one to
five years, with either floating or fixed rates of interest. The Bank issues
standby or performance letters of credit, and can service clients' international
needs through correspondent banks. The same underwriting standards for letters
of credit apply as they do for funded loans.

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While the Bank's policies and procedures require the various activities
mentioned above, internal and external reviews completed in the fourth quarter
of 2002 and the first quarter of 2003 noted that policies and procedures were
not being consistently adhered to. Please refer to "Material Conditions
Affecting the Corporation and Its Performance" within "Management's Discussion
and Analysis of Financial Condition or Plan of Operation" for additional
information regarding the lending function and loan administration and
underwriting weaknesses.

RESIDENTIAL LOANS

The residential real estate portfolio consists primarily of first and second
mortgage loans for 1-4 family residential properties. The Bank does not maintain
the majority of residential real estate portfolio in long-term fixed rate loans
due to interest rate risk considerations, but originates a substantial amount of
these loans for sale into the secondary market. This is a significant business
activity. The Bank's portfolio contains "adjustable rate mortgage" ("ARM") loans
typically structured with 30-year maturities and initial rates fixed for between
one to three years with subsequent repricing also between one and three years
beyond the initial term. It also contains a significant amount of fixed rate
residential mortgage loans with balloon features of five years or less. The Bank
does, from time to time, originate long-term fixed rate loans for its portfolio,
when the individual situation warrants.

Because of the stable, homogeneous nature of residential real estate, the risk
associated with this type of loan is considered lower than other types of loans.
There are three primary areas of risk associated with residential real estate
loans. First, the borrower's ability to repay the loan from current income
sources. Because of the lengthy nature of these loans, with maturities up to 30
years, the borrower's ability to generate sufficient income over a long period
of time is critical to ensure overall repayment ability. To mitigate this risk,
the Bank obtains and analyzes complete information about each prospective
borrower's employment situation, income level, and continued employment
prospects from the borrower and/or his/her employer. Next, determining a
reasonably accurate approximation of the collateral's value is vital. Again,
because of the long nature of these types of loans, collateral that fully
supports the loan amount is critical to ensuring a high quality loan. The Bank
manages this risk by utilizing licensed, reputable real estate appraisers to aid
in the collateral's valuation estimate. Third, an appropriate loan structure is
also important for risk management purposes. Conventional banking standards
maintain that there should be a reasonable cushion between the collateral value
and the loan amount. Management mitigates this risk by requiring senior officers
to approve loans above a certain dollar amount (as stated above) to ensure that
this, and all other risks are appropriately identified, analyzed, and taken into
consideration.

Residential mortgage products range from 30-year fixed rate products to personal
construction lending. The home mortgage market is very competitive and
frequently service quality distinguishes competitors from one another. Many
mortgage lenders cannot work with borrowers who have non-traditional income
sources or non-traditional properties. The Bank's mortgage lending staff is
trained to work with successful individuals who have complex personal financial
profiles. Residential lending is an excellent vehicle to attract new clients.

The residential construction mortgage portfolio is a significant component of
the residential real estate mortgage portfolio, consisting of single residential
properties. As construction lending has greater inherent risk, each project is
closely monitored throughout its term. Typically, full investment of the
borrower's equity in the construction project is required prior to injecting
Bank funds. Title companies are utilized to disburse periodic draws from the
construction line to help ensure that there will be no title problems at the end
of the project.

While the Bank's policies and procedures require the various activities
mentioned above, internal and external reviews completed in the fourth quarter
of 2002 and the first quarter of 2003 noted that policies and procedures were
not being consistently adhered to. Please refer to "Material Conditions
Affecting the Corporation and Its Performance" within "Management's Discussion
and Analysis of Financial Condition or Plan of Operation" for additional
information regarding the lending function and loan administration and
underwriting weaknesses.

CONSUMER LOANS

The consumer loan portfolio consists of loans to acquire personal assets such as
automobiles, boats and recreational vehicles. A key factor in originating
consumer loans is knowing the borrowers. When consumer loans are unsecured,

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the character and integrity of the borrower become as important as the
borrower's financial statement.

Consumer customers request primarily fixed-rate term loan products. Consumer
loans are subject to the same approval process as all other types of loans. Each
client is underwritten to ensure that he or she has adequate collateral coverage
and cash flow.

The home equity loan portfolio, a significant component of the consumer loan
portfolio, consists of traditional home equity lines of credit prevalent in the
market today and closed-end term loans. In general, the Bank advances up to 80%
on the value of a home, less the amount of prior liens. However, loan officers
may vary from that percentage depending on the value of the home, type of
dwelling, and the personal financial situation of the borrower. Home equity
loans are closed-end loans while home equity lines of credit are funded by
drafts that function as bank checks. Home equity loans are approved using the
same standards as residential mortgage loans. Each borrower's personal cash flow
is compared to debt service requirements to determine his/her ability to repay.
Home equity lines of credit are competitively priced and are based on a floating
rate formula. Closed-end home equity loans are usually fixed rate loans with a
term of 5 years or less.

Consumer loans carry less risk, on an individual loan basis, than other types of
loans because the loan amounts tend to be smaller. However, in the aggregate,
unidentified or unmanaged risks can become significant even with smaller
individual loan amounts. These risks center around the borrowers and any
collateral. While the Bank requires collateral on most consumer loans, the
collateral tends to be mobile in nature (i.e. an automobile or motorcycle) and
may not necessarily be located, if required. Further, unlike real estate, the
collateral used for consumer loans depreciates over time (except for consumer
loans secured by real estate). Consumers tend to finance vehicles and
recreational vehicles for up to five years, and sometimes longer (the Bank's
loan policy limits consumer loan terms to five years, but allows exceptions on a
case-by-case basis). Thus, in a loan default situation, the collateral's value
may not be sufficient to fully repay its corresponding loan because consumer
collateral typically depreciates more rapidly than the loan balance decreases.
Consequently, the credit history, employment history, and repayment ability of
the borrower is critical to maintaining sound credit quality. The Bank has
established underwriting criteria for loan officers to rely upon to help
mitigate this risk. Additionally, an independent internal loan review process
has been implemented to monitor compliance with underwriting standards. The Bank
also maintains an active collection process for loans that are past due.
Management believes that by communicating as early as possible with past due
loan customers and learning about their current individual situations, more
workout solutions are possible.

While the Bank's policies and procedures require the various activities
mentioned above, internal and external reviews completed in the fourth quarter
of 2002 and the first quarter of 2003 noted that policies and procedures were
not being consistently adhered to. Please refer to "Material Conditions
Affecting the Corporation and Its Performance" within "Management's Discussion
and Analysis of Financial Condition or Plan of Operation" for additional
information regarding the lending function and loan administration and
underwriting weaknesses.

DEPOSITS

The Bank offers a broad range of deposit products, including checking, business
checking, savings and money market accounts, certificates of deposit and
direct-deposit services. Transaction accounts and certificates of deposit are
tailored to the primary market area at rates competitive with those offered in
Otsego County. All deposit accounts are insured by the FDIC up to the maximum
amount permitted by law. Individuals, businesses, associations, financial
institutions and government entities are solicited for deposits. Additionally,
the Bank utilizes several sources for national market certificates of deposit,
including brokers that earn commissions paid by the Bank.

INVESTMENT ACTIVITIES

The Bank invests primarily in direct obligations of the United States,
obligations guaranteed as to principal and interest by the United States,
obligations of agencies of the United States, bank-qualified tax-exempt
obligations of state and local political subdivisions and mortgage-backed
securities. The Bank may invest from time to time in certificates of deposit of
other financial institutions, corporate debt or other securities as permitted by
the investment policy. In addition, management may enter into federal funds
transactions with principal correspondent banks, and primarily act as a net
seller of such funds. The sale of federal funds are effectively short-term loans
to other banks.

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The investment policy conforms to regulatory restrictions with regard to
corporate debt or other securities. In general, bank ownership of corporate debt
securities is limited to 10% of the Bank's capital for any single issuer.
Additionally, the Bank's policy sets a minimum bond rating of "A" for corporate
securities.

The investment portfolio also includes equity investments in the Federal Home
Loan Bank of Indianapolis and the Federal Reserve Bank of Chicago. The Bank
invests in the Federal Home Loan Bank in order to be a member, which qualifies
the Bank to use its services including Federal Home Loan Bank borrowings.
Investment in the Federal Reserve Bank of Chicago is a requirement of
membership. Membership in the Federal Reserve System is a requirement of
national banks.

EFFECT OF GOVERNMENT MONETARY POLICIES

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

REGULATION AND SUPERVISION

The Corporation, as a bank holding company under the Bank Holding Company Act,
is required to file an annual report with the Federal Reserve Board. It may be
required to file additional information as the Federal Reserve Board may
require, pursuant to the Bank Holding Company Act, and is subject to examination
by the Federal Reserve Board.

The Bank Holding Company Act limits the activities which may be engaged in by
the Corporation (and its subsidiaries) to those of banking and the management of
banking organizations, and to certain non-banking activities, including those
activities which the Federal Reserve Board may find, by order or regulation, to
be closely related to banking or managing or controlling banks. The Federal
Reserve Board is empowered to differentiate between activities by a bank holding
company, or a subsidiary thereof, and activities commenced by acquisition of a
going concern.

With respect to non-banking activities, the Federal Reserve Board has, by
regulation, determined that certain non-banking activities are closely related
to banking within the meaning of the Bank Holding Company Act. These activities
include, among other things, operating a mortgage company, finance company,
credit card company or factoring company, performing certain data processing
operations, providing certain investment and financial advice, acting as an
insurance agent for certain types of credit related insurance, leasing property
on a full-payout, non-operating basis; and, subject to certain limitations,
providing discount securities brokerage services for customers. The Corporation
has no current plans to engage in non-banking activities.

The Bank is subject to certain restrictions imposed by federal law on any
extension of credit to the Corporation for investments in stock or other
securities, and on the taking of such stock or securities as collateral for
loans to any borrower. Federal law prevents the Corporation from borrowing from
the Bank unless the loans are secured in designated amounts.

With respect to the acquisition of banking organizations, the Corporation is
required to obtain the prior approval of the Federal Reserve Board before it can
acquire all or substantially all of the assets of any bank, or acquire ownership
or control of any voting shares of any bank, if, after such acquisition, it will
own or control more than 5% of the voting shares of such bank. Acquisitions
across state lines are subject to certain state and Federal Reserve Board
restrictions.

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BANK SUPERVISION

The Bank is subject to the supervisory activities of the Office of the
Comptroller of the Currency as its primary federal regulator and the FDIC. The
OCC regularly examines the condition and the operations of the Bank, including
(but not limited to) its capital adequacy, reserves, loans, investments,
earnings, liquidity, compliance with laws and regulations, record of performance
under the Community Reinvestment Act of 1977 and management practices. In
addition, the Bank is required to furnish quarterly and annual reports of income
and condition to the FDIC and OCC as well as periodic reports to the OCC. The
enforcement authority of the OCC and/or the FDIC includes the power to impose
civil money penalties, terminate insurance coverage, remove officers and
directors and issue cease-and-desist orders to prevent unsafe or unsound
practices or violations of laws or regulations. In addition, the OCC and the
FDIC have authority to impose additional restrictions and requirements with
respect to banks that do not satisfy applicable regulatory capital requirements.
Please refer to the "Prompt Corrective Action" section below.

Please refer to "Material Conditions Affecting the Corporation and Its
Performance" in the "Management's Discussion and Analysis of Financial Condition
or Plan of Operation" section for additional information on supervisory
activities.

FDIC INSURANCE ASSESSMENTS

The Bank is subject to FDIC deposit insurance assessments. On January 1, 1994, a
risk-based deposit premium assessment system became effective under which each
depository institution is placed in one of nine assessment categories based on
certain capital and supervisory measures. The deposit insurance assessment
schedule published by the FDIC for the assessment period commencing January 1,
1998, maintained the nine categories but provided for major reductions in the
assessment rates for institutions insured by the Bank Insurance Fund of the FDIC
("BIF"). These reductions occurred because the balance in BIF had reached or
surpassed the "designated reserve ratio" set by law for the balance in the fund
to maintain with respect to BIF-insured deposits. The FDIC has continued these
reduced assessment levels. As of December 31, 2002, the Bank was
well-capitalized. Banks which are well-capitalized are permitted to pay lower
FDIC insurance premiums. Please refer to "Material Conditions Affecting the
Corporation and Its Performance" within the "Management's Discussion and
Analysis of Financial Condition or Plan of Operation" located elsewhere in this
Report.

COMMUNITY REINVESTMENT ACT

Under the Community Reinvestment Act of 1977 and implementing regulations of the
banking agencies, a financial institution has a continuing and affirmative
obligation, consistent with safe and sound operation, to meet the credit needs
of its entire community, including low- and moderate- income neighborhoods. The
CRA does not establish specific lending requirements or programs for financial
institutions, nor does it limit an institution's discretion to develop the types
of products and services it believes to be best suited to its particular
community. The CRA requires that bank regulatory agencies conduct regular CRA
examinations and provide written evaluations of institutions' CRA performance.
The CRA also requires that an institution's CRA performance rating be made
public. CRA performance evaluations are based on a four-tiered rating system:
Outstanding, Satisfactory, Needs to Improve and Substantial Noncompliance.
Although CRA examinations occur on a regular basis, CRA performance evaluations
have been used principally in the evaluation of regulatory applications
submitted by an institution. CRA performance evaluations are considered in
evaluating applications for such things as mergers, acquisitions and
applications to open branches. Over the 26 years that the CRA has existed, and
particularly in the last few years, institutions have faced increasingly
difficult regulatory obstacles and public interest group objections in
connection with their regulatory applications, including institutions that have
received the highest possible CRA ratings. A bank holding company cannot elect
to be a "financial holding company" with the expanded securities, insurance and
other powers that designation entails unless all of the depository institutions
owned by the holding company have a CRA rating of satisfactory or better. The
Gramm-Leach-Bliley Act also provides that a financial institution with total
assets of $250 million or less, such as the Bank, will be subject to CRA
examinations no more frequently than every 5 years if its most recent CRA rating
was "outstanding," or every 4 years if its rating was "satisfactory." Following
a CRA examination as of November 6, 1997, the Bank received a rating of
"outstanding."

PROMPT CORRECTIVE ACTION

To resolve the problems of undercapitalized institutions and to prevent a
recurrence of the banking crisis of the 1980s

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and early 1990s, the Federal Deposit Insurance Corporation Improvement Act of
1991 established a system known as "prompt corrective action." Under the prompt
corrective action provisions and implementing regulations, every institution is
classified into one of five categories, depending on its total risk-based
capital ratio, its Tier 1 risk-based capital ratio, its leverage ratio and
subjective factors. The categories are "well-capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." A financial institution's operations can be
significantly affected by its capital classification. For example, an
institution that is not "well-capitalized" generally is prohibited from
accepting brokered deposits and offering interest rates on deposits higher than
the prevailing rate in its market, and the holding company of any
undercapitalized institution must guarantee, in part, aspects of the
institution's capital plan. Financial institution regulatory agencies generally
are required to appoint a receiver or conservator shortly after an institution
enters the category of weakest capitalization. The Federal Deposit Insurance
Corporation Improvement Act of 1991 also authorizes the regulatory agencies to
reclassify an institution from one category into a lower category if the
institution is in an unsafe or unsound condition or engaging in an unsafe or
unsound practice. Undercapitalized institutions are required to take specified
actions to increase their capital or otherwise decrease the risks to the federal
deposit insurance funds. To be considered "well-capitalized," a financial
institution must have a total risk-based capital ratio of at least 10%, a Tier 1
capital ratio of at least 6%, and a leverage ratio of at least 5%, and must not
be subject to any written agreement from any regulatory agency requiring it to
meet or maintain any specific capital levels. As of December 31, 2002, the Bank
was well-capitalized.

GRAMM-LEACH-BLILEY ACT

In 1999 the Gramm-Leach-Bliley Act ( "G-L-B Act") was enacted. The G-L-B Act is
a major financial services modernization law that, among other things,
facilitates broad new affiliations among securities firms, insurance firms and
bank holding companies by repealing the 66-year old provisions of the
Glass-Steagall Act. The major provisions of the G-L-B Act became effective March
11, 2000. The G-L-B Act permits the formation of financial holding companies
("FHCs"), which are bank holding companies with substantially expanded powers,
under which affiliations among bank holding companies, securities firms and
insurance firms may occur, subject to a blend of umbrella supervision and
regulation of the newly formed consolidated entity by various regulators. The
Bank Holding Company Act requires, among other things, the prior approval of the
Federal Reserve in any case where a bank holding company proposes to (i) acquire
all or substantially all of the assets of a bank, (ii) acquire direct or
indirect ownership or control of more than 5% of the outstanding voting stock of
any bank (unless it already owns a majority of such bank's voting shares), (iii)
merge or consolidate with any other bank holding company, or (iv) establish, or
become, a FHC.

FHCs may engage in any activity that is financial in nature or incidental to
that financial activity, or complementary to a financial activity and that does
not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally. Activities that are financial in
nature include acting as principal, agent or broker for insurance, underwriting,
dealing in or making a market in securities, and providing financial and
investment advice. The Federal Reserve Board and the Secretary of the Treasury
have authority to decide that other activities are also financial in nature or
incidental to financial activity, taking into account changes in technology,
changes in the banking marketplace, competition for banking services and so on.

A bank holding company cannot be a financial holding company unless it satisfies
the following criteria:

         1. All of the depository institution subsidiaries must be
well-capitalized and well managed,

         2. The holding company must file with the Federal Reserve a declaration
that it elects to be a financial holding company to engage in activities that
would not have been permissible before the Gramm-Leach-Bliley Act, and

         3. All of the depository institution subsidiaries must have a Community
Reinvestment Act rating of "satisfactory" or better.

The Corporation is engaged solely in activities that were permissible for a bank
holding company before enactment of the Gramm-Leach-Bliley Act, and has not
filed an election with the Federal Reserve to become a financial holding
company. The Corporation has no immediate plans to use the expanded authority
provided by the G-L-B Act to engage in activities other than those in which it
is currently engaged.

                                       8

<PAGE>

SARBANES-OXLEY ACT OF 2002

In 2002 the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") was enacted.
The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting
corporate governance, accounting obligations and corporate reporting. The
Sarbanes-Oxley Act is applicable to all companies with equity or debt securities
registered under the Exchange Act. In particular, the Sarbanes-Oxley Act
establishes: (i) new requirements for audit committees, including independence,
expertise, and responsibilities; (ii) additional responsibilities regarding
financial statements for the chief executive officer and chief financial officer
of the reporting company; (iii) new standards for auditors and regulation of
audits; (iv) increased disclosure and reporting obligations for the reporting
company and their directors and executive officers; and (v) new and increased
civil and criminal penalties for violation of the securities laws. Many of the
provisions became effective immediately while other provisions become effective
over a period of time and are subject to rulemaking by the SEC. Although we
anticipate that we will incur additional expense in complying with the
provisions of the Sarbanes-Oxley Act and the resulting regulations, management
does not expect that such compliance will have a material impact on our results
of operations or financial condition.

EMPLOYEES

As of December 31, 2002, the Bank employed 66 persons (64 full time
equivalents).

COMPETITION

All phases of the business of the Bank are highly competitive. The Bank competes
with numerous financial institutions, including other commercial banks, savings
banks and credit unions in Otsego County, Michigan and Roscommon County,
Michigan. The Bank and other commercial banks compete with respect to their
lending activities, and compete in attracting deposits with savings banks,
savings and loan associations, insurance companies, small loan companies, credit
unions and with the issuers of commercial paper and other securities, such as
various mutual funds. Many of these institutions are substantially larger and
have greater financial resources than the Bank.

The competitive factors among financial institutions can be classified into two
categories; competitive rates and competitive services. Interest rates are
widely advertised and thus competitive, especially in the area of time deposits.
From a service standpoint, financial institutions compete against each other in
types and quality of services.

The Bank is generally competitive with other financial institutions in its area
with respect to interest rates paid on time and savings deposits, fees charged
on deposit accounts, and interest rates charged on loans. With respect to
services, the Bank offers a customer service oriented atmosphere which
management believes is better suited to its customers' needs than that which is
offered by other institutions in the local market.

The Bank is a customer-driven organization, emphasizing personalized customer
relationships, complemented by the convenience of technology. Various segments
of the market are targeted, as management believes certain segments provide
greater opportunities for profit than others. The Bank currently targets real
estate supported loans such as 1-4 family residential mortgages, certain
commercial real estate loans, home equity loans and consumer-related loans. The
Bank has a significant amount of consumer-related loans outstanding on the
books, but expects that amount to stay flat or decline in 2003 as Management
reduces the types of such loans it is willing to grant and develops stricter
loan underwriting standards to reduce credit risk in the overall portfolio.
Management anticipates continuing to offer a full line of deposit services such
as demand deposit accounts, savings accounts, certificates of deposit and money
market accounts.

The Bank also emphasizes superior customer service highlighted by its ability to
make decisions locally. Management believes that significant opportunities are
available by providing traditional banking services. By avoiding multiple lines
of non-traditional products the Bank's staff has the opportunity to develop
substantial expertise. Unlike many larger banks, there isn't a lengthy chain of
command. Customers generally deal directly with front-line personnel, whose
decision-making authority allows them to respond quickly and efficiently.
Additionally, all employees and customers have ready access to senior management
for issues beyond the authority of front line personnel. This streamlined
process enables the Bank to quickly respond to most any situation. For these
reasons, management believes it has developed a reputation in the marketplace
for responding to customer needs well beyond competitors'

                                       9

<PAGE>

capabilities.

LEGAL LENDING LIMIT

Pursuant to federal banking regulations, the Bank is limited in the amount that
it may lend to a single borrower. As of December 31, 2002, the legal lending
limit was approximately $2,700,000.

REPORTS TO SECURITY HOLDERS

The Corporation is required to furnish an annual report to all security holders.
You may read and copy any materials the Corporation files with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may also request information regarding the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of the
SEC's Internet site is www.sec.gov.

SELECTED STATISTICAL INFORMATION

The following selected consolidated financial data of the Corporation and its
subsidiaries is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements, including notes thereto (000s
omitted, except per share data).

                                       10

<PAGE>

<TABLE>
<CAPTION>
                                                             At or for the Year Ended December 31,
                                                   2002            2001            2000            1999            1998
                                                ---------       ---------       ---------       ---------       ---------
<S>                                             <C>             <C>             <C>             <C>             <C>
Selected Financial Condition Data:
   Assets                                       $ 211,872       $ 187,800       $ 133,279       $  91,226       $  65,617
   Loans                                          172,089         157,106         111,036          71,835          45,085
   Deposits                                       162,230         136,618          85,652          64,139          60,529
   Borrowed funds                                  34,906          39,271          40,252          21,555             491
   Stockholders' Equity                             9,441          10,798           5,987           4,456           3,893

Selected Operations Data:
   Interest income                              $  15,258       $  13,521       $   9,712       $   5,871       $   5,021
   Interest expense                                (7,887)         (7,168)         (5,057)         (2,407)         (2,048)
                                                ---------       ---------       ---------       ---------       ---------
   Net interest income                              7,371           6,353           4,655           3,464           2,973
   Provision for loan losses                       (5,337)           (886)           (523)           (300)           (430)
                                                ---------       ---------       ---------       ---------       ---------
   Net interest income after provision
     for loan losses                                2,034           5,467           4,132           3,164           2,543
   Noninterest income                               1,959           1,332             896             808             649
   Noninterest expenses                            (6,171)         (4,686)         (3,379)         (2,801)         (2,745)
   Federal income tax expense                         803            (697)           (534)           (357)           (124)
                                                ---------       ---------       ---------       ---------       ---------
   Net Income                                   $  (1,375)      $   1,416       $   1,115       $     814       $     323
                                                =========       =========       =========       =========       =========

Per Share Data (1):
   Earnings (loss) per share                    $   (2.62)      $    3.12       $    3.57       $    2.63       $    1.04
   Book value                                   $   17.95       $   20.56       $   18.20       $   14.38       $   12.55
   Dividends per share                          $    0.40       $    0.40       $    0.33       $    0.30       $    0.20
   Weighted average shares outstanding            525,545         454,486         312,157         309,670         310,577
   Actual shares outstanding                      525,896         525,295         329,007         309,772         310,235

Other Data:
   Net interest margin                               3.74%           4.26%           4.43%           5.03%           5.26%
   Net interest rate spread                          3.25%           3.61%           3.76%           4.41%           4.62%
   Allowance for loan losses to total loans          2.62%           0.78%           0.76%           0.81%           0.95%
   Nonperforming loans to total loans                1.32%           0.52%           0.13%           0.11%           0.38%
   Efficiency ratio                                 66.14%          60.98%          60.87%          65.57%          75.79%
   Return on average assets                         (0.66%)          0.90%           1.00%           1.05%           0.51%
   Return on average equity                        (12.10%)         15.80%          22.25%          19.50%           8.61%
   Dividend payout ratio                           (15.27%)         12.82%           9.24%          11.41%          19.23%
   Average equity to average assets                  5.45%           5.70%           4.49%           5.56%           6.02%
</TABLE>

(1) Adjusted for the 5-for-4 stock split declared March 24, 2000 and the
2-for-1 stock split declared June 23, 2000.

                                       11

<PAGE>

I.       DISTRIBUTION OF ASSETS, OBLIGATIONS, AND SHAREHOLDERS' EQUITY; INTEREST
         RATES AND INTEREST DIFFERENTIAL

         The key components of net interest income, the average daily balance
         sheet for each year, the related interest income on a fully tax
         equivalent basis and interest expense, as well as the average rates
         earned and paid on these assets and obligations is contained under the
         caption "Results of Operations - Net Interest Income" within
         "Management's Discussion and Analysis of Financial Condition or Plan of
         Operation" included elsewhere in this report.

         An analysis of the changes in net interest income from year-to-year and
         the relative effect of the changes in interest income and expense due
         to changes in the average balances of earning assets and
         interest-bearing obligations and changes in interest rates is contained
         under the caption "Results of Operations - Net Interest Income" within
         "Management's Discussion and Analysis of Financial Condition or Plan of
         Operation" included elsewhere in this report.

II.      INVESTMENT PORTFOLIO

         A.       INVESTMENT PORTFOLIO COMPOSITION

                  An analysis of the amortized cost and estimated fair market
                  value of the Corporation's investment portfolio is contained
                  in Note 2 under the caption "Notes to Consolidated Financial
                  Statements" included elsewhere in this report.

         B.       RELATIVE MATURITIES AND WEIGHTED AVERAGE INTEREST RATES

                  The following table presents the maturity schedule of
                  securities (based on amortized cost) held and the weighted
                  average yield of those securities, as of December 31, 2002
                  (fully tax equivalent, 000s omitted):

<TABLE>
<CAPTION>
                                                    From One to Five     From Five to Ten
                                One Year or Less          Years               Years               Equity                 Total
                                ----------------    ----------------     -----------------   -----------------    -----------------
                                Dollar     Yield    Dollar     Yield     Dollar     Yield     Dollar     Yield    Dollar      Yield
                                ------     -----    -------    -----     ------    ------    -------     -----    ------      -----
<S>                             <C>        <C>      <C>        <C>       <C>       <C>       <C>         <C>      <C>         <C>
U.S. treasury notes             $2,255      4.58%   $ 1,746     3.85%         -         -%                        $ 4,001      4.27%
Obligations of other
   U.S. government agencies      2,414      3.50      4,864     4.21          -         -                           7,278      3.97
Obligations of states and
   political subdivisions        2,783      4.48      2,389     4.79     $1,911      6.63                           7,083      5.16
Mortgage-backed securities           -         -      1,679     5.27      1,508      4.18                           3,187      4.76
Corporate                        1,063      4.49        518     5.53        250      6.04                           1,831      4.83
Equity securities                    -         -          -        -          -         -     $2,520      6.19%     2,520      6.19
                                ------              -------              ------               ------              -------
Total                           $8,515      4.23%   $11,196     4.50%    $3,669      5.58%    $2,520      6.19%   $25,900      4.72%
                                ======              =======              ======               ======              =======
</TABLE>

III.     LOAN PORTFOLIO

         A.       TYPE OF LOANS

                  The following table presents the types of loans as of December
                  31, 2002 and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                          2002         2001
                                        --------     --------
<S>                                     <C>          <C>
Commercial                              $ 19,515     $ 15,494
Commercial mortgages                      37,187       28,635
Residential mortgages                     62,006       60,365
Residential construction mortgages        16,437       12,434
Consumer                                  36,944       40,178
                                        --------     --------
               Total                    $172,089     $157,106
                                        ========     ========
</TABLE>

                  The Bank does not engage in lease financing or foreign loans.


                                       12

<PAGE>
         B.       MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
                  RATES

                  The following table presents the remaining maturity of total
                  loans outstanding for the categories shown at December 31,
                  2002, based on scheduled principal repayments (000s omitted).
                  The columns labeled "More Than 1 Year" represent loans with
                  maturities greater than one year split out by whether they
                  have fixed or variable rates.

<TABLE>
<CAPTION>
                                                                                                                More Than 1 Year
                                                                                                                ----------------

                                                              After 1 Year to
                                            1 Year or Less        5 Years        After 5 Years      Total      Fixed      Variable
                                            --------------    ---------------    -------------    --------    --------    --------
<S>                                         <C>               <C>                <C>              <C>         <C>         <C>
Commercial                                  $        5,639    $        11,731    $       2,145    $ 19,515    $  9,613    $  4,263
Commercial mortgages                                 9,713             21,839            5,635      37,187      27,474           -
Residential mortgages                                1,398             11,530           49,078      62,006      33,784      26,824
Residential construction mortgages                  16,073                364                -      16,437         364           -
Consumer                                             1,683             28,173            7,088      36,944      35,261           -
                                            --------------    ---------------    -------------    --------    --------    --------
    Total                                   $       34,506    $        73,637    $      63,946    $172,089    $106,496    $ 31,087
                                            --------------    ---------------    -------------    --------    --------    --------
</TABLE>

         C.       RISK ELEMENTS

                  An analysis of the Corporation's non-performing assets and
                  problem loans is contained under the caption "Financial
                  Condition - Loans and Allowance for Loan Losses" within
                  "Management's Discussion and Analysis of Financial Condition
                  or Plan of Operation" included elsewhere in this report.
                  Additional risks associated with the lending function are
                  discussed under the caption "Material Conditions Affecting the
                  Corporation and Its Performance" within "Management's
                  Discussion and Analysis of Financial Condition or Plan of
                  Operation" included elsewhere in this report.

IV.      SUMMARY OF LOAN LOSS EXPERIENCE

         A.       ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

                  An analysis of the Corporation's allowance for loan losses is
                  contained under the caption "Financial Condition - Loans and
                  Allowance for Loan Losses" within "Management's Discussion and
                  Analysis of Financial Condition or Plan of Operation" included
                  elsewhere in this report. Additional risks associated with the
                  allowance for loan losses are discussed under the caption
                  "Material Conditions Affecting the Corporation and Its
                  Performance" within "Management's Discussion and Analysis of
                  Financial Condition or Plan of Operation" included elsewhere
                  in this report.

         B.       ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

                  The allocation of the allowance for loan losses, and the
                  percent of each loan category to total loans, is contained
                  under the caption "Financial Condition - Loans and Allowance
                  for Loan Losses" within "Management's Discussion and Analysis
                  of Financial Condition or Plan of Operation" included
                  elsewhere

                                       13

<PAGE>
         in this report. Additional risks associated with the allowance for
         loan losses are discussed under the caption "Material Conditions
         Affecting the Corporation and Its Performance" within "Management's
         Discussion and Analysis of Financial Condition or Plan of Operation"
         included elsewhere in this report.

V.       DEPOSITS

         The following table presents the average balances of deposits and the
         average rates paid on each of the deposit categories for the years
         ended December 31, 2002 and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                                     2002                       2001
                                            -----------------------     ---------------------
                                            Average        Average      Average      Average
                                            Balance       Rate Paid     Balance     Rate Paid
                                            --------      ---------     --------    ---------
<S>                                         <C>           <C>           <C>         <C>
Noninterest-bearing demand deposits         $ 16,533              -%    $ 15,264            -%
NOW accounts                                  18,292            3.1%       8,664          2.8%
Savings accounts                              22,225            3.1%      17,224          3.3%
Certificates of deposit                       97,496            4.4%      67,786          5.8%
                                            --------      ---------     --------    ---------
   Total deposits                           $154,546            3.6%    $108,938          4.3%
                                            ========      =========     ========    =========
</TABLE>

         The following table presents the maturities of certificates of deposits
and other time deposits of $100,000 or more as of December 31, 2002 (000s
omitted):

<TABLE>
<S>                                       <C>
Three months or less                      $ 8,643
Over three months through six months        5,464
Over six months through twelve months      10,746
Over twelve months                         18,518
                                          -------

Total                                     $43,371
                                          =======
</TABLE>

VI.      RETURN ON EQUITY AND ASSETS

         Selected financial data of the Corporation is contained within
         "Management's Discussion and Analysis of Financial Condition or Plan of
         Operation" included elsewhere in this report.

ITEM 2.           DESCRIPTION OF PROPERTY.

The Bank currently has two physical banking offices located in Otsego County,
both within the City of Gaylord and one office located in Houghton Lake,
Michigan. The main office, which is located at 501 West Main Street, Gaylord,
Michigan, is a two story building of approximately 13,500 square feet. It houses
the main office, executive offices of the Bank and the Corporation, and the
lending and operations departments. This office provides complete banking
services including depository, safe deposit, consumer loan, residential
mortgage, and commercial loan services. The other Gaylord office is located at
1157 South Otsego Street, Gaylord, Michigan. This office is a single story
structure of approximately 2,700 square feet. Full depository services and
consumer, residential mortgage, and commercial loan services are offered at this
office since a renovation project was completed in late 2001. Both Gaylord
offices have drive-up facilities. The Houghton Lake office is located at 3225
West Houghton Lake Drive, Houghton Lake, Michigan. This office is approximately
1,500 square feet and provides 1-4 family residential mortgage loans, consumer
loan and home equity loan services. This location also provides deposit services
including checking accounts, savings and money market accounts and certificates
of deposit. The Houghton Lake office does not offer drive-up services or safe
deposit box services.

                                       14

<PAGE>

The Bank owns an office building adjacent to the Bank's main office. This
building totals approximately 2,700 square feet and houses the accounting
department as well as other administrative departments of the Bank. The Bank
also owns approximately two acres of land adjacent to the main office. Use of
this land includes future expansion of the Bank's facilities when determined
necessary by the Corporation.

All properties and buildings are well maintained and are owned by the Bank free
of any encumbrances, except for the Houghton Lake office, which is leased. The
Bank also operates four automated teller machines at various locations in Otsego
County.

ITEM 3.           LEGAL PROCEEDINGS.

As a depository of funds, the Bank could occasionally be named as a defendant in
a lawsuit (such as garnishment proceedings) involving claims to the ownership of
funds in particular accounts. All such litigation is incidental to the Bank's
business.

There is no current litigation pending which would materially affect the
Corporation's capital resources, results of operations, or liquidity as
presented herein.

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

No matters were submitted during the fourth quarter of 2002 to a vote of the
Corporation's stockholders.

                                       15

<PAGE>

PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The authorized common stock of the Corporation consists of 3,000,000 shares of
common stock, $1.00 par value, of which 525,896 shares were outstanding at
December 31, 2002. The Corporation's Articles of Incorporation were amended on
June 6, 2001 to increase the authorized common stock from 500,000 shares to
3,000,000 shares.

At December 31, 2002, the Corporation had 797 shareholders.

The Corporation's common stock is traded primarily in Michigan. There is no
formal market for the stock. To fulfill the minimum stock ownership requirements
specified in the by-laws of the Corporation, the Corporation sold 600 shares of
common stock to two people who joined the Corporation's board of directors in
2002. The board of directors established a price equal to the most recent trade
amount at the time, or $25 per share. The offering was made solely to persons
who are bona fide residents of the State of Michigan, pursuant to the exemption
from registration provided by Section 3(a)(11) of the Securities Act of 1933, as
amended, and Rule 147 promulgated thereunder.

In 2002, the Corporation engaged Registrar & Transfer Company to serve as
registrar and transfer agent for the Corporation's common stock. The following
data is based upon sales that have come to the attention of the Corporation's
management and reflect sales of the Corporation's common stock for the years
ended December 31, 2002 and 2001. Because shares are sold infrequently, and not
on any exchange, the data shown below are not necessarily an accurate reflection
of the true market value. Shares may also have been sold in transactions, the
price and terms of which are not known to the Corporation.

<TABLE>
<CAPTION>

                                                  Average Price Per
     Period              Number of Shares               Share
----------------         ----------------         -----------------
<S>                      <C>                      <C>
4th Quarter 2002              9,500                    $ 25.26
3rd Quarter 2002              1,474                      23.91
2nd Quarter 2002              3,352                      25.00
1st Quarter 2002                946                      24.89

4th Quarter 2001                 70                    $ 23.00
3rd Quarter 2001              3,500                      25.00
2nd Quarter 2001              1,074                      19.75
1st Quarter 2001                334                      19.50
</TABLE>

In 2002 $5,000,000 in preferred securities were issued by a special purpose
subsidiary, Gaylord Partners, Limited Partnership ("Gaylord Partners"). Gaylord
Partners used the proceeds from the issuance of these preferred securities to
purchase junior subordinated debentures of the Corporation of the same amount.
For additional detail, please refer to Note 10 of the Corporation's financial
statements contained elsewhere in this report. Donnelly, Penman, French,
Haggarty & Co. of Detroit, Michigan was retained to act as sales agent in the
offering. The agent was paid a total of $150,000 in placement fees. The offering
was made solely to financial institutions and was exempt from registration
pursuant to Rule 506 of Regulation D.

The Bank's capital management policy allows for cash dividends to be paid to the
Corporation. The Corporation is primarily dependent upon dividends from the Bank
for funds to pay dividends on common stock to its shareholders. The amount and
frequency of dividends declared by the Corporation for the years ended December
31, 2002 and 2001 is as follows:

                                       16

<PAGE>

<TABLE>
<CAPTION>
                       CASH DIVIDEND
     PERIOD              PER SHARE
----------------       -------------
<S>                    <C>
4th Quarter 2002         $    0.10
3rd Quarter 2002              0.10
2nd Quarter 2002              0.10
1st Quarter 2002              0.10

4th Quarter 2001         $    0.10
3rd Quarter 2001              0.10
2nd Quarter 2001              0.10
1st Quarter 2001              0.10
</TABLE>

Given the risks noted under the heading "Material Conditions Affecting the
Corporation and Its Performance" within "Management's Discussion and Analysis of
Financial Condition or Plan of Operation", there is a greater likelihood that
the Bank will not be able to pay dividends to the Corporation for the purpose of
funding cash dividends to shareholders. As it normally does, the Bank's board of
directors will review and analyze the Bank's performance, capital position and
related factors in determining whether a dividend for the purposes of funding a
cash dividend to the Corporation's shareholders is appropriate. The OCC may
place additional restrictions beyond existing regulatory requirements.

The Corporation has the ability and intent to fulfill the debt service
requirements of the junior subordinated debentures issued by the Corporation to
Gaylord Partners. Gaylord Partners' ability to pay required distributions to
preferred security owners is dependent on payment of interest from the
Corporation.

                                       17

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION

FORWARD LOOKING STATEMENTS

In addition to historical information, the following "Management's Discussion
and Analysis of Financial Condition or Plan of Operation" contains
"forward-looking statements" that involve risks and uncertainties. All
statements regarding the expected financial position, business, and strategies
are forward-looking statements and the Corporation intends for them to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. The words
"anticipates," "believes," "estimates," "seeks," "expects," "plans," "intends,"
and similar expressions, as they relate to the Corporation or management, are
intended to identify forward-looking statements. Although the Corporation
believes that the expectations reflected in these forward-looking statements are
reasonable, and have based these expectations on beliefs and assumptions that
have been made, these expectations may prove to be incorrect. Important factors
that could cause actual results to differ materially from expectations, include,
without limitation, the failure of a significant number of borrowers to repay
their loans, general changes in economic conditions and interest rates, as well
as restrictions imposed by regulations or regulators of the banking industry.

The following "Management's Discussion and Analysis of Financial Condition or
Plan of Operation" is intended to assist in understanding the results of
operations of the Corporation. The information contained in this section should
be read in conjunction with the consolidated financial statements and
accompanying notes contained in this report.

MATERIAL CONDITIONS AFFECTING THE CORPORATION AND ITS PERFORMANCE

The Corporation incurred a substantial net loss in 2002 caused by the
deteriorating quality of the loan portfolio. A net loss of ($1,375,000), or
($2.62) per share, was caused by several factors that negatively affected the
quality of the Corporation's loan portfolio. Continuing uncertainty regarding
the quality of the loan portfolio may have a significant adverse impact on the
capital resources, liquidity and profitability of the Corporation. The
Corporation will continuously monitor and analyze the allowance for loan losses
and incur an appropriate amount of loan loss provisions to ensure the allowance
for loan losses remains adequate. As a result, loan loss provisions may remain
elevated in 2003, though not to the extent of loan loss provisions incurred in
2002.

NET CHARGE-OFFS, LOAN LOSS PROVISIONS AND THE ALLOWANCE FOR LOAN LOSSES

For the year ended December 31, 2002 the Corporation incurred net charge-offs of
$2,053,000, compared to $501,000 for the same period in 2001. In response to the
increased volume of net charge-offs the Corporation increased the level of loan
loss provisions to $5,337,000 for the year ended December 31, 2002, compared to
$886,000 for the same period in 2001.

Starting at the end of the third quarter of 2002, significant weaknesses in loan
underwriting practices and failure to follow existing procedures were identified
by external auditors, the OCC and management outside the lending area. In
response, management recognized loan loss provisions totaling $980,000 in the
third quarter. Management increased the depth of analysis of the loan portfolio
in the fourth quarter to identify additional risks. In a Form 8-K filed on
December 30, 2002 management reported that anticipated loan loss provisions
totaling $1,830,000 for the three months ended December 31, 2002 and $3,195,000
for the twelve months ended December 31, 2002 would be incurred. Subsequently,
management determined that another $2,142,000 in loan loss provisions would be
required to account for additional risks identified. Refer to the "Provision for
Loan Losses" section below for additional data.

Provisions for loan losses are determined with the goal of ensuring that the
allowance for loan losses remains at a sufficient level after accounting for
estimates of potential net charge-offs from the increased amount of
nonperforming loans and anticipated troubled debt restructured loans.

The allowance for loan losses is management's estimate of net charge-offs
inherent in the loan portfolio at a given date. The increased level of loan loss
provisions has elevated the total of the allowance for loan losses to recognize
the additional risk of increased net charge-offs inherent in the loan portfolio.
The Corporation's management believes the

                                       18

<PAGE>

allowance for loan losses is sufficient to absorb the net charge-offs inherent
in the portfolio as of December 31, 2002, but substantial uncertainty remains as
to the amount of overall risk in the loan portfolio. Therefore, management will
continue to monitor and analyze the allowance for loan losses and incur loan
loss provisions as necessary to maintain an adequate allowance for loan losses.
Please refer to the "Loans and Allowance for Loan Losses" for additional
information.

Internal and external reviews concluded that existing risk identification
systems were not followed or were inadequate. Consequently, inadequate risk
identification in the loan portfolio adversely affected the quality of overall
risk analysis to determine an appropriate level of the allowance for loan
losses. Please refer to the "Loans and Allowance for Loan Loss" section below
for additional information.

LOAN UNDERWRITING PRACTICES AND INTERNAL CONTROLS

Deficient loan underwriting practices and failure to follow existing procedures
were the substantial reasons for the net charge-offs noted above. The effect of
these failures, though corrected or in the process of correction, will continue
to have a significant adverse impact on the Corporation's financial performance
in 2003. Through internal and external reviews of the loan portfolio in the
fourth quarter of 2002 and the first quarter of 2003, a significant number of
deficient loan underwriting practices were identified, including lack of
adherence to loan policies and procedures, insufficient credit analysis, poor
judgment, inappropriate exceptions to policies and procedures, inappropriate
loan structures, liberal repayment terms, improper forbearance of interest and
principal payments, lack of proper approval of a significant amount of loans,
lack of or insufficient supporting documentation, inadequate and inaccurate
collateral evaluation, insufficient collateral, unperfected liens on collateral,
disregard of disbursement standards and procedures on construction loans and
other weaknesses. Because of these problems, the employment of the Bank's senior
vice president and senior lending officer Steven D. Riozzi and his status as an
officer of the Corporation were terminated January 21, 2003.

Additionally, the internal and external reviews concluded that the existing
procedures and processes to identify impaired loans and other potential risks
were either not being adhered to so as to alert management outside of the
lending area of the problems identified above, or were insufficient.
Consequently, management's ability to identify and account for increased risk in
the loan portfolio in a timely manner was inhibited. Further hampering the
timeliness of risk identification was the absence of chief executive officer
John R. Kluck in the fourth quarter of 2002 for health-related reasons. Mr.
Kluck resumed his normal duties on January 6, 2003.

Through the internal and external reviews conducted in the fourth quarter of
2002 and the first quarter of 2003, the need to strengthen the Bank's internal
controls was noted. Existing internal controls were insufficient to permit
management outside of the lending area to detect and/or prevent the underwriting
deficiencies noted above. The Board of Directors and management have taken the
following steps to begin correcting the various deficiencies and weaknesses
previously noted:

-    All loan policies and procedures are currently being reviewed and modified
     to strengthen underwriting standards, pricing practices, collateral
     evaluation, loan approval procedures, individual loan approval authorities
     and approval of underwriting exceptions. Other actions were instituted to
     improve the quality of the Bank's underwriting practices. On-going
     evaluation of all aspects of the lending function is being performed to
     identify and correct additional weaknesses.

-    A search for a new senior lending officer has been completed. The new
     senior lending officer is scheduled to begin at the Bank in April 2003.

-    An internal independent loan review program was instituted in January 2003.
     The loan review function is independent of management and reports directly
     to the Audit Committee of the Board of Directors of the Corporation. The
     policy, authority, scope of review and reporting procedures of the loan
     review function have been reviewed and formally approved by the Board of
     Directors and the Audit Committee.

-    The Board of Directors intends to discontinue the existing outsourced
     internal audit function and initiate a full-time independent internal audit
     program in the second quarter of 2003. As with the loan review program, it
     will be independent of management, report directly to the Board of
     Directors and/or Audit Committee, which will review and approve policy,
     authority, scope and reporting procedures.

                                       19

<PAGE>

-    Management has instituted several administrative review processes to review
     compliance with updated loan underwriting standards.

-    Management is in the process of modifying data collection procedures to
     allow for increased ability to identify and track adherence to policies and
     procedures.

-    Management anticipates hiring additional personnel to contribute to the
     increased overall loan administration requirements it is currently
     implementing. Specifically, management expects to increase administrative
     capacity for workout of impaired loans.

The above mentioned items are not an exhaustive list of corrective actions being
implemented. It is possible that additional loan underwriting and internal
control weaknesses will be identified. Additional reporting requirements to the
Board of Directors will serve as an additional internal control to ensure that
all policies and procedures are adhered to and that all necessary corrective
action of previously mentioned deficiencies is implemented.

SUPERVISORY ACTIVITIES

During the course of an examination conducted during the first quarter of 2003
of the Bank by representatives of the Office of the Comptroller of the Currency
("OCC"), the Bank's principal federal regulator, the examiners raised concerns
and identified supervisory issues with respect to the Bank's operations
including, among others, the oversight activities by the board of directors,
management, asset quality and credit risk. The OCC has not issued their
examination report to date. Management expects that the OCC will require the
Bank to enter into a formal written agreement with the OCC which would contain
various reporting and other requirements for the Bank to respond to the issues
and concerns raised during the course of the examination. These actions could
result in increased FDIC insurance premiums and OCC assessment fees.

The Bank's board of directors and management have been in discussions with the
OCC and are appropriately responding to the issues and concerns raised by the
OCC.

In spite of the OCC's asset quality concerns, which are being addressed, the
Bank's capital exceeds the regulatory requirements for being "well capitalized"
as set forth in applicable laws and regulations. In addition, the Bank is well
positioned in various markets, which are believed to be excellent. Given those
factors, the strength of the Bank's overall staff and progress made to date in
dealing with asset quality issues, management intends to address all issues and
concerns noted in any formal agreement with the goal of being released from it
in as timely a manner as possible.

ANTICIPATED PERFORMANCE IN 2003

The Corporation expects overall profitability and performance to improve in
2003, but not attain the level of previous years. Given the anticipated net
charge-offs and expected loan loss provisions previously mentioned, the
Corporation anticipates earnings per share to be in a range of $.80 to $1.20.
Any anticipated profits could change substantially, or be eliminated, if net
charge-offs exceed management's current estimates.

See Item 5, "Market for Common Equity and Related Stockholder Matters," for
discussion of shareholder dividends for 2003.

CRITICAL ACCOUNTING POLICIES

As described in Item 1 under "Regulation and Supervision," the banking industry
is highly regulated. Furthermore, the nature of the banking industry is such
that, other than described below, the use of estimates and management judgment
are not likely to present a material risk to the financial statements. In cases
where estimates or management judgment are required, internal controls and
processes are established to provide assurance that such estimates and
management judgments are materially correct to the best of management's
knowledge.

Allowance for loan losses - Accounting for loan classifications, accrual status,
and determination of the allowance for loan losses is based on regulatory
guidance. This guidance includes, but is not limited to, generally accepted
accounting principles, the uniform retail credit classification and account
management policy issued by the Federal

                                       20

<PAGE>

Financial Institutions Examination Council, and the joint policy statement on
the allowance for loan losses methodologies issued by the Federal Financial
Institutions Examination Council. Accordingly, the allowance for loan losses
includes a reserve calculation based on an evaluation of loans determined to be
impaired, risk ratings, historical losses, loans past due, and other subjective
factors.

Commercial loan rating system and identification of impaired loans - The
Corporation has a defined risk rating system that is designed to assess the risk
of individual loans and overall risk of the commercial loan portfolio. The
system considers factors such as cash flow, collateral, financial condition,
operating performance, repayment history, management, and strength of the
industry. An assessment of risk is performed as a part of the loan approval
process as well as periodic updates based on the circumstances of the individual
loan. The Corporation employs both internal and external loan review services to
assess risk ratings.

                                       21

<PAGE>

SELECTED QUARTERLY FINANCIAL DATA
Unaudited
000s omitted, except per share data

<TABLE>
<CAPTION>
                                                            For the Quarters Ended
                                           March 31      June 30      September 30      December 31 (1)
                                           --------      -------      ------------      ---------------
<S>                                        <C>           <C>          <C>               <C>
2002
--------------------------------------
Selected Operations Data:
   Interest income                         $  3,697      $ 3,823        $ 3,897             $ 3,841
   Interest expense                          (1,933)      (1,979)        (2,010)             (1,965)
                                           --------      -------        -------             -------
   Net interest income                        1,764        1,844          1,887               1,876
   Provision for loan losses                   (180)        (205)          (980)             (3,972)
                                           --------      -------        -------             -------
   Net interest income after provision
     for loan losses                          1,584        1,639            907              (2,096)
   Noninterest income                           382          376            479                 722
   Noninterest expenses                      (1,332)      (1,516)        (1,400)             (1,923)
   Federal income tax expense                  (207)        (150)            20               1,140
                                           --------      -------        -------             -------
   Net Income (loss)                       $    427      $   349        $     6             $(2,157)
                                           ========      =======        =======             =======

Per Share Data:
   Earnings (loss) per share               $   0.81      $  0.66        $  0.01             $ (4.10)
   Dividends per share                         0.10         0.10           0.10                0.10

2001
--------------------------------------
Selected Operations Data:
   Interest income                         $  2,961      $ 3,366        $ 3,495             $ 3,699
   Interest expense                          (1,676)      (1,792)        (1,833)             (1,867)
                                           --------      -------        -------             -------
   Net interest income                        1,285        1,574          1,662               1,832
   Provision for loan losses                    (99)        (256)          (224)               (307)
                                           --------      -------        -------             -------
   Net interest income after provision
    for loan losses                           1,186        1,318          1,438               1,525
   Noninterest income                           294          333            268                 437
   Noninterest expenses                        (978)      (1,148)        (1,115)             (1,445)
   Federal income tax expense                  (182)        (143)          (199)               (173)
                                           --------      -------        -------             -------
   Net Income                              $    320      $   360        $   392             $   344
                                           ========      =======        =======             =======
Per Share Data:
   Earnings per share                      $   0.88      $  0.84        $  0.75             $  0.65
   Dividends per share                         0.10         0.10           0.10                0.10
</TABLE>

(1)  Please refer to Management's Discussion and Analysis of Financial Condition
     and Plan of Operation - Material Conditions Affecting the Corporation and
     its Performance.

FINANCIAL HIGHLIGHTS

Total assets increased by $24,072,000 or 13% from December 31, 2001 to December
31, 2002. This increase was primarily the result of an increase in net loans of
$11,699,000 or 8% since December 31, 2001, while total investments increased
$6,678,000 or 34%. Certificates of deposit purchased from other financial
institutions totaled $2,671,000. These deposits are comprised of $99,000
individual certificates of deposit and provide an additional outlet for excess
liquidity. Each instrument is fully insured up to $100,000 by the Federal
Deposit Insurance Corporation or the National Credit Union Administration. To
fund the loan and investment increases, deposits increased by $25,612,000

                                       22

<PAGE>
since December 31, 2001, while borrowed funds decreased $4,365,000 or 11%. The
Corporation's special purpose subsidiary, Gaylord Partners, also issued
$5,000,000 of preferred securities during the second quarter of 2002, please
refer to Note 10 of the Corporation's financial statements. Year-to-date
consolidated net income/(loss) was ($1,375,000) through December 31, 2002
compared to $1,416,000 for the same period in 2001. Basic earnings per share
were ($2.62) for the year ended December 31, 2002 compared to $3.12 for the year
ended December 31, 2001.

FINANCIAL CONDITION

INVESTMENTS

Total investments, including securities available for sale, securities held to
maturity, and other securities, were $26,417,000 at December 31, 2002, as
compared to $19,739,000 at December 31, 2001. The increase of $6,678,000, or
34%, is primarily the result of increased cash flows available from deposits and
residential mortgage loan sales that exceeded the cash required to fund loans.
The investment increase is in the available for sale portfolio; therefore these
investments may be available to support future growth, if they have not been
pledged as collateral to the Federal Home Loan Bank of Indianapolis ("FHLB").
Please refer to Note 2 of the Corporation's financial statements, located
elsewhere in this report, for additional detail on pledged investments. Held to
maturity securities increased to $1,992,000 at December 31, 2002 from $1,042,000
at December 31, 2001. Investment securities that management has the positive
intent and ability to hold to maturity are classified as "held to maturity" and
recorded at amortized cost. Except in limited situations, securities classified
as held to maturity cannot be sold before maturity and still be recorded at
amortized cost. Investment securities provide a source of liquidity as well as a
means to diversify the risk inherent in the balance sheet. See Note 2 to the
accompanying financial statements for more detail on the investment portfolio.

The Corporation also maintained $3,400,000 in Fed funds sold at December 31,
2002 as a source of liquidity. Bank management plans on maintaining higher
levels of liquidity in response to any withdrawal of funds by municipalities
based on the financial performance of the Corporation in 2002.


                                       23

<PAGE>
LOANS AND ALLOWANCE FOR LOAN LOSSES

Following is a summary of the loan mix at December 31, 2002 and 2001 (000s
omitted):

<TABLE>
<CAPTION>
                                    2002         2001
                                  --------     --------
<S>                               <C>          <C>
Mortgage loans on real estate
   Residential 1-4 family         $ 57,709     $ 54,694
   Construction                     16,437       12,434
   Second mortgage                   2,339        4,166
   Equity lines of credit            1,958        1,505
   Commercial                       37,187       28,635

Commercial loans                    19,515       15,494

Consumer installment loans
   Direct
      Automobile loans               7,474        8,075
      Recreational vehicles          3,243        3,397
      Home equity closed end         7,322        5,090
      Unsecured                      1,594        1,927
      Equipment loans                1,226        1,353
      Other                          1,464        1,198
      Mobile Homes                   1,013          967
   Indirect
      Automobile loans               8,388       11,533
      Recreational vehicles          4,824        6,283
Personal lines of credit               396          355
                                  --------     --------

      Total loans                 $172,089     $157,106
                                  --------     --------
</TABLE>

The Corporation's loan portfolio increased by $14,983,000, or 10%, from
$157,106,000 at December 31, 2001 to $172,089,000 at December 31, 2002.
Increases in the portfolio came from all areas with commercial mortgage loans
registering the largest increase. Commercial mortgages increased by $8,552,000
or 30% from $28,635,000 at December 31, 2001 to $37,187,000 at December 31,
2002. Non real estate related commercial loans increased by $4,021,000 or 26%
from $15,494,000 at December 31, 2001 to $19,515,000 at December 31, 2002.
Residential construction loans increased $4,003,000 or 32% from $12,434,000 at
December 31, 2001 to $16,437,000 at December 31, 2002. Management expects the
overall loan portfolio may decrease in 2003.

Year over year, the overall mix of the loan portfolio has changed only
moderately. Loans secured by 1-4 family real estate mortgages represents 33.5%
of the loan portfolio at December 31, 2002 compared to 34.8% at December 31,
2001. Loans for construction of 1-4 family residences also increased, from 7.9%
of the loan portfolio at December 31, 2001 to 9.6% at December 31, 2002. The
proportion of the loan portfolio represented by consumer installment loans
declined from 25.3% at December 31, 2001 to 21.5% at December 31, 2002. While
moderate changes to the overall mix of loans will occur, management believes a
diversified loan portfolio decreases risk as it relates to economic conditions,
the interest rate environment and liquidity risk.

The Corporation generally places loans on non-accrual status when the loan is
past due as to the payment of interest and/or principal in excess of 90 days.
The Corporation also places loans on non-accrual status when it deems the
collection of such interest unlikely. Loans are returned to a full accrual
status when the loan is brought current according to all terms of the loan
agreement, all past due principal and interest is paid and the Corporation deems
its collateral position adequate to warrant a return to accrual status. Consumer
loans are not typically placed on non-accrual status, but written off against
the allowance for loan losses when the loan reaches 90 days past due or when
full collection is deemed unlikely.

At December 31, 2002, non-performing loans, which include nonaccrual loans and
loans 90 or more days past due and still accruing, totaled $2,267,000.
Nonaccrual loans of $2,139,000 were comprised of thirty loans to twenty-three

                                       24

<PAGE>

customers while the loans 90 or more days past due of $128,000 were comprised of
eight loans. The increase in nonperforming loans is comprised mainly of various
nonaccrual residential mortgage loans and commercial loans. Uncertain overall
local economic conditions in the Corporation's marketplace exacerbated and added
to the negative effect of the failure to follow loan underwriting practices and
other deficiencies noted above in the "Material Conditions Affecting the
Corporation and Its Performance" section and caused a substantial increase in
consumer loan charge-off activity, foreclosure actions, repossession activity,
impaired commercial loan volume and loans with payments past due 30 days or
more. The Corporation expects the amount of nonperforming and impaired loans to
remain elevated into the foreseeable future, as management expects loan
restructuring and collection activity of such loans will take an extended period
of time. Local economic conditions will also have an effect on the Corporation's
ability to mitigate losses from such loans. The Corporation maintains an active
loan collection process that attempts to mitigate net charge-offs. Additionally,
underwriting standards for all loan types have been modified to correct
identified loan underwriting deficiencies and better account for a more
difficult economic climate. Please refer to the "Material Conditions Affecting
the Corporation and Its Performance" section for additional discussion of
changes to loan underwriting standards, internal controls and loan
administration procedures.

The following table shows the detail of non-performing loans as of December 31,
2002 and 2001 (000s omitted).

<TABLE>
<CAPTION>
                                               2002       2001
                                              ------     -----
<S>                                           <C>        <C>
Non-accrual loans                             $2,139     $ 513
Loans past due 90 or more days                   128       313
                                              ------     -----
Total non-performing loans                    $2,267     $ 826
                                              ======     =====

Total non-performing loans to total loans       1.32%     0.52%
</TABLE>

The Corporation had no troubled debt restructurings as of December 31, 2002 and
2001. However, the Corporation was in process of negotiating loan restructurings
with customers with existing nonperforming loans. Management expects the results
of these negotiations will result in a substantial amount of troubled debt
restructurings that will be reported in future regulatory filings. As such, loan
loss provisions were increased substantially compared to previous years. Please
refer to the "Results of Operations - Provisions for Loan Losses" section of
this "Management's Discussion and Analysis of Financial Condition or Plan of
Operation" for additional information.

The existing level of nonperforming and impaired loans could have a material
negative effect on the Corporation's operating results, liquidity, or capital
resources if management is unable to limit net charge-offs from these loans to
the allowance for loan losses. The above mentioned failure to follow
underwriting procedures and other deficiencies have resulted in subprime
consumer and mortgage portfolios that will require significant additional
internal controls and administration. It is also likely that such subprime loans
will result in a greater amount of nonperforming loans and future charge-off
activity.


                                       25

<PAGE>
The following highlights the allocations of allowances for loan losses as of
December 31, 2002 and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                                          2002                                           2001
                                         ---------------------------------------      -----------------------------------------
                                         Allowance     Percent of     Percent of      Allowance       Percent of     Percent of
                                         for Loan         Total          Total         for Loan          Total          Total
                                          Losses        Allowance        Loans          Losses         Allowance        Loans
                                         ---------     ----------     ----------      ---------       ----------     ----------
<S>                                      <C>           <C>            <C>             <C>             <C>            <C>
Domestic:
   Commercial loans                       $ 2,594         57.4%          32.9%         $  352            28.7%          28.1%
   Residential real estate mortgages          382          8.5%          36.0%             31             2.5%          38.4%
   Residential construction mortgages         165          3.7%           9.6%              6             0.5%           7.9%
   Consumer loans                           1,171         26.0%          21.5%            511            41.6%          25.6%
Foreign                                         -          n/a                              -             n/a
Unallocated                                   200          4.4%                           328            26.7%
                                         --------      -------        -------         -------         -------        -------
   Total                                  $ 4,512        100.0%         100.0%         $1,228           100.0%         100.0%
                                         ========      =======        =======         =======         =======        =======
</TABLE>

The allowance for loan losses as a percentage of total loans was 2.62% at
December 31, 2002, compared to .78% at December 31, 2001. The unallocated
portion of the allowance for loan losses as a percentage of the entire allowance
for loan losses was 4.4% at December 31, 2002 as compared to 26.7% at December
31, 2001. The decline in the unallocated portion of the allowance for loan
losses as a percentage of the allowance is due to overall growth in the nominal
amount of the allowance and more detailed and specific identification and
analysis of various segments of the loan portfolio.

The amount of provisions for loan losses recognized by the Corporation is based
on management's evaluation as to the amounts required to maintain an allowance
adequate to provide for potential losses inherent in the loan portfolio. The
level of the allowance is dependent upon the total amount of past due and
non-performing loans, historical charge-off experience, general economic
conditions and management's assessment of potential losses based upon internal
credit evaluation of the loan portfolio and particular loans. In determining the
provision for loan losses, management first determines the estimated allowance
for loan losses required for any specifically identified problem loans graded
watch, substandard or doubtful. To this, management estimates potential
charge-offs based on analysis of historical experience and historical experience
of the Bank's peer group of similarly sized institutions. Management then may
add, at its discretion, a factor to the historical charge-off ratios to adjust
for current economic conditions, additional perceived credit risk in the
portfolio, an evaluation of current and past loan underwriting practices or
other information that management considers relevant. The unallocated portion of
the allowance for loan losses involves the exercise of judgment by management
and reflects various considerations, including management's view that the
allowance for loan losses should have a margin that recognizes the imprecision
inherent in the process of estimating credit losses.

Management maintains an allowance for loan losses believed to be sufficient to
absorb credit losses inherent in the loan portfolio. The allowance for loan
losses represents management's estimate of probable net charge-offs in the
portfolio at each balance sheet date and is supported by all available and
relevant information. The allowance for loan losses contains provisions for
probable losses that have been identified relating to specific borrowing
relationships as well as probable losses believed to be inherent in the loan
portfolio and loan relationships not specifically identified. Despite the
problems noted in the "Material Conditions Affecting the Corporation and Its
Performance" section, management believes that the allowance for loan losses is
adequate to provide for estimated probable credit losses inherent in the loan
portfolio, acknowledging the uncertainties previously noted.

DEPOSITS

Total deposits increased $25,612,000, or 19%, from $136,618,000 at December 31,
2001 to $162,230,000 at December 31, 2002. Deposits increased as the Corporation
continued proactive measures to increase the core deposit base in response to
loan demand. Additionally, the Corporation began to utilize brokered
certificates of deposit in 2002, which totaled $11,339,000 at December 31, 2002.
Brokered certificates of deposit are acquired through an intermediary and
typically require the Corporation to pay a fee. Management initiated use of this
type of deposit because overall prices are similar to other types of deposits
and require less administrative burden. Noninterest-bearing deposits declined
from $17,964,000 at December 31, 2001 to $16,484,000 at December 31, 2002.
Management views the fluctuation in

                                       26

<PAGE>

transaction accounts as normal and not necessarily indicative of an adverse
trend. On average, noninterest-bearing deposits totaled $15,264,000 in 2001
while they have averaged $16,533,000 in 2002. At December 31, 2002 various local
municipalities had deposited $2,145,000 in certificates of deposit and
$9,761,000 in non-maturity deposits at the Bank. Bank management has planned for
the possibility that these municipalities may withdraw a substantial portion of
these funds in response to the financial performance of the Corporation, by
maintaining an elevated amount of liquid investments, as noted above in the
"Investments" section of this Report.

BORROWED FUNDS

In addition to deposits, the Corporation also utilized the Federal Home Loan
Bank of Indianapolis ("FHLB") as a primary funding source. The Corporation
considers the FHLB a stable source of funding at competitive rates. FHLB
advances decreased by $2,226,000 or 6% from $37,132,000 at December 31, 2001 to
$34,906,000 at December 31, 2002. Other borrowed funds at December 31, 2001 of
$2,139,000 represented the outstanding balance of a $4,000,000 line of credit
from a bank. This line of credit was repaid during 2002, though the line of
credit remains open and available to the Corporation.

Details of the outstanding borrowings of the Corporation as of December 31, 2002
and 2001 are contained in the following table (000s omitted):

<TABLE>
<CAPTION>
                                              2002                        2001
                          Year      -----------------------     ------------------------
       Type             Matures     Amount     Average Rate      Amount     Average Rate
       ----             -------     ------     ------------     -------     ------------
<S>                     <C>         <C>        <C>              <C>         <C>
Bank Line of Credit       2002          --           --         $ 2,139         4.25%
                          2003          --         3.75%             --           --

FHLB Line of Credit       2002          --           --              --         1.82%
                          2003          --         1.33%             --           --

FHLB Term Advances        2002          --           --          14,461         6.12%
                          2003      12,231         4.50%          8,885         5.60%
                          2004       7,264         5.01%          4,875         6.46%
                          2005       8,911         4.87%          5,411         5.27%
                          2006       5,500         4.45%          3,500         5.04%
                          2007       1,000         3.58%             --           --
</TABLE>

The Corporation has pledged U.S. Treasury securities and U.S.
government-sponsored agencies' securities and certain real estate loans as
collateral for the line of credit and term advances at the FHLB. As of December
31, 2002, securities with a carrying value of $8,565,000 (market value of
$8,790,000) were pledged. These investment securities consist primarily of
available-for-sale securities, as listed in Note 2 of the Corporation's
financial statements. As such, they are not available to fund on-going liquidity
requirements of the Corporation, except to the extent that they support
borrowings from the FHLB. Additionally, $57,725,000 of 1-4 family residential
mortgage loans and $3,091,000 of real estate loans secured by second mortgages
were pledged as collateral to the FHLB.

CAPITAL

The Corporation's total stockholders' equity decreased $1,357,000 or 13% for the
year ended December 31, 2002 to $9,441,000 at December 31, 2002 from $10,798,000
at December 31, 2001. The majority of the decrease in stockholders' equity was
due to the net loss of $1,375,000 for the year 2002 offset by dividends paid,
the change in accumulated other comprehensive income and the sale of 600 shares
of stock.

To be considered a "well-capitalized" bank by the FDIC, the institution must
have a total risk-based capital ratio of at least 10%, a Tier 1 capital ratio of
at least 6%, and a leverage ratio of at least 5%, and must not be subject to any
written agreement from any regulatory agency requiring it to meet or maintain
any specific capital levels. As of December 31, 2002 the Bank was considered
well-capitalized. See Note 17 to the Consolidated Financial Statements included
elsewhere in this report. As previously noted in this report, the Corporation,
through Gaylord Partners, Limited Partnership, a special purpose subsidiary of
the Corporation, issued $5,000,000 of preferred securities in 2002. The proceeds
of this issuance were used to purchase junior subordinated debentures of the
Corporation. Current rules

                                       27

<PAGE>

of the Federal Reserve System allow this amount to be included in the
Corporation's risk-based capital to a maximum of 25% of Tier 1 capital. As of
December 31, 2002, $3,033,000 of the total preferred security issuance counts
towards Tier 1 risk-based capital.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income for the year ended December 31, 2002 totaled $7,371,000,
with fully-taxable equivalent income of $7,472,000, and represented an increase
of $1,018,000, or 16%, compared to the same period one year ago. The increase in
net interest income was primarily attributable to the increase in the volume of
loans; however, this increase was offset by an increase in deposits. The
Corporation's net interest margin (on a tax equivalent basis) narrowed from
4.26% for the year ended December 31, 2001 to 3.74% for the year ended December
31, 2002. The net interest margin has been impacted by the current economic
conditions as well as the competitive nature of the Corporation's market. The
Corporation has experienced tighter interest margins as lending rates declined
in 2002 and remained at historically low levels throughout 2002. A substantial
increase in nonperforming loans and loan charge-off activity in 2002 also
adversely affected the Corporation's interest margins. Interest income from
loans represented 92% of total interest income for the year ended December 31,
2002 compared to 93% for the same period in 2001.

The following table presents the Corporation's consolidated average balances of
interest-earning assets, interest-bearing liabilities, and the amount of
interest income or interest expense attributable to each category, the average
yield or rate for each category, and the net interest margin for the years ended
December 31, 2002, 2001, and 2000 (000s omitted). Average loans are presented
net of unearned income and gross of the allowance for loan losses. Interest on
loans includes loan fees. Interest income is presented on a tax-equivalent
basis. Nonaccrual loans are included in the average balance of loans.

<TABLE>
<CAPTION>
                                                  2002                       2001                       2000
                                      ------------------------   ------------------------   ------------------------
                                      Average                    Average                    Average
                                      Balance   Interest  Rate   Balance   Interest  Rate   Balance   Interest  Rate
                                      --------  --------  ----   --------  --------  ----   --------  --------  ----
<S>                                   <C>       <C>       <C>    <C>       <C>       <C>    <C>       <C>       <C>
Federal funds sold                    $  5,108  $     81  1.59%  $    493  $     18  3.65%  $     89  $      8  8.99%
Int bearing cash and due from banks      1,082        27  2.50%         -         -                -         -
Investment securities-taxable           19,167       872  4.55%    14,043       814  5.80%    11,826       740  6.26%
Investment securities-tax-exempt         5,362       298  5.57%     2,404       150  6.24%     1,589       114  7.17%
Loans, net of unearned income          169,214    14,081  8.32%   133,417    12,590  9.44%    92,438     8,889  9.62%
                                      --------  --------         --------  --------         --------  --------
Total earning assets                  $199,933  $ 15,359  7.68%  $150,357  $ 13,572  9.03%  $105,942  $  9,751  9.20%
                                      ========  --------         ========  --------         ========  --------
Interest bearing deposits             $138,013  $  5,577  4.04%  $ 93,674  $  4,722  5.04%  $ 63,819  $  3,121  4.89%
Borrowed funds                          36,959     2,143  5.80%    38,595     2,446  6.34%    29,040     1,936  6.67%
Subordinated debentures                  2,917       167  5.73%         -         -                -         -
                                      --------  --------         --------  --------         --------  --------
Total interest bearing liabilities    $177,889  $  7,887  4.43%  $132,269  $  7,168  5.42%  $ 92,859  $  5,057  5.45%
                                      ========  --------         ========  --------         ========  --------
Net interest income                             $  7,472                   $  6,404                   $  4,694
                                                ========                   ========                   ========
FTE adjustment                                  $    101                   $     51                   $     40

Net interest spread                                       3.25%                      3.61%                      3.75%
Net interest margin (as a percentage
   of earning assets) (FTE)                               3.74%                      4.26%                      4.43%
</TABLE>

The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Corporation's interest income and interest expense
during the periods years indicated. Information is provided in each category
with respect to: (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) the net change (the sum
of the prior columns). The changes attributable to the combined impact of volume
and rate have been allocated on a proportional basis between changes in rate and
volume (000s omitted).

                                       28

<PAGE>

<TABLE>
<CAPTION>
                                                       2002 Compared to 2001                  2001 Compared to 2000
                                             -------------------------------------     --------------------------------------
                                             Increase (Decrease) Due to                Increase (Decrease) Due to
                                             --------------------------                --------------------------
                                                Rate             Volume       Net       Rate               Volume       Net
                                             ---------           ------     ------     -----               ------     -------
<S>                                          <C>                 <C>        <C>        <C>                 <C>        <C>
Federal funds sold                           $     (10)          $   73     $   63     $  (7)              $   17     $    10
Interest bearing balances due from banks             -               27         27
Investment securities-taxable                     (175)             233         58       (57)                 131          74
Investment securities-tax-exempt                   (17)             165        148       (16)                  52          36
Loans, net of unearned income                   (1,488)           2,979      1,491      (169)               3,870       3,701
                                             ---------           ------     ------     -----               ------     -------
  Total interest earning assets                 (1,690)           3,477      1,787      (249)               4,070       3,821
                                             ---------           ------     ------     -----               ------     -------
Interest-bearing deposits                         (937)           1,792        855        99                1,502       1,601
Borrowed funds                                    (208)             (95)      (303)     (100)                 610         510
Subordinated debentures                              -              167        167         -                    -           -
                                             ---------           ------     ------     -----               ------     -------
   Total interest-bearing liabilities           (1,145)           1,864        719        (1)               2,112       2,111
                                             ---------           ------     ------     -----               ------     -------
Increase (decrease) in net interest income   $    (545)          $1,613     $1,068     $(248)              $1,958     $ 1,710
                                             =========           ======     ======     =====               ======     =======
</TABLE>

PROVISION FOR LOAN LOSSES

The activity in the allowance for loan losses for the years ended December 31,
2002 and 2001 is presented in the following table (000s omitted):

<TABLE>
<CAPTION>
                                  2002      2001
                                 ------    ------
<S>                              <C>       <C>
Balance - beginning of year      $1,228    $  843

Loans charged-off:
   Commercial loans                 427        47
   Real estate mortgage loans       238         -
   Consumer loans                 1,538       554
                                 ------    ------
     Total charge-offs            2,203       601

Recoveries:
   Commercial loans                  33         3
   Real estate mortgage loans         2         -
   Consumer loans                   115        97
                                 ------    ------
     Total recoveries               150       100

Provision for loan losses         5,337       886
                                 ------    ------

Balance - end of year            $4,512    $1,228
                                 ======    ======
</TABLE>

The provision for loan losses charged to operations was $5,337,000 for the year
ended December 31, 2002 as compared to $886,000 for the year ended December 31,
2001. Net charge-offs for the year ended December 31, 2002 totaled $2,053,000 as
compared to $501,000 for the same period of 2001. Further discussion of net
charge-offs, loan loss provisions and loan underwriting issues are included in
the "Material Conditions Affecting the Corporation and Its Performance" section,
located above, within "Management's Discussion and Analysis of Financial
Condition or Plan of Operation".

NONINTEREST INCOME

Noninterest income increased by $627,000 to $1,959,000 for the year ended
December 31, 2002 as compared to $1,332,000 for the year ended December 31,
2001. The increase in noninterest income was primarily due to the increased
activity on the sale of real estate mortgage loans originated for sale. The gain
on the sale of such loans was $960,000 for the year ended December 31, 2002 as
compared to $517,000 for the year ended December 31, 2001. The income recognized
in connection with the recording of the mortgage servicing rights asset is
included in the gain on sale of loans; this amount totaled $644,000 for the year
ended December 31, 2002 as compared to $388,000 for the same period in 2001.

                                       29

<PAGE>

The Corporation generally sells the 15- to 30-year, fixed rate, residential real
estate loans it originates and receives a gain on the sale of such loans. In
addition, since the loans are sold with servicing retained, the Corporation
records the servicing asset at the time the loans are sold. With the decreasing
interest rate environment experienced during 2002, activity in mortgage
refinancings increased, resulting in increased income to the Corporation. While
the rate environment remains low, the likely pool of borrowers with sufficient
opportunity to refinance their mortgage loan has decreased. Management,
therefore, does not expect mortgage refinancing volume to remain at previous
levels. As a result the Corporation will likely recognize less noninterest
income from this source in 2003.

NONINTEREST EXPENSE

Noninterest expenses increased by $1,485,000 to $6,171,000 for the year ended
December 31, 2002 as compared to $4,686,000 for the year ended December 31,
2001. The increase was attributed to an increase of $541,000, or 25%, in
personnel costs as full time equivalent employees increased from fifty-eight at
December 31, 2001 to sixty-four at December 31, 2002. Management determined that
additional staffing was necessary to support the Corporation's continued growth
from 2001 to 2002. Equipment and data processing expense increased by $168,000
to $580,000 for the year ended December 31, 2002 as compared to the same period
in 2001. This increase was primarily due to additional software licensing fees,
maintenance agreements and depreciation expense associated with technological
upgrades to manage continued growth. Professional fees increased by $172,000 to
$432,000 for the year ended December 31, 2002 as compared to $260,000 for the
same period a year ago. This increase is attributable to additional services
provided for various accounting, loan review and internal audit-related
activities. The remaining increases are related to the growth of the Corporation
during the past year.

FEDERAL INCOME TAX EXPENSE

The Corporation had a federal income tax provision credit of $803,000 for the
year ended December 31, 2002 as compared to an expense of $697,000 for the year
ended December 31, 2001.

The provision for federal income tax was 37% of pretax income for the year ended
December 31, 2002 as compared to 33% for the year ended December 31, 2001. The
difference between the effective tax rates and the federal corporate income tax
rate of 34% is primarily due to tax-exempt interest earned on investments and
loans.

NET INCOME

Net income/(loss) totaled ($1,375,000) for the year ended December 31, 2002 as
compared to $1,416,000 for the same period in 2001. Basic earnings/(loss) per
share totaled ($2.62) for the year ended December 31, 2002 as compared to $3.12
for the year ended December 31, 2001. The Corporation does not have any dilutive
stock plans; therefore, basic and dilutive earnings per share are the same.

LIQUIDITY

At December 31, 2002, the Corporation held cash and cash equivalents of
$8,292,000 and $21,905,000 of the Corporation's investment securities were
classified as available for sale. However, $8,790,000 of available-for-sale
investment securities are pledged as collateral to the FHLB. The amortized cost
of the available for sale securities was less than the fair value at year-end,
primarily as the result of decreasing interest rates, which resulted in an
unrealized gain within the investment portfolio. Management does not believe the
sale of any of the Corporation's securities would materially affect the overall
financial condition of the Corporation.

The Corporation had net increases in cash and cash equivalents of $1,060,000 and
$3,290,000 for the years ended December 31, 2002 and 2001. Net income (loss) was
($1,375,000) and $1,416,000 for years ended December 31, 2002 and 2001. After
adjustments for noncash items - which consist primarily of the provision for
loan losses, deferred federal income taxes, depreciation and amortization - and
changes in other assets and other liabilities, the net cash provided by
operating activities totaled $1,757,000 and $1,636,000 for the years ended
December 31, 2002 and 2001.

The Corporation's investing activities relate to interest bearing deposits in
banks, available for sale and held to maturity investment securities, loans, and
premises and equipment. The net cash used in investing activities totaled

                                       30

<PAGE>

$26,748,000 and $51,656,000 for the years ended December 31, 2002 and 2001. The
$24,908,000 decrease between years is directly related to the net increase in
loans of $17,036,000 for 2002 as compared to $46,571,000 for 2001. While the
loan portfolio increased in 2002, the increase experienced in 2001 was greater
than that of 2002. The Corporation also invested in interest bearing deposits in
banks during 2002 for $2,671,000. These deposits are comprised of $99,000
individual certificates of deposit and provide an additional outlet for excess
liquidity.

Net cash provided by financing activities totaled $26,051,000 and $53,310,000
for the years ended December 31, 2002 and 2001. Financing sources for the
Corporation include deposits, borrowings, subordinated debentures, and common
stock. Financing activities and investing activities are closely related. As
such, the cash provided by financing activities decreased from 2001 to 2002 in a
similar amount as the decrease in investing activities. The net increase in
deposits was $25,612,000 for 2002 as compared to $50,966,000 for 2001. The net
decrease in borrowings totaled $4,365,000 for 2002 as compared to $981,000 for
2001. In 2002, the Corporation issued $5,000,000 of subordinated debentures. In
2001, the Corporation issued additional stock for net proceeds of $3,517,000.

CONTRACTUAL OBLIGATIONS

<TABLE>
<CAPTION>
                                                                Payments Due by Period
                                               --------------------------------------------------------
                                                                      (Dollars in
                                                                       Thousands)
                                               --------------------------------------------------------
                                                           Less than      1 - 3       4 - 5     After 5
                                                 Total      1 year        years       years      years
                                               --------    ---------    --------    --------    -------
<S>                                            <C>         <C>          <C>         <C>         <C>
Time Deposits                                  $ 99,792    $  56,186    $ 35,496    $  4,523    $ 3,587
Notes Payable                                    34,906       12,231      16,175       6,500          -
Guaranteed preferred beneficial interest in
   subordiated debentures                         5,000            -           -           -      5,000
                                               --------    ---------    --------    --------    -------
Total contractual cash
   obligations                                 $139,698    $  68,417    $ 51,671    $ 11,023    $ 8,587
                                               ========    =========    ========    ========    =======
</TABLE>

The long-term debt obligations consist of certificates of deposit, advances from
the Federal Home Loan Bank, and preferred securities. The above schedule
represents principal payments only and does not include interest.

The Corporation has contractual payments due on time deposits and Federal Home
Loan Bank advances of $56,186,000 and $12,231,000, respectively, in 2003. The
Corporation anticipates that a significant portion of the maturing time deposits
will be renewed and retained. Depending on the economic and competitive
conditions at the time of maturity, the rates paid on renewed time deposits may
differ from the rates currently paid. The Corporation may also purchase
additional brokered deposits if the terms available are favorable as compared to
the deposits in the local market area. Federal Home Loan Bank advances can be
renewed, and additional advances may be obtained, at prevailing market rates. At
December 31, 2002, the Corporation had the ability to borrow an additional
$12,300,000 from the Federal Home Loan Bank based on the current levels of
collateral pledged. The availability to borrow from the Federal Home Loan Bank
varies depending on the amount collateral available for pledging. As mentioned
above, Bank management anticipates that the overall loan portfolio will decrease
in 2003, which could also decrease the amount collateral available to pledge to
the Federal Home Loan Bank.

While the Corporation in the recent past has issued additional equity and
preferred securities, it is anticipated that such offerings will not be made in
the next year.

                                       31

<PAGE>

<TABLE>
<CAPTION>
LOAN COMMITMENTS

                                       Amount of Commitment Expiration Per Period
                                    -------------------------------------------------
                                                      (Dollars in
                                                       Thousands)
                                    -------------------------------------------------
                                               Less than    1 - 3    4 - 5    After 5
                                     Total       1 year     years    years     years
                                    -------    ---------    -----    -----    -------
<S>                                 <C>        <C>          <C>      <C>      <C>
Commitments to grant loans          $13,761     $13,761      $ -      $ -       $ -
Unfunded commitments under lines
   of credit                          9,785       9,785        -        -         -
Standby letters of credit               310         310        -        -         -
Total loan commitments              $23,856     $23,856      $ -      $ -       $ -
</TABLE>

All of the loan commitments are underwritten using the commercial loan
underwriting guidelines.

The primary impact of inflation on the Corporation's operations is increased
asset yields, deposit costs and operating overhead. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have a
more significant impact on a financial institution's performance than they would
on non-financial companies. Although interest rates do not necessarily move in
the same direction or to the same extent as the prices of goods and services,
increases in inflation generally have resulted in increased interest rates. The
effects of inflation can magnify the growth of assets and if significant,
require that equity capital increase at a faster rate than would otherwise be
necessary.

Managing rates on interest earning assets and interest bearing liabilities
focuses on maintaining the net interest margin, an important factor in earnings
growth and stability. Emphasis is placed on maintaining a controlled rate
sensitivity position, to avoid wide swings in margins and to manage risk due to
changes in interest rates.

The following table shows the maturity and repricing distribution of the
Corporation's interest earning assets and interest bearing liabilities at
December 31, 2002 (000s omitted). The table displays the interest rate
sensitivity gap (i.e., interest rate sensitive assets less interest rate
sensitive liabilities), cumulative interest rate sensitivity gap, the interest
rate sensitivity gap ratio (i.e., interest rate sensitive assets divided by
interest rate sensitive liabilities), and the cumulative interest rate
sensitivity gap ratio.

                                       32

<PAGE>

<TABLE>
<CAPTION>
                                                             After 3 Months   After 1 Year
                                                Within 3      But Within 1    But Within 5     Over 5
                                                 Months           Year          Years           Years        Total
                                                ---------    --------------   ------------    ---------    ---------
<S>                                             <C>          <C>              <C>             <C>          <C>
Interest-earning assets:
   Interest bearing deposits in banks           $   1,287      $   1,384        $       -     $       -    $   2,671
   Loans                                           19,357         16,386           74,014        62,332      172,089
   Investments                                        954          7,656           11,502         6,305       26,417
   Federal funds old                                3,404              -                -             -        3,404
                                                ---------      ---------        ---------     ---------    ---------
   Total interest-earning assets                $  25,002      $  25,426        $  85,516     $  68,637    $ 204,581
                                                =========      =========        =========     =========    =========

Interest-bearing liabilities:
   Interest-bearing demand                      $       -      $   5,261        $       -     $  15,781    $  21,042
   Savings and money market                         2,491          6,228            2,491        13,702       24,912
   Time deposits < $100,000                         8,087         23,246           21,501         3,587       56,421
   Time deposits > $100,000                         8,643         16,210           18,518             -       43,371
   Notes payable                                    3,881          8,350           22,675             -       34,906
   Guaranteed preferred beneficial interest in
     subordinated debentures                            -              -                -         5,000        5,000
                                                ---------      ---------        ---------     ---------    ---------
   Total interest-bearing liabilities           $  23,102      $  59,295        $  65,185     $  38,070    $ 185,652
                                                =========      =========        =========     =========    =========

Period:
   Rate sensitive assets (RSA)                  $  25,002      $  25,426        $  85,516     $  68,637
   Rate sensitive liabilities (RSL)                23,102         59,295           65,185        38,070
                                                ---------      ---------        ---------     ---------
   Interest rate sensitivity GAP (RSA-RSL)      $   1,900      $ (33,869)       $  20,331     $  30,567
                                                ---------      ---------        ---------     ---------
   Interest rate sensitivity GAP ratio               1.08           0.43             1.31          1.80
                                                =========      =========        =========     =========

Cumulative:
   Rate sensitive assets (RSA)                  $  25,002      $  50,428        $ 135,944     $ 204,581
   Rate sensitive liabilities (RSL)                23,102         82,397          147,582       185,652
                                                ---------      ---------        ---------     ---------
   Interest rate sensitivity GAP (RSA-RSL)      $   1,900      $ (31,969)       $ (11,638)    $  18,929
                                                ---------      ---------        ---------     ---------
   Interest rate sensitivity GAP ratio               1.08           0.61             0.92          1.10
                                                =========      =========        =========     =========
</TABLE>

Currently, the Corporation is "liability-sensitive". This means that the
Corporation's rate sensitive liabilities will reprice or mature faster than rate
sensitive assets for a given time period. The table above indicates that within
one year's time, almost $32 million more of liabilities will reprice than
assets. With interest rates at historically low levels, the Corporation believes
it likely that interest rates will rise in 2003. In such a situation, the risk
to the Corporation's net interest income is greater because rate sensitive
liabilities will reprice faster than rate sensitive assets. The table above does
not factor in any prepayment of loans and investments that may occur, which
could mitigate the interest rate risk associated with a liability-sensitive
position in a rising rate environment.

The Corporation must maintain an adequate liquidity position in order to respond
to extensions of credit, the short-term demand for funds caused by withdrawals
from deposit accounts, and for the payment of operating expenses. Maintaining
adequate liquidity is accomplished through the management of a combination of
liquid assets - those which can be converted into cash - and access to
additional sources of funds. Primary liquid assets of the Corporation are cash
and due from banks, federal funds sold, unpledged investments held as "available
for sale," and maturing loans. Federal funds purchased and advances from the
FHLB represent the Corporation's primary source of immediate liquidity and are
maintained at a level to meet immediate needs. Maturities in the Corporation's
loan and investment portfolios are monitored regularly to avoid matching
short-term deposits with long-term investments and loans. Other assets and
liabilities are also monitored to provide the proper balance between liquidity,
safety, and profitability. This monitoring process must be continuous due to the
constant flow of cash that is inherent in a financial institution.

                                       33

<PAGE>

ITEM 7.           FINANCIAL STATEMENTS

The consolidated financial statements of the Corporation and its Subsidiaries,
together with the report thereon of Plante & Moran, PLLC, begin on page F-1 and
are filed as part of this report.

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

There were no disagreements with the Corporation's independent accountant in
2002 or 2001.

                                       34

<PAGE>

PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The information required by this Item is included in the Proxy Statement under
the captions "Information about the Nominees, the Incumbent Directors and Other
Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" and is hereby incorporated herein by reference.

ITEM 10.          EXECUTIVE COMPENSATION.

The information required by this Item is included in the Proxy Statement under
the captions "Compensation of Directors" and "Executive Compensation " and is
hereby incorporated herein by reference.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

The information required by this Item is included in the Proxy Statement under
the caption "Security Ownership of Certain Beneficial Owners and Management" and
is hereby incorporated herein by reference.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is included in the Proxy Statement under
the caption "Certain Transactions with Management" and is hereby incorporated
herein by reference.

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K

(a)      Reference is made to the exhibit index, which follows the signature
         page of this report.

(b)      Reports on Form 8-K.

A Current Report on Form 8-K was filed on December 30, 2002. In this Report the
Corporation disclosed that anticipated loan loss provisions would be higher than
previously indicated. In addition, the Corporation disclosed that it would
report a substantial net loss for the fourth quarter of 2002 and would post
minimal, if any, net income for the twelve months ended December 31, 2002. Also
included in this Report were anticipated net charge-offs for 2002.

ITEM 14.          CONTROLS AND PROCEDURES

a. Evaluation of disclosure controls and procedures. The Corporation maintains
disclosure controls and procedures designed to ensure that information required
to be disclosed in the reports that the Corporation files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time period specified in the rules and forms of the Securities and
Exchange Commission. Based upon their evaluation of those controls and
procedures performed within 90 days of the filing date of this report, the chief
executive and chief financial officers of the Corporation concluded that the
Corporation's disclosure controls and procedures were adequate.

b. Changes in internal controls. Subsequent to the date of the evaluation of the
Corporation's disclosure controls and procedures by the chief executive and
chief financial officers of the Corporation, there have been no significant
changes in the Corporation's internal controls or in other factors that could
significantly affect the Corporation's disclosure controls and procedures,
including any corrective actions with regard to significant deficiencies and
material weaknesses. However, the Corporation has made and continues to make
various substantial changes to internal controls with regard to loan
administration and loan underwriting subsequent to the date of the evaluation of
disclosure controls by the chief executive and chief financial officers. Please
refer to "Material Conditions Affecting the Corporation and Its Performance" in
Item 6, "Management's Discussion and Analysis of Financial Condition or Plan of
Operation", for additional information regarding loan underwriting, loan
administration and internal control deficiencies and corrective actions.

                                       35

<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

NORTH BANCORP, INC.

/s/ John R. Kluck
---------------------------
John R. Kluck
President and Chief Executive Officer

Dated:   March 28, 2003

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated. Each director of the Corporation, whose signature
appears below, hereby appoints John R. Kluck and William A. Kirsten, and each of
them severally, as his attorney-in-fact, to sign in his name and on his behalf,
as a director of the Corporation, and to file with the Commission any and all
Amendments to this Report on Form 10-KSB.

/s/ John R. Kluck                                 /s/ William A. Kirsten
-----------------------------------------------   ------------------------------
John R. Kluck                                     William A. Kirsten
President, Chief Executive Officer and Director   Senior Vice President and
Dated: March 28, 2003                             Chief Financial Officer
                                                  Dated: March 28, 2003

/s/ Matthew H. Nowicki                            /s/ Fred T. Burns
-----------------------------------------------   ------------------------------
Matthew H. Nowicki, Director                      Fred T. Burns, Director
Dated: March 28, 2003                             Dated: March 28, 2003

/s/ Timothy W. Freeman                            /s/ Keith Hardin Gornick
-----------------------------------------------   ------------------------------
Timothy W. Freeman, Director                      Keith Hardin Gornick, Director
Dated: March 28, 2003                             Dated: March 28, 2003

/s/ Larry B. Higgins                              /s/ Douglas C. Johnson
-----------------------------------------------   ------------------------------
Larry B. Higgins, Director                        Douglas C. Johnson, Director
Dated: March 28, 2003                             Dated: March 28, 2003

/s/ Kellie A. Puroll
-----------------------------------------------
Kellie A. Puroll, Director
Dated: March 31, 2003

                                       36

<PAGE>

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John R. Kluck, certify that:

1. I have reviewed this annual report on Form 10-KSB of North 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-14 and 15d-14) for the registrant and have:

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

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

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

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

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

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

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

Date: March 28, 2003

                                  /s/ John R. Kluck
                                  ----------------------------------------------

                                             By: John R. Kluck

                                             President & Chief Executive Officer

                                       37

<PAGE>

     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William A. Kirsten, certify that:

1. I have reviewed this annual report on Form 10-KSB of North 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-14 and 15d-14) for the registrant and have:

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

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

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

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

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

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

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

Date: March 28, 2003

                             /s/ William A. Kirsten
                             ---------------------------------------------------

                                 By: William A. Kirsten

                                 Senior Vice President & Chief Financial Officer

                                       38
<PAGE>

                                  EXHIBIT INDEX

Number   Exhibit

3(i)     Articles of Incorporation, as amended, incorporated herein by reference
         to exhibit 2(a) of the Registrant's Amendment No. 1 to Form 10-SB dated
         August 20, 2001.

3(ii)    Bylaws, as amended, incorporated herein by reference to exhibit 3(ii)
         of the Registrant's Quarterly Report on Form 10-QSB for the quarter
         ended September 30, 2001.

10.1     Executive Salary Continuation Agreement dated August 21, 1997 between
         First National Bank of Gaylord and John R. Kluck, incorporated herein
         by reference to exhibit 6(a) of the Registrant's Amendment No. 1 to
         Form 10-SB dated August 20, 2001.

10.2     Master Revolving Note dated July 31, 2002 made by North Bancorp, Inc.
         in favor of Comerica Bank.

10.3     Executive Salary Continuation Agreement dated June 10, 2002 between
         First National Bank of Gaylord and William A. Kirsten, incorporated
         herein by reference to exhibit 10.3 of the Registrant's Quarterly
         Report on Form 10-QSB for the quarter ended June 30, 2002.

10.4     Executive Salary Continuation Agreement dated June 10, 2002 between
         First National Bank of Gaylord and Katherine L. Taskey, incorporated
         herein by reference to exhibit 10.3 of the Registrant's Quarterly
         Report on Form 10-QSB for the quarter ended June 30, 2002.

10.5     Agreement Made as of August 23, 2002 Between First National Bank of
         Gaylord and Fred T. Burns, incorporated herein by reference to exhibit
         10.5 of the Registrant's Quarterly Report on Form 10-QSB for the
         quarter ended September 30, 2002.

10.6     Agreement Made as of August 23, 2002 Between First National Bank of
         Gaylord and Keith H. Gornick, incorporated herein by reference to
         exhibit 10.6 of the Registrant's Quarterly Report on Form 10-QSB for
         the quarter ended September 30, 2002.

10.7     Agreement Made as of August 23, 2002 Between First National Bank of
         Gaylord and Larry B. Higgins, incorporated herein by reference to
         exhibit 10.7 of the Registrant's Quarterly Report on Form 10-QSB for
         the quarter ended September 30, 2002.

10.8     Agreement Made as of August 23, 2002 Between First National Bank of
         Gaylord and Douglas C. Johnson, incorporated herein by reference to
         exhibit 10.8 of the Registrant's Quarterly Report on Form 10-QSB for
         the quarter ended September 30, 2002.

10.9     Agreement Made as of August 23, 2002 Between First National Bank of
         Gaylord and John R. Kluck, incorporated herein by reference to exhibit
         10.9 of the Registrant's Quarterly Report on Form 10-QSB for the
         quarter ended September 30, 2002.

10.10    Agreement Made as of August 23, 2002 Between First National Bank of
         Gaylord and Matthew H. Nowicki, incorporated herein by reference to
         exhibit 10.10 of the Registrant's Quarterly Report on Form 10-QSB for
         the quarter ended September 30, 2002.

99       Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
         2002.

                                       39

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                                   INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                              <C>
REPORT LETTER                                                                    F-2

CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated Balance Sheet                                                   F-3

    Consolidated Statement of Income                                             F-5

    Consolidated Statement of Changes in Stockholders' Equity                    F-7

    Consolidated Statement of Cash Flows                                         F-9

    Notes to Consolidated Financial Statements                                   F-11
</TABLE>

                                       F-1

<PAGE>

                          Independent Auditor's Report

Stockholders and Board of Directors
North Bancorp, Inc. and Subsidiaries
Gaylord, Michigan

We have audited the accompanying consolidated balance sheet of North Bancorp,
Inc. and Subsidiaries as of December 31, 2002 and 2001 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each year in the three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of the Corporation'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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
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 North Bancorp, Inc.
and Subsidiaries as of December 31, 2002 and 2001 and the consolidated results
of its operations and its cash flows each year in the three-year period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America.

                                              /s/ Plante & Moran, PLLC

Kalamazoo, Michigan
March 26, 2003

                                       F-2

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET
                                           (000S OMITTED, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                      December 31
                                                                                      -----------
                                                                                2002               2001
                                                                                ----               ----
<S>                                                                           <C>                <C>
                                                ASSETS
CASH AND CASH EQUIVALENTS:
     Cash and due from banks                                                  $  4,888           $  5,849
     Federal funds sold                                                          3,404              1,383
                                                                              --------           --------
                    Total cash and cash equivalents                              8,292              7,232

INTEREST-BEARING DEPOSITS IN BANKS                                               2,671                  -
SECURITIES AVAILABLE FOR SALE (Note 2)                                          21,905             16,363
SECURITIES HELD TO MATURITY (Note 2)                                             1,992              1,042
OTHER SECURITIES (Note 2)                                                        2,520              2,334

LOANS (Note 3)                                                                 172,089            157,106

     Less allowance for loan losses (Note 4)                                     4,512              1,228
                                                                              --------           --------
                    Net loans                                                  167,577            155,878

BANK PREMISES AND EQUIPMENT - Net (Note 6)                                       2,586              2,374
ACCRUED INTEREST RECEIVABLE                                                      1,275              1,179
OTHER ASSETS (Notes 5, 11 and 14)                                                3,054              1,398
                                                                              --------           --------

                    Total assets                                              $211,872           $187,800
                                                                              ========           ========
</TABLE>

                                       F-3

<PAGE>
NORTH BANCORP, INC. AND SUBSIDIARIES

<TABLE>
<S>                                                                           <C>                <C>
                                  LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
     Deposits:
          Noninterest-bearing                                                 $ 16,484           $ 17,964
          Interest-bearing (Note 7)                                            145,746            118,654
                                                                              --------           --------
                    Total deposits                                             162,230            136,618

     Short-term borrowings (Note 8)                                                  -              2,139
     Notes payable (Note 9)                                                     34,906             37,132
     Guaranteed preferred beneficial interest in
          subordinated debentures (Note 10)                                      5,000                  -
     Other liabilities (Note 14)                                                   295              1,113
                                                                              --------           --------

                    Total liabilities                                          202,431            177,002

STOCKHOLDERS' EQUITY (Notes 17 and 18)
     Common stock, $1 par value:
          Authorized - 3,000,000 at December 31, 2002 and 2001
          Issued and outstanding - 525,896 at December 31, 2002 and
               525,295 at December 31, 2001                                        526                525

     Additional paid-in capital                                                  6,009              5,996
     Retained earnings                                                           2,565              4,150
     Accumulated other comprehensive income                                        341                127
                                                                              --------           --------

                    Total stockholders' equity                                   9,441             10,798
                                                                              --------           --------

                    Total liabilities and stockholders'
                         equity                                               $211,872           $187,800
                                                                              ========           ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       F-4

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                                CONSOLIDATED STATEMENT OF INCOME
                                           (000S OMITTED, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31
                                                                                           ----------------------
                                                                                2002               2001              2000
                                                                                ----               ----              ----
<S>                                                                           <C>                <C>               <C>
INTEREST INCOME
     Interest and fees on loans                                               $ 14,081           $ 12,590          $  8,889
     Investment securities:
          Taxable                                                                  899                814               740
          Tax-exempt                                                               197                 99                75
     Federal funds sold                                                             81                 18                 8
                                                                              --------           --------          --------
                    Total interest income                                       15,258             13,521             9,712

INTEREST EXPENSE
     Deposits                                                                    5,577              4,722             3,121
     Borrowings                                                                  2,143              2,446             1,936
     Subordinated debentures                                                       167                  -                 -
                                                                              --------           --------          --------

                    Total interest expense                                       7,887              7,168             5,057
                                                                              --------           --------          --------

NET INTEREST INCOME                                                              7,371              6,353             4,655

PROVISION FOR LOAN LOSSES (Note 4)                                               5,337                886               523
                                                                              --------           --------          --------

NET INTEREST INCOME AFTER
     PROVISION FOR LOAN LOSSES                                                   2,034              5,467             4,132

NONINTEREST INCOME
     Service charges on deposit accounts                                           558                447               450
     Loan servicing fees
</TABLE>

See Notes to Consolidated Financial Statements.

                                       F-5

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

<TABLE>
<S>                                                                           <C>                <C>               <C>
                                                                                    93                 54                39

     Gain on sale of real estate mortgages
          originated for sale                                                      960                517               105
     Gain on sale of available for
           sale securities                                                           -                 36                 -
     Other income                                                                  348                278               302
                                                                              --------           --------          --------

                    Total noninterest income                                     1,959              1,332               896

NONINTEREST EXPENSES
     Salaries, wages and benefits
          (Notes 13, 14, and 15)                                                 2,738              2,197             1,711
     Occupancy expense                                                             267                185               179
     Equipment and data processing expense                                         580                412               311
     Advertising and public relations                                              187                136               108
     Professional fees                                                             432                260                96
     Office supplies and postage                                                   233                206               131
     Other expenses                                                              1,734              1,290               843
                                                                              --------           --------          --------

                    Total noninterest expenses                                   6,171              4,686             3,379
                                                                              --------           --------          --------

INCOME (LOSS) - Before income taxes                                             (2,178)             2,113             1,649

FEDERAL INCOME TAX EXPENSE (BENEFIT) (Note 11)                                    (803)               697               534
                                                                              --------           --------          --------

NET INCOME (LOSS)                                                             $ (1,375)          $  1,416          $  1,115
                                                                              ========           ========          ========

BASIC EARNINGS (LOSS) PER SHARE                                               $  (2.62)          $   3.12          $   3.57
                                                                              ========           ========          ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       F-6

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                           (000S OMITTED, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                        Additional                       Other          Total
                                                Number of    Common       Paid-In        Retained    Comprehensive  Stock holders
                                                 Shares      Stock        Capital        Earnings        Income         Equity
                                               ----------    -----      ----------       ---------   -------------  -------------
<S>                                            <C>           <C>        <C>              <C>         <C>            <C>
                                                  123,991    $ 124        $  2,349       $   2,106     $    (123)     $  4,456
BALANCE - January 1, 2000

Net income                                                       -               -           1,115             -         1,115

Change in net unrealized gain on
    securities available for sale,
    net of tax                                                   -               -               -           180           180
                                                                                                                      --------
        Total comprehensive income                                                                                       1,295

Cash dividend ($0.33 per share) (I)                              -               -            (103)            -          (103)

5-for-4 stock split declared March 24,             30,998       31               -             (31)            -             -
 2000

Stock redemption of fractional shares                (154)       -               -              (6)            -            (6)

2-for-1 stock split declared June 23, 2000        154,835      155               -            (155)            -             -

Issuance of common stock, net of
    offering expenses of $42                       19,337       19             326               -             -           345
                                               ----------     ----        --------       ---------     ---------      --------

BALANCE - December 31, 2000                       329,007      329           2,675           2,926            57         5,987

Net income                                                                                   1,416                       1,416

Change in net unrealized gain on
    securities available for sale,
    net of tax                                                   -               -               -            70            70
                                                              ----        --------       ---------     ---------      --------
        Total comprehensive income                                                                                       1,486
</TABLE>

See Notes to Consolidated Financial Statements.

                                       F-7

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

<TABLE>
<S>                                            <C>            <C>         <C>            <C>           <C>            <C>
Cash dividend ($ 0.40 per share)                                 -               -            (192)            -          (192)

Issuance of common stock,
    net of offering expenses of $409              196,288      196           3,321               -             -         3,517
                                               ----------     ----        --------       ---------     ---------      --------

BALANCE - December 31, 2001                       525,295      525           5,996           4,150           127        10,798

Net loss                                                                                    (1,375)                     (1,375)

Change in net unrealized gain on
    securities available for sale,
    net of tax                                                   -               -               -           214           214
                                                                                                                      --------

        Total comprehensive loss                                                                                        (1,161)

Cash dividend ($ 0.40 per share)                                 -               -            (210)            -          (210)

Issuance of common stock                              601        1              13               -             -            14
                                               ----------     ----        --------       ---------     ---------      --------

BALANCE - December 31, 2002                       525,896     $526        $  6,009       $   2,565     $     341      $  9,441
                                               ==========     ====        ========       =========     =========      ========
</TABLE>

 (1) Adjusted for the 5-for-4 stock split declared March 24, 2000 and the
2-for-1 stock split declared June 23, 2000.

See Notes to Consolidated Financial Statements.

                                       F-8

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                  (000S OMITTED)

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31
                                                                                      ----------------------
                                                                                2002           2001           2000
                                                                                ----           ----           ----
<S>                                                                           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                          $ (1,375)      $  1,416       $  1,115
   Adjustments to reconcile net income (loss) to net
     cash from operating activities:
        Depreciation                                                               250            237            178
        Provision for loan losses                                                5,337            886            523
        Deferred federal income taxes                                             (937)            22              3
        Amortization of securities - Net                                           223             55             40
        Gain on sale of securities available for sale                                -            (36)             -
        Gain (loss) on sale of premises and equipment                                -             19             (1)
        Accrued interest receivable and other assets                              (815)          (652)          (577)
        Accrued interest payable and other liabilities                            (926)          (311)           (22)
                                                                              --------       --------       --------

               Net cash provided by operating activities                         1,757          1,636          1,259

CASH FLOWS FROM INVESTING ACTIVITIES
   Net change in interest bearing deposit in banks                              (2,671)             -              -
   Purchases of securities available for sale                                  (11,416)       (14,888)        (1,696)
   Proceeds from maturities of securities available for sale                     5,978          6,376            818
   Proceeds from sale of securities available for sale                               -          2,667              -
   Purchases of securities held to maturity                                     (1,400)          (300)        (1,300)
   Proceeds from maturities of securities held to maturity                         445          2,206            742
</TABLE>

See Notes to Consolidated Financial Statements.

                                       F-9

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

<TABLE>
<S>                                                                           <C>            <C>            <C>
   Purchases of other securities                                                  (186)          (310)          (875)
   Net increase in loans                                                       (17,036)       (46,571)       (39,125)
   Purchases of premises and equipment                                            (462)          (883)          (485)
   Proceeds from sale of premises and equipment                                      -             47              1
                                                                              --------       --------       --------

               Net cash used in investing activities                           (26,748)       (51,656)       (41,920)

CASH FLOWS FROM FINANCING ACTIVITIES

   Net increase in deposits                                                     25,612         50,966         21,513
   Net change in short-term borrowings                                          (2,139)        (4,310)         1,549
   Proceeds from notes payable                                                  14,275         16,961         27,012
   Repayment of notes payable                                                  (16,501)       (13,632)        (9,864)
   Proceeds from issuance of subordinated debentures                             5,000              -              -
   Dividends paid to stockholders                                                (210)           (192)          (103)
   Stock redemption                                                                  -              -             (6)
   Proceeds from issuance of common stock,
      net of offering expenses                                                      14          3,517            345
                                                                              --------       --------       --------

               Net cash provided by financing activities                        26,051         53,310         40,446
                                                                              --------       --------       --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             1,060          3,290           (215)

CASH AND CASH EQUIVALENTS - Beginning of year                                    7,232          3,942          4,157
                                                                              --------       --------       --------

CASH AND CASH EQUIVALENTS - End of year                                       $  8,292       $  7,232       $  3,942
                                                                              ========       ========       ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash paid during the year:
     Interest                                                                 $  7,816       $  7,138       $  4,891
                                                                              ========       ========       ========
     Federal income taxes                                                     $    554       $    750       $    715
                                                                              ========       ========       ========

</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-10

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

<TABLE>
<S>                                                                           <C>            <C>            <C>
     Federal income taxes                                                     $    554       $    750       $    715
                                                                              ========       ========       ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-11

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION AND CONSOLIDATION - The consolidated financial
         statements include the accounts of North Bancorp, Inc. and its
         wholly-owned subsidiaries, First National Bank of Gaylord (the Bank),
         Gaylord Partners, Limited Partnership (the "Partnership"), and First of
         Gaylord Financial Services, Inc., collectively referred to as the
         "Corporation". All significant inter-company transactions and accounts
         have been eliminated in consolidation.

         USE OF ESTIMATES - The accounting and reporting policies of the
         Corporation and its subsidiaries conform to generally accepted
         accounting principles. Management is required to make estimates and
         assumptions that affect the amounts reported in the financial
         statements and accompanying notes. Actual results could differ from
         these estimates and assumptions. Material estimates that are
         particularly susceptible to significant change in the near term relate
         to the determination of the allowance for loan losses and deferred tax
         assets.

         NATURE OF OPERATIONS - First National Bank of Gaylord is engaged in the
         business of commercial and retail banking. The Bank offers a variety of
         deposit products, including checking accounts, savings accounts, time
         deposits and short-term deposits. The Bank conducts lending activities
         in the residential and commercial mortgage markets, in the general
         commercial market and in the consumer installment marketplace, and in
         2002, the Bank opened a branch office in Houghton Lake. Substantially
         all loans are secured by business or personal assets. These financial
         services and products are delivered through its main office and one
         branch office and located in Gaylord, Michigan in Otsego County.

                                      F-11

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

         First of Gaylord Financial Services, Inc., is an investment held to
         provide insurance services for the Bank.

         Gaylord Partners, Limited Partnership, was formed in 2002 to issue
         guaranteed preferred beneficial interests in junior subordinated
         debentures.

         SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - Most of the
         Corporation's activities are with customers located within Michigan.
         Note 2 discusses the types of securities the Corporation invests in.
         Note 3 discusses the types of lending that the Corporation engages in.
         The Corporation does not have any significant concentrations in any one
         industry or customer.

         CASH AND CASH EQUIVALENTS - For the purpose of the consolidated
         statements of cash flows, cash and cash equivalents include cash and
         balances due from banks and federal funds sold, all of which mature
         within 90 days.

                                      F-12

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED)

         INTEREST-BEARING DEPOSITS IN BANKS - Interest-bearing deposits in banks
         mature within one year and are carried at cost.

         SECURITIES - Debt securities that management has the positive intent
         and ability to hold to maturity are classified as "held to maturity"
         and recorded at amortized cost. Securities not classified as held to
         maturity, including equity securities with readily determinable fair
         values, are classified as "available for sale" and recorded at fair
         value, with unrealized gains and losses excluded from earnings and
         reported in other comprehensive income.

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

         LOANS - The Corporation grants mortgage, commercial and consumer loans
         to customers. Loans are reported at their outstanding unpaid principal
         balances adjusted for charge-offs, the allowance for loan losses and
         any deferred fees or costs on originated loans. Interest income is
         accrued on the unpaid principal balance. Loan origination fees, net of
         certain direct origination costs, are deferred and recognized as an
         adjustment of the related loan yield using the straight-line method.

         The accrual of interest on loans is discontinued at the time the loan
         is 90 days delinquent unless the credit is well secured and in process
         of collection. In all cases, loans are placed on nonaccrual or charged
         off

                                      F-13

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

         at an earlier date if collection of principal or interest is considered
         doubtful.

         All interest accrued, but not collected, for loans that are placed on
         nonaccrual or charged off is reversed against interest income. The
         interest on these loans is accounted for on the cash-basis or
         cost-recovery method, until qualifying for return to accrual. Loans are
         returned to accrual status when all the principal and interest amounts
         contractually due are brought current and future payments are
         reasonably assured.

                                      F-14

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is
         established as losses are estimated to have occurred through a
         provision for loan losses charged to earnings. Loan losses are charged
         against the allowance when management believes the uncollectibility of
         a loan balance is confirmed. Subsequent recoveries, if any, are
         credited to the allowance.

         The allowance for loan losses is evaluated on a regular basis by
         management and is based upon management's periodic review of the
         collectibility of the loans in light of historical experience, the
         nature and volume of the loan portfolio, adverse situations that may
         affect the borrower's ability to repay, estimated value of any
         underlying collateral and prevailing economic conditions. This
         evaluation is inherently subjective, as it requires estimates that are
         susceptible to significant revision as more information becomes
         available.

         A loan is considered impaired when, based on current information and
         events, it is probable that the Corporation will be unable to collect
         the scheduled payments of principal or interest when due according to
         the contractual terms of the loan agreement. Factors considered by
         management in determining impairment include payment status, collateral
         value and the probability of collecting scheduled principal and
         interest payments when due. Loans that experience insignificant payment
         delays and payment shortfalls generally are not classified as impaired.
         Management determines the significance of payment delays and payment
         shortfalls on a case-by-case basis, taking into consideration all of
         the circumstances surrounding the loan and the borrower including
         length of the delay, the reasons for the delay, the borrower's prior
         payment record and the amount of the shortfall in relation to the
         principal and interest owed. Impairment is measured on a loan by loan
         basis for

                                      F-15

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

         commercial and construction loans by either the present value of
         expected future cash flows discounted at the loan's effective interest
         rate, the loan's obtainable market price or the fair value of the
         collateral, if the loan is collateral dependent.

         Large groups of homogeneous loans are collectively evaluated for
         impairment. Accordingly, the Corporation does not separately identify
         individual consumer and residential loans for impairment disclosures.

                                      F-16

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         SERVICING - Servicing assets are recognized as separate assets when
         rights are acquired through purchase or through sale of financial
         assets. Capitalized servicing rights are reported in other assets and
         are amortized into noninterest expense in proportion to, and over the
         period of, the estimated future net servicing income of the underlying
         financial assets. Servicing assets are evaluated for impairment based
         upon the fair value of the rights as compared to amortized cost.
         Impairment is determined by stratifying rights by predominant
         characteristics, such as interest rates and terms. Fair value is
         determined using prices for similar assets with similar
         characteristics, when available, or based upon discounted cash flows
         using market-based assumptions. Impairment is recognized through a
         valuation allowance for an individual stratum, to the extent that fair
         value is less than the capitalized amount for the stratum.

         CREDIT RELATED FINANCIAL INSTRUMENTS - In the ordinary course of
         business, the Corporation has entered into commitments to extend
         credit, including commitments under commercial letters of credit and
         standby letters of credit. Such financial instruments are recorded when
         they are funded.

         PREMISES AND EQUIPMENT - Land is carried at cost. Bank premises and
         equipment are stated at cost, less accumulated depreciation.
         Depreciation, computed on the straight-line method, is charged to
         operations over the estimated useful lives of the assets.

         INCOME TAXES - Deferred income tax assets and liabilities are
         determined using the liability (or balance sheet) method. Under this
         method, the net deferred tax asset or liability is determined based on
         the tax effects of the various temporary differences between the book
         and tax bases of the various balance sheet assets and liabilities and
         gives current recognition to changes in tax rates and laws.

                                      F-17

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

         POSTRETIREMENT BENEFITS - Postretirement benefits are recognized in the
         financial statements as earned over the employee's active service
         period.

         EARNINGS PER SHARE - Earnings per share are based on the weighted
         average number of shares outstanding during each period. The calculated
         earnings per share and weighted average number of shares have been
         retroactively adjusted to consider the impact of the stock splits.
         Weighted average number of shares outstanding totaled 525,545, 454,486,
         and 312,157 for the years ended December 31, 2002, 2001 and 2000,
         respectively. The Corporation does not have any dilutive stock plans;
         therefore, basic and dilutive earnings per share are the same.

                                      F-18

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         COMPREHENSIVE INCOME - Accounting principles generally require that
         recognized revenue, expenses, gains and losses be included in net
         income. Although certain changes in assets and liabilities, such as
         unrealized gains and losses on available for sale securities, are
         reported as a separate component of the equity section of the balance
         sheet, such items, along with net income, are components of
         comprehensive income.

         The components of other comprehensive income and related tax effects
         are as follows (000s omitted):

<TABLE>
<CAPTION>
                                             2002      2001      2000
                                             ----      ----      ----
<S>                                         <C>       <C>       <C>
Unrealized holding gains on
   available for sale securities            $  324    $  142    $  273
Reclassification adjustment for gains
   realized in income                            -        36         -
                                            ------    ------    ------

Net unrealized gains                           324       106       273

Tax effect                                     110        36        93
                                            ------    ------    ------
Net-of-tax amount                           $  214    $   70    $  180
                                            ======    ======    ======
</TABLE>

         RECLASSIFICATION - Certain amounts from prior years have been
         reclassified to conform to the current year presentation.

                                      F-19

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 2 - SECURITIES

         The amortized cost and estimated fair market values of securities are
         as follows at December 31, 2002 and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                                                2002
                                                                ----
                                                      Gross             Gross
                                   Amortized        Unrealized        Unrealized
                                     Cost             Gains             Losses        Fair Value
                                   ---------        ----------        ----------      ----------
<S>                                <C>              <C>               <C>             <C>
Securities available for sale :
  U.S. treasury notes              $   4,001        $       99        $        -      $    4,100
  Obligations of other U.S.
   government agencies                 7,278               172                 -           7,450
  Obligations of states and
   political subdivisions              5,341               147                13           5,475
  Mortgage-backed securities           3,187                92                 2           3,277
  Corporate                            1,581                22                 -           1,603
                                   ---------        ----------        ----------      ----------

     Total securities
      available for sale           $  21,388        $      532        $       15      $   21,905
                                   =========        ==========        ==========      ==========

Securities held to maturity:
  Obligations of states and
   political subdivisions          $   1,742        $       17        $        -      $    1,759
  Corporate                              250                 3                 -             253
                                   ---------        ----------        ----------      ----------

     Total securities
      held to maturity             $   1,992        $       20        $        -      $    2,012
                                   =========        ==========        ==========      ==========
</TABLE>

                                      F-20

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                2001
                                                                ----
                                                      Gross             Gross
                                   Amortized        Unrealized        Unrealized
                                     Cost             Gains             Losses        Fair Value
                                   ---------        ----------        ----------      ----------
<S>                                <C>              <C>               <C>             <C>
Securities available for sale :
   U.S. treasury notes             $   5,266        $      106        $        5      $    5,367
   Obligations of other U.S.
     government agencies               3,721                64                 -           3,785
   Obligations of states and
     political subdivisions            3,918                21                 5           3,934
   Mortgage-backed securities          1,652                12                 6           1,658
   Corporate                           1,613                10                 4           1,619
                                   ---------        ----------        ----------      ----------

       Total securities
          available for sale       $  16,170        $      213        $       20      $   16,363
                                   =========        ==========        ==========      ==========

Securities held to maturity:
   Obligation of states and
     political subdivisions        $   1,042        $       15        $        1      $    1,056
                                   =========        ==========        ==========      ==========
</TABLE>

                                      F-21

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 2 - SECURITIES (CONTINUED)

         The amortized cost and estimated market values of securities at
         December 31, 2002, by contractual maturity, are shown below. Expected
         maturities will differ from contractual maturities because issuers may
         have the right to call or prepay obligations with or without call or
         prepayment penalties (000s omitted).

<TABLE>
<CAPTION>
                                      Available for Sale                       Held to Maturity
                                      ------------------                       ----------------
                              Amortized Cost        Fair Value       Amortized Cost       Fair Value
                             ---------------        ----------       --------------       ----------
<S>                          <C>                    <C>              <C>                  <C>
Due in one year or less      $         6,984        $    7,071       $        1,531       $    1,539
Due after one year
    through five years                 9,306             9,553                  211              220
Due after five years
    through ten years                  1,911             2,004                  250              253
                             ---------------        ----------       --------------       ----------

          Total                       18,201            18,628                1,992            2,012

Mortgage-backed
 securities                            3,187             3,277                    -                -
                             ---------------        ----------       --------------       ----------

          Total              $        21,388        $   21,905       $        1,992       $    2,012
                             ===============        ==========       ==============       ==========
</TABLE>

         Securities with a carrying value of $8,565,000 and $6,877,000 (market
         value of $8,790,000 and $7,024,000) were pledged at December 31, 2002
         and 2001, respectively, to secure borrowings from the Federal Home Loan
         Bank.

                                      F-22

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

         Other securities consist of restricted Federal Home Loan Bank of
         Indianapolis and Federal Reserve Bank of Chicago stock. These
         securities are carried at cost, which approximates market.

         Following is a summary of the sales of securities available for sale
         for the years ended December 31, 2002, 2001 and 2000 (000s omitted):

<TABLE>
<CAPTION>
                                             2002      2001      2000
                                             ----     ----      ----
<S>                                          <C>      <C>       <C>
Gross proceeds                               $  -     $2,667    $  -
Gross gains                                     -         36       -
Gross losses                                    -          -       -
Applicable income tax provision                 -         12       -
</TABLE>

                                      F-23

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 3 - LOANS

         Major categories of loans in the portfolio are as follows at December
         31, 2002 and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                              2002               2001
                                              ----               ----
<S>                                         <C>                <C>
Mortgage loans on real estate:
   Residential 1-4 family                   $ 57,709           $ 54,694
   Construction                               16,437             12,434
   Second mortgages                            2,339              4,166
   Equity lines of credit                      1,958              1,505
   Commercial                                 37,187             28,635

Commercial loans                              19,515             15,494

Consumer installment loans:

   Direct

        Automobile loans                       7,474              8,075
        Recreational vehicles                  3,243              3,397
        Home equity closed end                 7,322              5,090
        Unsecured                              1,594              1,927
        Equipment loans                        1,226              1,353
</TABLE>

                                      F-24

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

<TABLE>
<S>                                         <C>                <C>
      Other                                    1,464              1,198
      Mobile homes                             1,013                967
Indirect
      Automobile loans                         8,388             11,533
      Recreational vehicles                    4,824              6,283
Personal lines of credit                         396                355
                                            --------           --------

                Total loans                 $172,089           $157,106
                                            ========           ========
</TABLE>

         Certain directors and executive officers of the Corporation, including
         their associates, were loan customers of the subsidiary bank during
         2002 and 2001. Management believes such loans were made in the ordinary
         course of business and do not involve more than a normal risk of
         collectibility. The outstanding loan balances for these individuals at
         December 31, 2002 and 2001 amounted to $2,909,000 and $1,482,000,
         respectively. During 2002, $227,000 of loans were added to the related
         party loans due to the addition of two new directors, $5,861,000 of new
         loans were made and repayment totaled $4,661,000. The total unused
         commitments for these loans were $293,000 at December 31, 2002.


                                      F-25
<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

         Changes in the allowance for loan losses were as follows (000s
         omitted):

<TABLE>
<CAPTION>
                                              2002          2001          2000
                                            --------      --------      --------
<S>                                         <C>           <C>           <C>
Balance - Beginning of year                 $ 1,228       $   843       $   580

Provision charged to
 operations                                   5,337           886           523

Loans charged off                            (2,203)         (601)         (332)

Recoveries of loans charged off                 150           100            72
                                            -------       -------       -------

Balance - End of year                       $ 4,512       $ 1,228       $   843
                                            =======       =======       =======
</TABLE>

         The following is a summary of information pertaining to impaired loans
         (000s omitted):

<TABLE>
<CAPTION>
                                              2002          2001          2000
                                            --------      --------      --------
<S>                                         <C>           <C>           <C>
As of December 31:

Recorded investment in impaired
   loans for which there is a related
   allowance for loan losses                $ 2,009        $ 442          $ 39

Recorded investment in impaired
   loans for which there is no related
   allowance for loan losses                      -           95            18
                                            -------        -----          ----
</TABLE>

                                      F-26

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
<S>                                         <C>            <C>            <C>
Recorded investment in impaired loans       $ 2,009        $ 537          $ 57
                                            =======        =====          ====

Valuation allowance related to
   impaired loans                           $   668        $ 163          $ 20
                                            =======        =====          ====

For the year ended December 31:

Average recorded investment

   in impaired loans during the year        $   714        $ 132          $ 68
                                            =======        =====          ====

Interest income recognized during the
   time the loans were impaired             $     2        $   -          $  -
                                            =======        =====          ====

Interest income recognized using a
   cash-basis method of accounting
   during the time the loans were
   impaired                                 $     -        $   -          $  -
                                            =======        =====          ====
</TABLE>

                                      F-27

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 5 - MORTGAGE LOAN SERVICING

         Mortgage loans serviced for Freddie Mac are not included in the
         accompanying consolidated balance sheet. The unpaid principal balances
         of loans serviced for others were $73,363,000 and $40,035,000 at
         December 31, 2002 and 2001, respectively.

         The following summarizes mortgage servicing rights capitalized and
         amortized and the asset recorded as of December 31 (000s omitted):

<TABLE>
<CAPTION>
                                              2002          2001          2000
                                             -------       ------        ------
<S>                                          <C>           <C>           <C>
Mortgage servicing rights
       Beginning of year                     $  393        $ 160         $ 124

Mortgage servicing rights capitalized           644          388            78

Servicing rights written down due
      to impairment                            (143)           -             -

Servicing rights written down due
       to prepayment and amortization          (295)        (155)          (42)
                                             ------        -----         -----

Mortgage servicing rights
        End of year                          $  599        $ 393         $ 160
                                             ======        =====         =====
</TABLE>

                                      F-28

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

         The fair value of servicing rights was determined using discount rates
         of 7.25 percent and prepayment speeds ranging from 13.64 percent to
         27.55 percent, depending on the stratification of the specific right.

                                      F-29

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 6 - BANK PREMISES AND EQUIPMENT

         Major classifications of bank premises and equipment are summarized as
         follows at December 31, 2002 and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                                                           Estimated
                                             2002          2001              Lives
                                            -------       -------         ------------
<S>                                         <C>           <C>             <C>
Land and land improvements                     842           763          10-40 years
Building and building improvements           1,614         1,194           5-40 years
Furniture and equipment                      1,932         1,604           3-20 years
                                            ------        ------

            Total                            4,388         3,561

Less accumulated depreciation               (1,802)       (1,552)
                                            ------        ------

            Net                              2,586         2,009

Construction in process                          -           365
                                            ------        ------

            Total                           $2,586        $2,374
                                            ======        ======
</TABLE>

                                      F-30

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 7 - DEPOSITS

         The following is a summary of interest-bearing deposits at December 31,
         2002 and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                              2002          2001
                                            --------      --------
<S>                                         <C>           <C>
NOW accounts                                $ 21,042      $ 14,029
Savings                                       24,912        18,773
Certificates of deposit:
      $100,000 and over                       43,371        26,714
      Under $100,000                          56,421        59,138
                                            --------      --------
        Total interest-bearing deposits     $145,746      $118,654
                                            ========      ========
</TABLE>

                                      F-31

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 7 - DEPOSITS (CONTINUED)

         At December 31, 2002, the scheduled maturities of time deposits are as
         follows (000s omitted):

<TABLE>
<S>                          <C>
2003                         $  56,186
2004                            32,891
2005                             2,605
2006                             2,717
2007                             1,806
2008 and after                   3,587
                             ---------
        Total                $  99,792
                             =========
</TABLE>

NOTE 8 - SHORT-TERM BORROWINGS

         The Corporation has a $4,000,000 line of credit available from a bank.
         Interest is calculated at the bank's prime rate less .50 percent, and
         is paid monthly. Principal is due at maturity in July 2003. The note is
         collateralized by 100 percent of the stock of First National Bank of
         Gaylord. The Corporation had no outstanding borrowings under this
         agreement at December 31, 2002 and $2,139,000 outstanding at December
         31, 2001.

                                      F-32

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

         The Corporation has a $5,000,000 line of credit for short-term
         borrowings available from the Federal Home Loan Bank of Indianapolis
         (FHLB). This line is used as a source of short-term liquidity. The
         interest is computed using a variable interest rate (1.33 percent and
         1.82 percent at December 31, 2002 and 2001, respectively) established
         by the FHLB. The Corporation has a blanket collateral agreement with
         the FHLB covering certain investment securities and certain qualifying
         residential mortgage loans owned by the Corporation. The Corporation
         had no outstanding borrowings under this agreement at December 31, 2002
         and 2001.

                                      F-33

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 9 - NOTES PAYABLE

         The Corporation has various term advances from the FHLB with fixed
         interest rates ranging from 1.55 percent to 7.55 percent at December
         31, 2002, and 3.67 percent to 7.56 percent at December 31, 2001.
         Maturity dates range from January 2003 to November 2007. Interest on
         these borrowings is payable monthly. The Corporation has a blanket
         collateral agreement with the FHLB covering certain investment
         securities and certain qualifying residential mortgage loans owned by
         the Corporation.

         Maturities of notes payable are as follows as of December 31, 2002
         (000s omitted):

<TABLE>
<S>                      <C>
2003                     $ 12,231
2004                        7,264
2005                        8,911
2006                        5,500
2007                        1,000
                         --------
        Total            $ 34,906
                         ========
</TABLE>

                                      F-34

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 10 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S
          JUNIOR SUBORDINATED DEBENTURES

          In March 2002, the Corporation formed Gaylord Partners, Limited
          Partnership (the "Partnership"), a special-purpose subsidiary of North
          Bancorp, Inc. Effective May 30, 2002, the Partnership privately placed
          $5,000,000 of preferred securities, which are reflected on the
          consolidated balance sheet as guaranteed preferred beneficial
          interests in the Corporation's junior subordinated debentures (the
          "preferred securities"). The preferred securities were sold in two
          series. Series A totaled $1,150,000 and carries a variable interest
          rate equal to one month LIBOR plus 3.60 percent. Series B totaled
          $3,850,000 and carries a variable interest rate equal to the prime
          rate, as reported on certain dates in the Wall Street Journal, Midwest
          Edition, plus 1 percent. For both Series A and Series B, the interest
          rates reprice quarterly and are not to exceed 12 percent annually.
          Distributions on the preferred securities are paid quarterly on March
          31, June 30, September 30, and December 31. The preferred securities
          mature in 2032 and are redeemable at par at any time on or after May
          31, 2007, at the option of the Corporation. The Partnership used the
          proceeds from the sale of the preferred securities to purchase junior
          subordinated deferrable interest debentures issued by the Corporation.
          The Corporation used the proceeds from the junior subordinated
          debentures for the retirement of debt and for a capital contribution
          to the Bank to support future growth. Subject to certain limitations,
          these securities qualify as Tier I capital for the Corporation.

          The debt issuance costs associated with the trust preferred securities
          totaled $241,000 and are being amortized over ten years.


                                      F-35

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 11 - INCOME TAXES

          The Corporation and its subsidiaries file a consolidated federal
          income tax return. The following is a summary of the income tax
          expense (benefit) for the years ended December 31, 2002, 2001 and 2000
          (000s omitted):

<TABLE>
<CAPTION>
                                              2002    2001    2000
                                             ------   -----   ----
<S>                                          <C>      <C>     <C>
Current expense                              $ 134    $ 675   $ 532
Deferred expense  (benefit)                   (937)      22       2
                                             -----    -----   -----

                  Income tax expense
                         (benefit)           $(803)   $ 697   $ 534
                                             =====    =====   =====
</TABLE>

                                      F-36

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 11 - INCOME TAXES (CONTINUED)

          The reasons for the differences between the income tax expense
          (benefit) at the federal statutory income tax rate and the recorded
          income tax expense (benefit) are summarized as follows (000s omitted):

<TABLE>
<CAPTION>
                                                         Years Ended December 31
                                                         -----------------------
                                                       2002       2001         2000
                                                     -------     ------      -------
<S>                                                  <C>         <C>         <C>
Income tax at federal
      statutory rate of 34%                          $ (740)     $ 718        $ 561

Decreases resulting
      from non-taxable income                           (76)       (42)         (29)

Increases resulting from
       non-deductible expense                            13         21            2
                                                     ------      -----        -----

                  Income tax expense
                         (benefit)                   $ (803)     $ 697        $  534
                                                     ======      =====        =====
</TABLE>

                                      F-37

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

          The significant components of the Corporation's deferred tax assets
          and liabilities at December 31, 2002 and 2001 are as follows (000s
          omitted):

<TABLE>
<CAPTION>
                                                                        2002       2001
                                                                      --------    ------
<S>                                                                   <C>         <C>
Deferred tax assets:
      Accrued postretirement benefit cost                             $    83     $  55
      Allowance for loan losses                                         1,320       246
      Deferred compensation                                                58        45
      Other                                                                 2         1
                                                                      -------     -----
                  Total deferred tax assets                             1,463       347

Deferred tax liabilities:
      Fixed assets                                                       (201)     (104)
      Mortgage servicing rights                                          (204)     (133)
      Net loan fees                                                      (153)     (142)
      Unrealized gain on securities available for sale                   (176)      (66)
                                                                      -------     -----
                  Total deferred tax liabilities                         (734)     (445)
                                                                      -------     -----
                  Net deferred tax assets (liabilities)               $   729     $ (98)
                                                                      =======     =====
</TABLE>

                                      F-38

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 12 - OFF BALANCE SHEET ACTIVITIES

          CREDIT RELATED FINANCIAL INSTRUMENTS - The Corporation is a party to
          credit related financial instruments with off balance sheet risk in
          the normal course of business to meet the financing need of its
          customers. These financial instruments include commitments to extend
          credit, standby letters of credit and commercial letters of credit.
          Such commitments involve, to varying degrees, elements of credit and
          interest rate risk in excess of the amount recognized in the
          consolidated balance sheets.

          The Corporation's exposure to credit loss is represented by the
          contractual amount of these commitments. The Corporation follows the
          same credit policies in making commitments as it does for balance
          sheet instruments.

          At December 31, 2002 and 2001, the following financial instruments
          were outstanding whose contract amounts represent credit risk (000s
          omitted):

<TABLE>
<CAPTION>
                                                               Contract Amount
                                                            ---------------------
                                                              2002         2001
                                                            --------     --------
<S>                                                         <C>          <C>
Commitments to grant loans                                  $ 13,761     $ 10,944
Unfunded commitments under lines of credit                     9,785        2,044
Commercial and standby letters of credit                         310          190
</TABLE>

          Commitments to extend credit are agreements to lend to a customer as
          long as there is no violation of any condition established in the
          contract. Commitments generally have fixed expiration dates or other
          termination clauses and may require

                                      F-39

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

          payment of a fee. The commitments for equity lines of credit may
          expire without being drawn upon. Therefore, the total commitment
          amounts do not necessarily represent future cash requirements. The
          amount of collateral obtained, if it is deemed necessary by the
          Corporation, is based on management's credit evaluation of the
          customer.

          Unfunded commitments under commercial lines of credit and revolving
          credit lines are commitments for possible future extensions of credit
          to existing customers. These lines of credit are collateralized and
          usually do not contain a specified maturity date and may not be drawn
          upon to the total extent to which the Corporation is committed.

                                      F-40

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 12 - OFF BALANCE SHEET ACTIVITIES (CONTINUED)

          Commercial and standby letters of credit are conditional commitments
          issued by the Corporation to guarantee the performance of a customer
          to a third party. Those letters of credit are primarily used to
          support public and private borrowing arrangements. Essentially all
          letters of credit issued have expiration dates within one year. The
          Corporation generally holds collateral supporting those commitments if
          deemed necessary.

NOTE 13 - RETIREMENT PLAN

          The Corporation has a 401(k) plan that is a defined contribution
          savings plan for employees. Employer contributions are discretionary
          and are determined by the Board of Directors. The Corporation matches
          100 percent of the participants' first 2 percent of compensation
          contributed and 50 percent of the next 3 percent of compensation
          contributed. For the years ended December 31, 2002, 2001 and 2000, the
          expense attributable to this plan was $39,000, $30,000 and $18,000,
          respectively.

NOTE 14 - DEFERRED COMPENSATION AGREEMENTS

          The Corporation has nonqualified deferred compensation agreements with
          certain officers, whereby the officers or designated beneficiaries
          will receive between $30,000 and $50,000 per year for 15 years in the
          event of retirement, disability, or death. The present value of the
          future benefits will be accrued to the full eligibility dates of the
          officers. The accrued deferred compensation benefit cost at December
          31, 2002 and 2001 corresponding to these agreements was $178,000 and
          $132,000, respectively. Expense in the amount of $46,000, $26,000 and
          $43,000 has been charged to operations for the years ended December
          31, 2002, 2001 and 2000, respectively.

                                      F-41

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

          To fund this obligation, the Corporation has purchased insurance on
          the life of the participating officers with the Corporation as the
          owner and beneficiary of the policies. The cash surrender value of the
          life insurance contracts totaled $702,000 and $446,000 at December 31,
          2002 and 2001, respectively. Income in the amount of $23,000, $18,000,
          and $12,000 has been earned and recorded for the years ended December
          31, 2002, 2001 and 2000, respectively.

                                      F-42

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 15 - POSTRETIREMENT HEALTH CARE PLAN

          The Corporation sponsors a defined benefit postretirement plan that
          provides postretirement health care benefits to certain retired
          directors, current directors and their spouses. The plan is currently
          not funded. The expected cost of providing these types of benefits is
          accrued over the years in which participants' services are provided to
          the Corporation.

          The accumulated obligation for post-retirement benefits attributable
          to active and retired directors was $243,000 and $163,000 at December
          31, 2002 and 2001, respectively. Expenses for these benefits were
          $120,000, $86,000 and $41,000 for 2002, 2001 and 2000, respectively.

NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS

          The fair value of a financial instrument is the current amount that
          would be exchanged between willing parties, other than in a forced
          liquidation. Fair value is best determined based upon quoted market
          prices. However, in many instances, there are no quoted market prices
          for the Corporation's various financial instruments. In cases where
          quoted market prices are not available, fair values are based on
          estimates using present value or other valuation techniques. Those
          techniques are significantly affected by the assumptions used,
          including the discount rate and estimates of future cash flows.
          Accordingly, the fair value estimates may not be realized in an
          immediate settlement of the instrument. The aggregate fair value
          amounts presented may not necessarily represent the underlying fair
          value of the Corporation as nonfinancial instruments are excluded.

          The following methods and assumptions were used by the Corporation in
          estimating fair value disclosures for financial instruments:

                                      F-43

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

          CASH AND CASH EQUIVALENTS - The carrying amounts of cash and
          short-term instruments approximate fair values.

          INTEREST-BEARING DEPOSITS IN BANKS - The carrying amounts of
          interest-bearing deposits maturing within 90 days approximate their
          fair values. Fair values of other interest-bearing deposits are
          estimated using discounted cash flow analysis based on current rates
          for similar types of deposits.

          SECURITIES - Fair values for securities, excluding Federal Home Loan
          Bank of Indianapolis stock and Federal Reserve Bank of Chicago stock,
          are based on quoted market prices. The carrying value of Federal Home
          Loan Bank of Indianapolis stock and Federal Reserve Bank of Chicago
          stock approximate fair value based on the redemption provisions of the
          Federal Home Loan Bank of Indianapolis and the Federal Reserve Bank of
          Chicago.

                                      F-44

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

          LOANS RECEIVABLE - For variable-rate loans that reprice frequently and
          with no significant change in credit risk, fair values are based on
          carrying values. Fair values for certain mortgage loans (e.g.,
          one-to-four family residential) and other consumer loans are based on
          quoted market prices of similar loans sold in conjunction with
          securitization transactions, adjusted for differences in loan
          characteristics.

          Fair values for other loans (e.g., commercial real estate and
          investment property mortgage loans, commercial and industrial loans)
          are estimated using discounted cash flow analyses, using interest
          rates currently being offered for loans with similar terms to
          borrowers of similar credit quality. Fair values for non-performing
          loans are estimated using discounted cash flow analyses or underlying
          collateral values, where applicable.

          DEPOSIT LIABILITIES - The fair values disclosed for demand deposits
          (e.g., interest and non-interest checking, passbook savings and
          certain types of money market accounts) are, by definition, equal to
          the amount payable on demand at the reporting date (i.e., their
          carrying amounts). The carrying amounts of variable-rate, fixed term
          money market accounts and certificates of deposit approximate their
          fair values at the reporting date. Fair values for fixed-rate
          certificates of deposit are estimated using a discounted cash flow
          calculation that applies interest rates currently being offered on
          certificates to a schedule of aggregated expected monthly maturities
          on time deposits.

          SHORT-TERM BORROWINGS - Fair values of the Corporation's short-term
          borrowings are estimated using discounted cash flow analyses based on
          the Corporation's current incremental borrowing rates for similar
          types of borrowing arrangements.

                                      F-45

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

          NOTES PAYABLE - The fair values of the Corporation's notes payable are
          estimated using discounted cash flow analyses based on the
          Corporation's current incremental borrowing rates for similar types of
          borrowing arrangements.

          GUARANTEED PREFERRED BENEFICIAL INTEREST IN SUBORDINATED DEBENTURES
          -Fair values of the Corporation's guaranteed preferred beneficial
          interest in subordinated debentures approximate fair value.

          ACCRUED INTEREST - The carrying amounts of accrued interest
          approximate fair value.

                                      F-46

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

          OFF BALANCE SHEET INSTRUMENTS - Fair values for off balance sheet,
          credit related financial instruments are based on fees currently
          charged to enter into similar agreements, taking into account the
          remaining terms of the agreements and the counterparties' credit
          standing. Fair values for off balance sheet derivative financial
          instruments, for other than trading purposes, are based upon quoted
          market prices, except in the case of certain options and swaps where
          pricing models are used.

          The estimated fair values, and related carrying or notional amounts,
          of the Corporation's financial instruments at December 31, 2002 and
          2001 are as follows (000s omitted):

<TABLE>
<CAPTION>
                                                          2002                       2001
                                                          ----                       ----
                                                  Carrying    Estimated      Carrying    Estimated
                                                  Amounts     Fair Value     Amounts     Fair Value
                                                  --------    ----------     --------    ----------
<S>                                               <C>         <C>            <C>         <C>
Financial Assets:
    Cash and cash equivalents                     $  8,292    $  8,292       $  7,232     $  7,232
    Interest-bearing deposits in banks               2,671       2,671              -            -
    Securities available for sale                   21,905      21,905         16,363       16,363
    Securities held to maturity                      1,992       2,012          1,042        1,056
    Other securities                                 2,520       2,520          2,334        2,334
    Loans - Net                                    167,577     170,433        155,878      168,123
    Accrued interest receivable                      1,275       1,275          1,179        1,179
Financial Liabilities:
    Customer deposits                              162,230     162,275        136,618      138,336
    Accrued interest payable                           442         442            371          371
    Short-term borrowings                                -           -          2,139        2,139
    Notes payable                                   34,906      36,923         37,132       39,113
Guaranteed preferred beneficial
        interest in subordinated debentures          5,000       5,000              -            -

</TABLE>

                                      F-47

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 17 - REGULATORY MATTERS

          The Corporation (on a consolidated basis) and the Bank are 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 Corporation's and the Bank's financial
          statements. Under capital adequacy guidelines and the regulatory
          framework for prompt corrective action, the Corporation and the Bank
          must meet specific capital guidelines that involve quantitative
          measures of their assets, liabilities and certain off balance sheet
          items as calculated under regulatory accounting practices. The capital
          amounts and classification are also subject to qualitative judgments
          by the regulators about components, risk weightings, and other
          factors. Prompt corrective action provisions are not applicable to
          bank holding companies.

          Quantitative measures established by regulation to ensure capital
          adequacy require the Corporation and the Bank to maintain minimum
          amounts, and ratios (set forth in the following table) of total and
          Tier 1 capital (as defined in the regulations) to risk-weighted assets
          (as defined) and of Tier 1 capital (as defined) to average assets (as
          defined). Management believes, as of December 31, 2002 and 2001, that
          the Corporation and the Bank met all capital adequacy requirements to
          which they are subject.

          As of December 31, 2002, the most recent notification from the Federal
          Deposit Insurance Corporation categorized the Bank as well capitalized
          under the regulatory framework for prompt corrective action. To be
          categorized as well capitalized, an institution must maintain minimum
          total risk-based, Tier 1 risked-based and Tier 1 leverage ratios as-
          set forth in the following tables. There are no conditions or events
          since the notification that management believes have changed the
          Bank's category. The Corporation's and the Bank's actual capital
          amounts and ratios as of December 31, 2002 and 2001 are also presented
          in the table (000s omitted).

                                      F-48

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 17 - REGULATORY MATTERS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                       Minimum Required to
                                                                                       be Well Capitalized
                                                              Minimum Required for         Under Prompt
                                                                Capital Adequacy        Corrective Action
                                                 Actual             Purposes               Provisions
                                                 ------             --------               ----------
                                           Amount    Ratio       Amount      Ratio      Amount      Ratio
                                          --------   ------     --------     -----     --------     -----
<S>                                       <C>        <C>        <C>          <C>       <C>          <C>
As of December 31, 2002:

    Total Capital
    (to Risk Weighted Assets)
    Consolidated                          $ 15,968   10.53%     $ 12,135     8.00%       N/A          N/A
    First National Bank of Gaylord          15,675   10.35%       12,115     8.00%     $ 15,144     10.00%

    Tier 1 Capital
    (to Risk Weighted Assets)
    Consolidated                          $ 12,073    7.96%     $  6,068     4.00%       N/A          N/A
    First National Bank of Gaylord          13,750    9.08%        6,057     4.00%     $  9,086      6.00%

    Tier 1 Capital
    (to Average Assets)
    Consolidated                          $ 12,073    5.80%     $  8,325     4.00%       N/A          N/A
    First National Bank of Gaylord          13,750    6.61%        8,319     4.00%     $ 10,398      5.00%

As of December 31, 2001:

    Total Capital
    (to Risk Weighted Assets)
    Consolidated                          $ 11,860    8.98%     $ 10,566     8.00%       N/A          N/A
    First National Bank of Gaylord          13,974   10.59%       10,556     8.00%     $ 13,195     10.00%

    Tier 1 Capital
    (to Risk Weighted Assets)
    Consolidated                          $ 10,632    8.05%     $  5,283     4.00%       N/A          N/A
    First National Bank of Gaylord          12,746    9.66%        5,299     4.00%     $  7,948      6.00%

    Tier 1 Capital
    (to Average Assets)
    Consolidated                          $ 10,632    6.01%     $  7,076     4.00%       N/A          N/A
    First National Bank of Gaylord          12,746    7.20%        7,081     4.00%     $  8,851      5.00%
</TABLE>

                                      F-49

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 18 - RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES

          Federal banking regulations place certain restrictions on dividends
          paid and loans or advances made by the Bank to the Corporation.

          Prior approval of the Office of the Comptroller of the Currency is
          required if the total dividends declared by the Bank in a calendar
          year exceed the sum of the current year net income and the net income
          of the Bank for the preceding two years, less any dividends already
          paid and required transfers to surplus. In addition, dividends paid by
          the Bank would be prohibited if the effect thereof would cause the
          Bank's capital to be reduced below applicable minimum standards. At
          December 31, 2002, the Bank's retained earnings available for the
          payment of dividends was $646,000. Accordingly, $13,556,000 of the
          Corporation's investment in the Bank was restricted at December 31,
          2002.

          Loans or advances made by the Bank to the Corporation are generally
          limited to 10 percent of the Bank's capital stock and surplus.
          Accordingly, at December 31, 2002, Bank funds available for loans or
          advances by the Bank to the Corporation amounted to $1,045,000. Loans
          or advances by the Bank to the Corporation are subject to significant
          regulatory requirements. No such loans were outstanding as of December
          31, 2002 and 2001.

                                      F-50

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 19 - PARENT-ONLY FINANCIAL STATEMENTS

          The following represents the condensed financial statements of North
          Bancorp, Inc., ("Parent") only. The Parent-only financial information
          should be read in conjunction with the Corporation's consolidated
          financial statements.

          The condensed balance sheet at December 31, 2002 and 2001 is as
          follows (000s omitted):

<TABLE>
<CAPTION>
                                                                          2002              2001
                                                                        --------          --------
<S>                                                                     <C>               <C>
                           ASSETS

Cash at subsidiary bank                                                 $    130          $     90

Investment in subsidiary                                                  14,202            12,912
Other                                                                        227                 4
                                                                        --------          --------
         Total assets                                                   $ 14,559          $ 13,006
                                                                        ========          ========

            LIABILITIES AND STOCKHOLDERS' EQUITY

Short-term borrowings                                                   $      -          $  2,139
Guaranteed preferred beneficial interest in
      junior subordinated debentures                                       5,051                 -
Other                                                                         67                69
Stockholders' equity                                                       9,441            10,798
                                                                        --------          --------
Total liabilities and stockholders' equity                              $ 14,559          $ 13,006
                                                                        ========          ========

</TABLE>

                                      F-51

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 19 - PARENT-ONLY FINANCIAL STATEMENTS (CONTINUED)

          The condensed statement of operations for the years ended December 31,
          2002, 2001 and 2000 is as follows (000s omitted):

<TABLE>
<CAPTION>
                                                      2002       2001      2000
                                                    -------    -------   -------
<S>                                                 <C>        <C>       <C>
Dividends from subsidiary                           $   479    $   510   $   342
Operating expense                                       317        305       199
                                                    -------    -------   -------

    Income - Before income taxes and equity
         in undistributed net income (loss)
         of subsidiary                                  162        205       143

Income tax expense                                        -          -         -
                                                    -------    -------   -------

    Income - Before equity in undistributed net
         income (loss) of subsidiary                    162        205       143

    Equity in undistributed net income (loss)
         of subsidiary                               (1,537)     1,211       972
                                                    -------    -------   -------
                Net income (loss)                   $(1,375)   $ 1,416   $ 1,115
                                                    =======    =======   =======
</TABLE>

                                      F-52

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      DECEMBER 31, 2002 AND 2001

NOTE 19 - PARENT-ONLY FINANCIAL STATEMENTS (CONTINUED)

          The condensed statement of cash flows for the years ended December 31,
          2002, 2001 and 2000 is as follows (000s omitted):

<TABLE>
<CAPTION>
                                                       2002       2001       2000
                                                     --------   --------   --------
<S>                                                  <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                 $(1,375)   $ 1,416    $ 1,115
   Adjustments to reconcile net income (loss)
       to net cash from operating activities:
         Equity in undistributed net (income) loss
           of subsidiary                               1,537     (1,211)      (972)
         Change in other assets                         (223)        75        (47)
         Change in other liabilities                      (2)       (13)        76
                                                     -------    -------    -------

              Net cash provided by
                  (used in) operating activities         (63)       267        172

CASH FLOWS FROM INVESTING ACTIVITIES
   Capital downstreamed to subsidiary                 (2,613)    (2,750)    (1,950)

CASH FLOWS FROM FINANCING ACTIVITIES
   Net change in short-term borrowings                (2,139)      (911)     1,694
   Proceeds from issuance of junior
      subordinate debentures                           5,051          -          -
   Dividends paid to stockholders                       (210)      (192)      (103)
   Stock redemption                                        -          -         (6)
   Proceeds from issuance of common stock,
      net of offering expenses                            14      3,517        345
                                                     -------    -------    -------

              Net cash provided by
                  financing activities                 2,716      2,414      1,930
                                                     -------    -------    -------

NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                                   40        (69)       152

CASH AND CASH EQUIVALENTS
   Beginning of year                                      90        159          7
                                                     -------    -------    -------

CASH AND CASH EQUIVALENTS
   End of year                                       $   130    $    90    $   159
                                                     =======    =======    =======

</TABLE>

                                      F-53