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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, 2003

                                       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)

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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
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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: $14,517,000

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 29, 2004, was $7,461,000.

As of February 28, 2004, there were 532,896 shares of Common Stock of the Issuer
issued and outstanding.

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

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TABLE OF CONTENTS

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PART I

Item 1         Description of Business                                                  2
Item 2         Description of Property                                                 13
Item 3         Legal Proceedings                                                       14
Item 4         Submission of Matters to a Vote of Security Holders                     14

PART II

Item 5         Market for Common Equity, Related Stockholder Matters, and Small
                  Business Issuer Purchases of Equity Securities                       15
Item 6         Management's Discussion and Analysis or Plan of Operation               17
Item 7         Financial Statements                                                    34
Item 8         Changes in and Disagreements with Accountants on Accounting
                 and Financial Disclosure                                              34
Item 8A        Controls and Procedures                                                 34

PART III

Item 9         Directors and Executive Officers of the Registrant                      35
Item 10        Executive Compensation                                                  36
Item 11        Security Ownership of Certain Beneficial Owners and Management, and
                  Related Stockholder Matters                                          36
Item 12        Certain Relationships and Related Transactions                          38
Item 13        Exhibits and Reports on Form 8-K                                        38
Item 14        Principal Accountant Fees and Services                                  38

Signatures                                                                             40

Exhibit Index                                                                          41

Financial Statements                                                                  F-1
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         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 ("Gaylord Partners"), 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. On March 4, 2004, the Corporation executed a definitive agreement in
which the Corporation and its wholly owned subsidiaries will be acquired by
Independent Bank Corporation. For more information, please refer to Bank
Regulatory Developments located in Item 6, "Managements Discussion and Analysis
or Plan of Operation."

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 Otsego Memorial Hospital, Gaylord
Community Schools, Cooper Standard (manufacturer), Reptron (component
manufacturer) and Georgia-Pacific (industrial wood products). 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, Gerrish 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

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that contains general and specific lending standards and is subject to review
and revision. Extension of credit is governed by this loan policy.

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 $2,269,000 at December 31, 2003,
which limits the size loan the Bank is able to offer to potential customers,
which 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.

While the Bank's policies and procedures require the various activities
mentioned above, internal loan reviews completed in 2002 and throughout 2003
noted that policies and procedures were not being consistently adhered to in
loans originated prior to 2003. This failure to follow underwriting procedures
and other deficiencies and underwriting weaknesses have resulted in subprime
consumer and mortgage portfolios that have required significant additional
internal controls and administration.

The term "subprime" refers to the credit characteristics of individual
borrowers. Subprime borrowers typically have weakened credit histories that
include payment delinquencies, and possibly more severe problems such as
charge-offs, judgments, and bankruptcies. They may also display reduced
repayment capacity as measured by credit scores, debt-to-income ratios, or other
criteria that may encompass borrowers with incomplete credit histories. Such
loans have a higher risk of default than loans to prime borrowers.

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, golf courses, 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 and internal loan review. 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

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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 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 on a limited basis following the terms and
requirements written in the loan policy.

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. The first risk is 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 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.
Residential lending is an excellent vehicle to attract new clients.

The residential construction mortgage portfolio consists of single residential
properties. Construction lending has greater inherent risk. Currently, 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. Due to the increased risk inherent in construction lending, this
type of lending was curtailed during 2003.

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, 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. Exceptions to formal underwriting guidelines and loan policies
require Senior Lending Officer or CEO approval, to ensure adequate risk
management.

The home equity loan portfolio, a significant component of the consumer loan
portfolio, consists of traditional home

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equity lines of credit prevalent in the market today and closed-end term loans.
In general, the Bank advances up to 85% on the value of a home, less the amount
of prior liens. 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.

Typically, 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. 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.

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.
The Bank no longer uses brokered funds. Additionally, any bank whose capital
status falls below well-capitalized, must apply for and receive a waiver from
the FDIC before it can accept, or renew brokered deposits.

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.

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 of Indianapolis 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.

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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.

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.

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On July 10, 2003, the Bank's Board of Directors entered into a supervisory
Agreement ("Agreement") with the Bank's primary federal regulator, the Office of
the Comptroller of the Currency ("OCC"). Please refer to "Bank Regulatory
Developments" in the "Management's Discussion and Analysis of Financial
Condition or Plan of Operation" section for additional information on the
Agreement.

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, 2003, the Bank was adequately
capitalized, which represents a change from December 31, 2002, when the Bank was
well capitalized. Bank management expects to continue to pay higher FDIC
premiums due to the Bank's overall capitalization and other regulatory factors.
FDIC premiums have increased significantly from quarterly billings in January
2003 of $6,700 to $70,000 in January 2004.

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 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

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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, 2003, the Bank was
adequately-capitalized.

An adequately capitalized bank must apply for and receive a waiver from the FDIC
before it can accept, renew or rollover brokered deposits. Such a waiver has not
been applied for to date. The Bank has no plans to apply for a waiver, but may
choose to do so, if necessary. The Bank is also limited, by regulation, to
paying rates of deposits no more than 75 basis points over the average rate of
local financial institutions.

Please refer to "Bank Regulatory Developments" within "Management's Discussion
and Analysis of Financial Condition or Plan of Operation" for additional
information regarding the Agreement and any additional capital requirements
placed on the Corporation by the regulatory body.

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.

EMPLOYEES

As of December 31, 2003, the Bank employed 71 persons (68 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.
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. By avoiding multiple lines of non-traditional products the
Bank's staff has the opportunity to develop substantial expertise. Management
believes that significant opportunities are available by providing traditional
banking services.

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, 2003, the legal lending
limit was approximately $2,269,000. One insider credit relationship is in
non-conformance with the Bank's legal lending limit, due to the performance of
the Bank and the decline in earnings and capital in 2003, and is classified. The
loan was in conformance with the legal lending limit when originated. The Bank
is taking appropriate steps to bring the loan back into conformance.

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.

                                       9

<PAGE>

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).

RECLASSIFICATION

Certain prior period amounts have been reclassified to conform with the current
period presentation.

<TABLE>
<CAPTION>
                                                                At or for the Year Ended December 31,
                                                  2003           2002           2001           2000           1999
                                                ---------      ---------      ---------      ---------      ---------
<S>                                             <C>            <C>            <C>            <C>            <C>
Selected Financial Condition Data:
    Assets                                      $ 172,557      $ 212,862      $ 187,800      $ 133,279      $  91,226
    Loans                                         118,575        172,089        157,106        111,036         71,835
    Deposits                                      135,747        162,230        136,618         85,652         64,139
    Borrowed funds                                 26,286         34,906         39,271         40,252         21,555
    Stockholders' Equity                            3,987          9,441         10,798          5,987          4,456

Selected Operations Data:
    Interest income                             $  12,106      $  15,258      $  13,521      $   9,712      $   5,871
    Interest expense                               (5,888)        (7,887)        (7,168)        (5,057)        (2,407)
                                                ---------      ---------      ---------      ---------      ---------
    Net interest income                             6,218          7,371          6,353          4,655          3,464
    Provision for loan losses                      (5,849)        (5,337)          (886)          (523)          (300)
                                                ---------      ---------      ---------      ---------      ---------
    Net interest income after provision
       for loan losses                                369          2,034          5,467          4,132          3,164
    Noninterest income                              2,411          1,959          1,332            896            808
    Noninterest expenses                           (8,037)        (6,171)        (4,686)        (3,379)        (2,801)
    Federal income tax (expense) benefit             (153)           803           (697)          (534)          (357)
                                                ---------      ---------      ---------      ---------      ---------
    Net Income (loss)                           $  (5,410)     $  (1,375)     $   1,416      $   1,115      $     814
                                                =========      =========      =========      =========      =========
Per Share Data (1):
    Earnings (loss) per share                   $  (10.25)     $   (2.62)     $    3.12      $    3.57      $    2.63
    Book value                                  $    7.48      $   17.95      $   20.56      $   18.20      $   14.38
    Dividends per share                         $       -      $    0.40      $    0.40      $    0.33      $    0.30
    Weighted average shares outstanding           527,680        525,545        454,486        312,157        309,670
    Actual shares outstanding                     532,896        525,896        525,295        329,007        309,772

Other Data:
    Net interest margin                              3.59%          3.74%          4.26%          4.43%          5.03%
    Net interest rate spread                         3.62%          3.25%          3.61%          3.76%          4.41%
    Allowance for loan losses to total loans         5.55%          2.62%          0.78%          0.76%          0.81%
    Nonperforming loans to total loans              10.67%          1.32%          0.52%          0.13%          0.11%
    Efficiency ratio                                93.14%         66.14%         60.98%         60.87%         65.57%
    Return on average assets                        (2.55%)        (0.66%)         0.90%          1.00%          1.05%
    Return on average equity                       (68.17%)       (12.10%)        15.80%         22.25%         19.50%
    Dividend payout ratio                               -%        (15.27%)        12.82%          9.24%         11.41%
    Average equity to average assets                 3.74%          5.45%          5.70%          4.49%          5.56%
</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.

                                       10

<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 3 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, 2003
                  (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            $  1,716    3.85%  $  7,338    1.88%         -       -%                     $  9,054    2.26%
Obligations of other
    U.S. government agencies      4,117    3.55      2,186    3.88          -       -                         6,303    3.66
Obligations of states and
    political subdivisions        1,317    3.71      2,038    5.17   $  2,812    5.98                         6,167    5.23
Mortgage-backed securities            -       -      3,844    3.55      5,294    3.35                         9,138    3.43
Corporate                             -       -          -       -        250    5.29                           250    5.29
Equity securities                     -       -          -       -          -       -   $  2,606    7.16%     2,606    7.16
                               --------           --------           --------           --------           --------
Total                          $  7,150    3.65%  $ 15,406    3.02%  $  8,356    4.29%  $  2,606    7.16%  $ 33,518    3.79%
                               ========           ========           ========           ========           ========
</TABLE>

III.     LOAN PORTFOLIO

         A.       TYPE OF LOANS

         The following table presents the types of loans as of December 31, 2003
         and 2002 (000s omitted):

                                       11

<PAGE>

<TABLE>
<CAPTION>
                                        2003        2002
                                      --------    --------
<S>                                   <C>         <C>
Commercial                            $ 12,326    $ 19,515
Commercial mortgages                    30,032      37,187
Residential mortgages                   48,555      62,006
Residential construction mortgages       4,799      16,437
Consumer                                22,863      36,944
                                      --------    --------
  Total                               $118,575    $172,089
                                      ========    ========
</TABLE>

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

         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,
                  2003, 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                            $        3,286    $         7,655    $       1,385    $     12,326    $     1,720    $  7,320
Commercial mortgages                           8,515             17,559            3,958          30,032         21,517           -
Residential mortgages                          2,262              8,634           37,659          48,555         19,697      26,596
Residential construction mortgages             4,799                  -                -           4,799              -           -
Consumer                                       1,485             16,858            4,520          22,863         21,378           -
                                      --------------    ---------------    -------------    ------------    -----------    --------
  Total                               $       20,347    $        50,706    $      47,522    $    118,575    $    64,312    $ 33,916
                                      ==============    ===============    =============    ============    ===========    ========
</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.

                                       12

<PAGE>

         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 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, 2003 and 2002 (000s omitted):

<TABLE>
<CAPTION>
                                                2003                       2002
                                       ----------------------    -----------------------
                                        Average      Average      Average       Average
                                        Balance     Rate Paid     Balance      Rate Paid
                                       ---------    ---------    ----------    ---------
<S>                                    <C>          <C>          <C>           <C>
Noninterest-bearing demand deposits    $  17,583            -%   $   16,533            -%
NOW accounts                              26,844          1.9%       18,292          3.1%
Savings accounts                          21,086          1.8%       22,225          3.1%
Certificates of deposit                   93,379          3.6%       97,496          4.4%
                                       ---------    ---------    ----------    ---------
  Total deposits                       $ 158,892          2.7%   $  154,546          3.6%
                                       =========    =========    ==========    =========
</TABLE>

         The following table presents the maturities of certificates of deposits
and other time deposits of $100,000 or more as of December 31, 2003 (000s
omitted):

<TABLE>
<S>                                       <C>
Three months or less                      $  13,177
Over three months through six months          6,345
Over six months through twelve months         9,560
Over twelve months                            6,506
                                          ---------
Total                                     $  35,588
                                          =========
</TABLE>

VI.      RETURN ON EQUITY AND ASSETS

         Selected financial data of the Corporation is located elsewhere in Item
         1 of 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

                                       13

<PAGE>

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.

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 2003 to a vote of the
Corporation's stockholders.

                                       14

<PAGE>

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND SMALL
        BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

The authorized common stock of the Corporation consists of 3,000,000 shares of
common stock, $1.00 par value, of which 532,896 shares were outstanding at
December 31, 2003.

The Corporation's market for its common stock is the OTC bulletin board with
ticker symbol NBCP. At December 31, 2003, the Corporation had 686 shareholders.

In order to satisfy the third quarter interest expense payment for Gaylord
Partners' subordinated debentures, 7,000 shares of stock were issued by the
Corporation to two board members on September 30, 2003. A price was established
equal to the most recent book value, or $14.19 per share. No commission or
placement fees were paid. 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, 2003 and 2002. Because shares are sold infrequently, the data
shown below is 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 2003               1,750    $           13.66
3rd Quarter 2003               9,800                13.85
2nd Quarter 2003               2,947                18.97
1st Quarter 2003               4,280                25.81

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
</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, 2003 and 2002 is as follows:

                                       15

<PAGE>

<TABLE>
<CAPTION>
                    Cash Dividend
     Period           Per Share
----------------    -------------
<S>                 <C>
4th Quarter 2003    $           -
3rd Quarter 2003                -
2nd Quarter 2003                -
1st Quarter 2003                -

4th Quarter 2002    $        0.10
3rd Quarter 2002             0.10
2nd Quarter 2002             0.10
1st Quarter 2002             0.10
</TABLE>

Because of the Bank's earnings performance in 2002 and the acknowledged risks
inherent in the loan portfolio, on March 28, 2003, the board of directors voted
to suspend the payment of dividends to shareholders in an effort to rebuild
capital. Various regulatory restrictions, some of which are included within the
Agreement, further limit the Bank's ability to pay dividends to the Corporation.

The Bank made first and second quarter dividend payments to the Corporation to
fulfill the debt service requirements of the junior subordinated debentures
issued by the Corporation to Gaylord Partners through its normal avenue of
business. Gaylord Partners' ability to pay required distributions to preferred
security owners is dependent on payment of interest from the Corporation. The
third quarter payment was possible only by selling additional common equity
shares to two directors, as discussed above.

The restrictions placed on the Corporation at the direction of the Federal
Reserve Bank of Chicago will restrict, among other things, the Corporation from
making any distributions on the trust preferred securities, without the approval
of the Federal Reserve Bank of Chicago. The Agreement limits the Bank's ability
to issue cash dividends to the Corporation. As a result of the restrictions, the
Corporation has exercised its option to extend the interest payment period until
December 31, 2004.

                                       16

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS 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, demand for loan products, deposit flows, competition, general
changes in economic conditions and interest rates, as well as restrictions
imposed by regulations or regulators of the banking industry, monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements.

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.

BANK REGULATORY DEVELOPMENTS

On July 10, 2003 the Bank's Board of Directors entered into a supervisory
Agreement ("Agreement") with the Bank's primary federal regulator, the Office of
the Comptroller of the Currency ("OCC"). The Agreement contains substantive
requirements and restrictions regarding the Bank's overall capitalization and
its ability to issue cash dividends to the Corporation. The Agreement also
contains significant requirements to improve credit administration, management
of criticized and classified assets, evaluation of Bank management, internal
audit activities, management information systems, strategic planning,
asset/liability management, interest rate risk management and adherence to laws
and regulations. The Agreement also prohibits average loans during any calendar
quarter from growing by more than 1.50% compared to the previous quarterly
average, until December 31, 2004.

The Agreement requires the Bank to achieve by December 31, 2003 a risk-based
capital to risk-weighted assets ratio of 10.00% and a risk-based capital to
adjusted total assets ratio of 7.50%. As of that date, the Bank did not comply.
The OCC has denied a request to extend the due date of this requirement. The
Corporation retained an investment banking firm in September 2003 to assist it
in its investigation of its options to comply with the capital requirements of
the Agreement, which included the viability of selling the Corporation and its
Bank subsidiary. A definitive agreement was executed on March 4, 2004 for
Independent Bank Corporation to acquire the Corporation and its wholly owned
subsidiaries, subject to regulatory approvals and approvals of the Corporation's
shareholders. A report on Form 8-K was filed on March 5, 2004, and is
incorporated herein by reference. For additional information on the
Corporation's and the Bank's capital ratios, please refer to the section
entitled "Capital Resources," within "Management's Discussion and Analysis or
Plan of Operation."

While Bank management believes the Bank is in compliance with the majority of
the articles of the Agreement, the matter is currently under review by the
regulatory authorities. For more information regarding progress made toward
requirements of the Agreement, please refer to Item 2 of the September 30, 2003
Form 10-QSB, which is incorporated herein by reference.

As previously noted, the Agreement restricts the Bank's ability to issue cash
dividends to the Corporation. This restriction is significant in that it
adversely affects the Corporation's ability to maintain its debt service
obligations

                                       17

<PAGE>

with regard to the $5,000,000 in junior subordinated debentures. See Item 5,
"Market for Common Equity and Related Stockholder Matters," for a discussion of
dividend distribution requirements.

See "Corporation Regulatory Developments" for certain restrictions placed on the
Corporation regarding distributions on securities.

Please refer to Exhibit 99.3 of the June 30, 2003 Form 10-QSB to view the
Agreement in its entirety. The discussion of the Agreement herein is subject to
the complete terms of the Agreement.

CORPORATION REGULATORY DEVELOPMENTS

On October 24, 2003, at the direction of the Federal Reserve Bank of Chicago,
the Board of Directors passed a resolution requiring the Corporation to request
approval from the Federal Reserve Bank of Chicago to: declare or pay corporate
dividends; make any distributions of interest, principal, or other sums on
subordinated debentures or trust preferred securities; increase borrowings or
incur debt; and redeem shares of stock. This resolution will remain in effect
until such time as the Federal Reserve Bank of Chicago determines. These
restrictions placed on the Corporation will restrict, among other things, the
Corporation from making any distributions on the trust preferred securities,
without the approval of the Federal Reserve Bank of Chicago.

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, accounting principles
generally accepted in the United States of America, the uniform retail credit
classification and account management policy issued by the Federal 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, peer loan loss rates, loans past due,
and other subjective factors. For additional information on the allowance for
loan losses and the estimates employed by the Bank please refer to the section
entitled "Material Conditions Affecting the Corporation and its Performance,"
within "Management`s Discussion and Analysis of Financial Condition or Plan of
Operation."

Loan rating system and identification of impaired loans - The Bank has a defined
risk rating system that is designed to assess the risk of individual loans and
overall risk of the loan portfolio. The system considers factors such as cash
flow, collateral, financial condition, operating performance, repayment history,
management, employment history 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 Bank has an
internal loan review associate, workout specialists and to a lesser extent, an
external loan review service to assess risk ratings, with improvement noted with
early problem loan identification system implemented throughout 2003. The Bank's
loan rating system and identification of impaired loans was the subject of
regulatory and auditor criticism with significant recommendations for
improvement. Please refer to "Material Conditions Affecting the Corporation and
its Performance."

Other real estate owned ("OREO")-Other real estate includes properties acquired
through foreclosure proceedings or by acceptance of a deed in lieu of
foreclosure. OREO is recorded at the lower of its cost or the estimated fair
market value less estimated selling cost. Fair market value may be determined
using an available appraisal, less any adjustment management deems necessary and
prudent. Any initial write-down of the loan balance to estimated fair market
value less estimated selling costs when the property is foreclosed is charged to
the allowance for loan losses.

                                       18

<PAGE>

Subsequent market write-downs of any properties are charged to current period
earnings. Real estate market conditions existing at any time may have an effect
on the fair market value of the property. The overall condition of the property
once the Bank has possession of the property may have an effect on the estimated
fair value of the property. In no event, will the property exceed book value
once transferred to OREO.

Mortgage-servicing rights ("MSR") - The Bank records the original MSR based on
market data. The MSR is amortized over the shorter of five years or actual loan
repayment of the underlying mortgages. Additionally, an independent third party
valuation is completed quarterly to determine potential impairment of the MSR as
a result of changes in interest rates and expected future loan repayment speeds.
Significant changes in interest rates or repayment speeds could have a
significant impact of the carrying value of the mortgage servicing 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. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amounts expected to be realized.

MATERIAL CONDITIONS AFFECTING THE CORPORATION AND ITS PERFORMANCE

The Corporation incurred a substantial net loss in 2003 caused by the
deteriorating quality of the loan portfolio. A net loss of ($5,410,000), or
($10.25) per share, was caused by several factors that negatively affected the
quality of the Corporation's loan portfolio. The deteriorated quality of the
loan portfolio has had 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 record 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 2004, though not necessarily to the extent of loan loss provisions incurred
in 2003 and 2002.

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

For the year ended December 31, 2003 the Corporation incurred net charge-offs of
$3,779,000, compared to $2,053,000 for the same period in 2002. In response to
the increased volume of net charge-offs the Corporation increased the level of
loan loss provisions to $5,849,000 for the year ended December 31, 2003,
compared to $5,337,000 for the same period in 2002.

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 allowance for loan losses is
sufficient to absorb the net charge-offs inherent in the portfolio as of
December 31, 2003, 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 loan reviews concluded that previous 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.

                                       19

<PAGE>

LOAN UNDERWRITING PRACTICES AND INTERNAL CONTROLS

Primarily, loans originated prior to 2003 were found to have deficient loan
underwriting and failed to comply with policy and established procedures and
were the substantial reasons for the net charge-offs noted above. The effect of
these failures, though corrected in new loan originations, may continue to have
a significant adverse impact on the Corporation's financial performance in 2004.
Internal and external loan reviews discovered a significant number of deficient
loan underwriting practices in loan originated prior to 2003, including a 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.

The Board of Directors and management have taken the following steps to correct
the various deficiencies and weaknesses previously noted:

-    A new senior lender, experienced in workout situations and problematic loan
     credit quality issues, was hired in April 2003.

-    All loan policies and procedures have been 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 any additional potential weaknesses.

-    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 implemented a full time, independent internal audit
     program in April 2003. The internal audit function is independent of
     management, reports directly to the Board of Directors and the Audit
     Committee, which has reviewed and approved the policy, authority, scope and
     reporting procedures.

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

-    Management has modified data collection procedures to allow for increased
     ability to identify and track adherence to policies and procedures.

Management has hired additional personnel to contribute to the increased overall
loan administration requirements it is currently implementing. The additions
include a fully functional credit department and workout specialists retained in
May 2003, specifically to help in the process of identifying high risk credits,
meet with certain customers and develop workout strategies

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 fourth quarter of 2003, a safety and soundness exam was conducted by
representatives of the Office of the Comptroller of the Currency ("OCC"), the
Bank's principal federal regulator. The purpose of the exam was in part, to

                                       20

<PAGE>

monitor progress made on the Agreement, and to monitor progress made on other
issues and concerns raised during the previous exam. The OCC has not issued its
examination report to date.

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

                                       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
                                           --------    --------    ------------    ------------
<S>                                        <C>         <C>         <C>             <C>
2003

Selected Operations Data:
    Interest income                        $  3,496    $  3,236    $      2,931    $      2,443
    Interest expense                         (1,770)     (1,584)         (1,364)         (1,170)
                                           --------    --------    ------------    ------------
    Net interest income                       1,726       1,652           1,567           1,273
    Provision for loan losses                  (709)     (2,640)           (549)         (1,951)
                                           --------    --------    ------------    ------------
    Net interest income after provision
       for loan losses                        1,017        (988)          1,018            (678)
    Noninterest income                          693         761             600             357
    Noninterest expenses                     (1,692)     (2,305)         (1,820)         (2,220)
    Federal income tax expense                   12         838             123          (1,126)
                                           --------    --------    ------------    ------------
    Net Income (loss)                      $     30    $ (1,694)   $        (79)   $     (3,667)
                                           ========    ========    ============    ============

Per Share Data:
    Earnings (loss) per share              $   0.06    $  (3.22)   $      (0.15)   $      (6.94)
    Dividends per share                           -           -               -               -

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
</TABLE>

Refer to the "Federal Income Tax Expense" discussion for the valuation allowance
recorded against the deferred tax asset during the quarter ended December 31,
2003.

FINANCIAL OVERVIEW

Total assets decreased by $40,305,000 or 19% from December 31, 2002 to December
31, 2003. This decrease was primarily the result of a decrease in net loans of
$55,584,000 or 33% since December 31, 2002, while total investments increased
$7,299,000 or 28%. Certificates of deposit purchased from other financial
institutions totaled $495,000 as of December 31, 2003. 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. Due to the excess funds from the loan decrease, deposits
were decreased by $26,483,000 since December 31, 2002, while borrowed funds also
decreased by $8,620,000 or 25%.

                                       22

<PAGE>

Year-to-date consolidated net loss was ($5,410,000) through December 31, 2003
compared to ($1,375,000) for the same period in 2002. Basic loss per share was
($10.25) for the year ended December 31, 2003 compared to ($2.62) for the year
ended December 31, 2002.

FINANCIAL CONDITION

INVESTMENTS

Total investments, including securities available for sale, securities held to
maturity, and other securities, were $33,716,000 at December 31, 2003, as
compared to $26,417,000 at December 31, 2002. The increase of $7,299,000, or
28%, is primarily the result of increased cash flows available from steep
declines in the overall loan portfolio that exceeded decreases in deposits and
other borrowings. 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 3 of the Corporation's
financial statements, located elsewhere in this report, for additional detail on
pledged investments. Held to maturity securities decreased to $760,000 at
December 31, 2003 from $1,992,000 at December 31, 2002. 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 3 to the accompanying financial statements for
more detail on the investment portfolio.

The Corporation also maintained $13,175,000 in Fed funds sold at December 31,
2003 as a source of liquidity for any unanticipated funding needs.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Following is a summary of the loan mix at December 31, 2003 and 2002 (000s
omitted):

<TABLE>
<CAPTION>
                                    2003          2002
                                 ----------    ----------
<S>                              <C>           <C>
Mortgage loans on real estate
   Residential 1-4 family        $   45,218    $   57,709
   Construction                       4,799        16,437
   Second mortgage                    1,254         2,339
   Equity lines of credit             2,083         1,958
   Commercial                        30,032        37,187

Commercial loans                     12,326        19,515

Consumer installment loans
   Direct
      Automobile loans                4,274         7,474
      Recreational vehicles           2,047         3,243
      Home equity closed end          4,398         7,322
      Unsecured                         808         1,594
      Equipment loans                   674         1,226
      Other                           1,822         1,464
      Mobile homes                      944         1,013
Indirect
      Automobile loans                4,595         8,388
      Recreational vehicles           2,989         4,824
Personal lines of credit                312           396
                                 ----------    ----------
      Total loans                $  118,575    $  172,089
                                 ==========    ==========
</TABLE>

                                       23

<PAGE>

The Corporation's loan portfolio decreased by $53,514,000, or 31%, from
$172,089,000 at December 31, 2002 to $118,575,000 at December 31, 2003.
Decreases in the portfolio came from all areas with consumer loans registering
the largest decrease of $14,081,000 or 38% from $36,944,000 at December 31, 2002
to $22,863,000 at December 31, 2003. Commercial mortgages decreased by
$7,155,000 or 19% from $37,187,000 at December 31, 2002 to $30,032,000 at
December 31, 2003. Non real estate related commercial loans decreased by
$7,189,000 or 37% from $19,515,000 at December 31, 2002 to $12,326,000 at
December 31, 2003. Residential construction loans decreased $11,638,000 or 71%
from $16,437,000 at December 31, 2002 to $4,799,000 at December 31, 2003.
Management does not anticipate growth in the loan portfolio in 2004.

Year over year, the overall mix of the loan portfolio has changed moderately.
Loans secured by 1-4 family real estate mortgages represents 41% of the loan
portfolio at December 31, 2003 compared to 33% at December 31, 2002. Loans for
construction of 1-4 family residences decreased to 4% of the loan portfolio at
December 31, 2003 from 10% at December 31, 2002. The proportion of the loan
portfolio represented by consumer installment loans declined from 21% at
December 31, 2002 to 19% at December 31, 2003. Commercial loans represent 36% of
the loan portfolio at December 31, 2003, a slight increase from 33% 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 Bank 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 Bank
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 (1) none of
its principal and interest due remains unpaid, and the Bank expects repayment of
the remaining contractual principal and interest or (2) when it otherwise
becomes well secured and in the process of collection. The evaluation must
include consideration of the borrower's sustained payment history for a
reasonable period of time, which is generally a minimum of six months.

At December 31, 2003, non-performing loans, which include nonaccrual loans,
totaled $12,650,000. The increase in nonaccrual loans is comprised of various
nonaccrual residential mortgage loans, construction loans, commercial loans and
consumer 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,
2003 and 2002 (000s omitted).

<TABLE>
<CAPTION>
                                               2003         2002
                                             --------     --------
<S>                                          <C>          <C>
Non-accrual loans                            $ 12,650     $  2,139
Loans past due 90 or more days                      -          128
                                             --------     --------
Total non-performing loans                   $ 12,650     $  2,267
                                             ========     ========

Total non-performing loans to total loans       10.67%        1.32%
</TABLE>

The Corporation had troubled debt restructurings of $4,867,000 as of December
31, 2003 and no troubled debt restructurings as of 2002; however, the
Corporation was in process of negotiating loan restructurings with customers

                                       24

<PAGE>

with existing nonperforming loans in 2002. Troubled debt restructuring refers to
the granting of a concession to a borrower, such as reducing the interest rate,
the principal balance outstanding and/or accrued interest, or by extending the
maturity of the loan, that would lower the present value of expected future cash
flows to less than the book value of the original loan. 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 has had a material
negative effect on the Corporation's operating results, liquidity, and capital
resources. The above mentioned failure to follow underwriting procedures and
other deficiencies have resulted in subprime consumer and mortgage portfolios
that has required significant additional internal controls and administration.
The subprime loans have resulted in a greater amount of nonperforming loans and
charge-off activity.

The following highlights the allocations of allowances for loan losses as of
December 31, 2003 and 2002 (000s omitted):

<TABLE>
<CAPTION>
                                                         2003                                    2002
                                         -------------------------------------    -------------------------------------
                                         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                      $   2,994          45.5%         35.7%   $   2,594          57.4%         32.9%
   Residential real estate mortgages         2,137          32.5%         41.0%         382           8.5%         36.0%
   Residential construction mortgages           32           0.5%          4.0%         165           3.7%          9.6%
   Consumer loans                            1,193          18.1%         19.3%       1,171          26.0%         21.5%
Foreign                                          -           n/a                          -           n/a
Unallocated                                    226           3.4%                       200           4.4%
                                         ---------    ----------    ----------    ---------    ----------    ----------
   Total                                 $   6,582         100.0%        100.0%   $   4,512         100.0%        100.0%
                                         =========    ==========    ==========    =========    ==========    ==========
</TABLE>

The allowance for loan losses as a percentage of total loans was 5.55% at
December 31, 2003, compared to 2.62% at December 31, 2002. The unallocated
portion of the allowance for loan losses as a percentage of the entire allowance
for loan losses was 3.4% at December 31, 2003 as compared to 4.4% at December
31, 2002. 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
allocated amount of the allowance.

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, peer loss rate
experience, regulatory guidance, 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.

                                       25

<PAGE>

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.

The increase in the allowance allocated to residential real estate mortgages is
due to the number of properties currently in the process of foreclosure, and a
large number of improperly underwritten, high loan-to-value properties currently
in the Bank's loan portfolio. The increase in foreclosures can be attributed to
economic factors, and an elevated occurrence of borrowers declaring bankruptcy.
Throughout the remainder of 2004, the number and dollar amount of other real
estate properties may continue to increase. As the Bank gains possession of
these properties, write-downs to the allowance for loans losses and additional
market value write-downs and losses on sale of such properties may occur.

DEPOSITS

Total deposits decreased $26,483,000, or 16%, from $162,230,000 at December 31,
2002 to $135,747,000 at December 31, 2003. Deposits decreased as the Bank
purposely allowed wholesale certificates of deposits and brokered funds to
mature. Because of the Agreement the Bank is under, the Bank must obtain
permission from the FDIC to acquire additional brokered funds. It is the intent
of Bank management to no longer utilize brokered funds; however, the Bank may
resume use of wholesale certificates of deposits, should the need arise.
Noninterest-bearing deposits increased from $16,484,000 at December 31, 2002 to
$16,894,000 at December 31, 2003. At December 31, 2003 various local
municipalities had deposited $2,983,000 in certificates of deposit and
$6,057,000 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 $8,620,000 or 25% from $34,906,000 at December 31, 2002 to
$26,286,000 at December 31, 2003. The Bank also has a line of credit with the
FHLB for $2,000,000 and a Federal Funds Sold line at LaSalle Bank for
$3,750,000. There were no borrowings on either line as of December 31, 2003.

Details of the outstanding borrowings of the Corporation as of December 31, 2003
and 2002 are contained in the following table (000s omitted):

                                       26

<PAGE>

<TABLE>
<CAPTION>
                                           2003                      2002
                        Year      ----------------------    ----------------------
       Type            Matures    Amount    Average Rate    Amount    Average Rate
-------------------    -------    ------    ------------    ------    ------------
<S>                    <C>        <C>       <C>             <C>       <C>
Bank Line of Credit       2003         -               -         -            3.75%

FHLB Line of Credit       2003         -               -         -            1.33%
                          2004         -            1.11%        -               -

FHLB Term Advances        2003         -               -    12,231            5.25%
                          2004     8,375            4.72%    7,264            4.97%
                          2005     8,911            5.01%    8,911            5.01%
                          2006     6,000            4.64%    5,500            4.88%
                          2007     1,000            3.58%    1,000            3.58%
                          2008     1,500            3.27%        -               -
                          2009       500            3.10%        -               -
</TABLE>

The Bank has pledged U.S. Treasury securities and U.S. government-sponsored
agencies' securities and certain real estate and commercial real estate loans as
collateral for the line of credit and term advances at the FHLB. As of December
31, 2003, securities with a carrying value of $5,088,000 (market value of
$5,173,000) were pledged. These investment securities consist primarily of
available-for-sale securities, as listed in Note 3 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, $29,820,000 of 1-4 family residential
mortgage loans, $9,968,000 commercial loans and $1,682,000 home equity lines of
credit were pledged as collateral to the FHLB.

CAPITAL

The Corporation's total stockholders' equity decreased $5,454,000 or 58% for the
year ended December 31, 2003 to $3,987,000 at December 31, 2002 from $9,441,000
at December 31, 2002. The majority of the decrease in stockholders' equity was
due to the net loss of $5,410,000 for the year 2003. Contributing to the
decrease was the change in accumulated other comprehensive income offset by the
sale of 7,000 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, 2003 the Bank was considered
adequately capitalized. See Note 19 to the Consolidated Financial Statements
included elsewhere in this report.

RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income for the year ended December 31, 2003 totaled $6,218,000,
with fully-taxable equivalent income of $6,319,000, and represented a decrease
of $1,153,000, or 16%, compared to the same period one year ago. The decrease in
net interest income was primarily attributable to the decrease in the volume of
loans; however, the decrease was offset by a decrease in deposits and
borrowings. The Corporation's net interest margin (on a tax equivalent basis)
narrowed from 3.74% for the year ended December 31, 2002 to 3.59% for the year
ended December 31, 2003. 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 remained historically low in 2003 as they continued at their
decreased 2002 levels. A substantial increase in nonperforming loans and loan
charge-off activity in 2003 also adversely affected the Corporation's interest
margins. Interest income from loans represented 89% of total interest income for
the year ended December 31, 2003 compared to 92% for the same period in 2002.

                                       27

<PAGE>

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, 2003, 2002, and 2001 (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>
                                                   2003                          2002                          2001
                                       ---------------------------   ---------------------------   ---------------------------
                                        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                     $  20,931   $    210   1.00%  $   5,108   $     81   1.59%  $     493   $     18   3.65%
Int bearing cash and due from banks        1,769         43   2.43%      1,082         27   2.50%          -          -
Investment securities-taxable             23,216        832   3.58%     19,167        872   4.55%     14,043        814   5.80%
Investment securities-tax-exempt           5,397        297   5.50%      5,362        298   5.57%      2,404        150   6.24%
Loans, net of unearned income            124,716     10,825   8.68%    169,214     14,081   8.32%    133,417     12,590   9.44%
                                       ---------   --------          ---------   --------          ---------   --------
Total earning assets                   $ 176,029   $ 12,207   6.93%  $ 199,933   $ 15,359   7.68%  $ 150,357   $ 13,572   9.03%
                                       =========   --------          =========   --------          =========   --------
Interest bearing deposits              $ 141,309   $  4,222   2.99%  $ 138,013   $  5,577   4.04%  $  93,674   $  4,722   5.04%
Borrowed funds                            31,467      1,413   4.49%     36,959      2,143   5.80%     38,595      2,446   6.34%
Subordinated debentures                    5,000        253   5.06%      2,917        167   5.73%          -          -
                                       ---------   --------          ---------   --------          ---------   --------
Total interest bearing liabilities     $ 177,776   $  5,888   3.31%  $ 177,889   $  7,887   4.43%  $ 132,269   $  7,168   5.42%
                                       =========   --------          =========   --------          =========   --------
Net interest income (FTE)                          $  6,319                      $  7,472                      $  6,404
                                                   ========                      ========                      ========
FTE adjustment                                     $    101                      $    101                      $     51

Net interest spread                                           3.62%                         3.25%                         3.61%
Net interest margin (as a percentage
    of earning assets) (FTE)                                  3.59%                         3.74%                         4.26%
</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).

<TABLE>
<CAPTION>
                                                       2003 Compared to 2002            2002 Compared to 2001
                                                   ------------------------------   ------------------------------
                                                     Increase (Decrease) Due to       Increase (Decrease) Due to
                                                   ------------------------------   ------------------------------
                                                     Rate      Volume       Net       Rate      Volume      Net
                                                   --------   --------   --------   --------   --------   --------
<S>                                                <C>        <C>        <C>        <C>        <C>        <C>
Federal funds sold                                 $    (29)  $    158   $    129   $    (10)  $     73   $     63
Interest bearing balances due from banks                 (1)        17         16          -         27         27
Investment securities-taxable                          (185)       145        (40)      (175)       233         58
Investment securities-tax-exempt                         (3)         2         (1)       (17)       165        148
Loans, net of unearned income                           606     (3,862)    (3,256)    (1,488)     2,979      1,491
                                                   --------   --------   --------   --------   --------   --------
   Total interest earning assets                        388     (3,540)    (3,152)    (1,690)     3,477      1,787
                                                   --------   --------   --------   --------   --------   --------
Interest-bearing deposits                            (1,453)        98     (1,355)      (937)     1,792        855
Borrowed funds                                         (484)      (246)      (730)      (208)       (95)      (303)
Subordinated debentures                                 (20)       105         85          -        167        167
                                                   --------   --------   --------   --------   --------   --------
   Total interest-bearing liabilities                (1,957)       (43)    (2,000)    (1,145)     1,864        719
                                                   --------   --------   --------   --------   --------   --------
Increase (decrease) in net interest income (FTE)   $  2,345   $ (3,497)  $ (1,152)  $   (545)  $  1,613   $  1,068
                                                   ========   ========   ========   ========   ========   ========
</TABLE>

PROVISION FOR LOAN LOSSES

The activity in the allowance for loan losses for the years ended December 31,
2003 and 2002 is presented in the following table (000s omitted):

                                       28

<PAGE>

<TABLE>
<CAPTION>
                                 2003       2002
                               --------   --------
<S>                            <C>        <C>
Balance - beginning of year    $  4,512   $  1,228

Loans charged-off:
  Commercial loans                1,555        427
  Real estate mortgage loans        597        238
  Consumer loans                  2,150      1,538
                               --------   --------
    Total charge-offs             4,302      2,203

Recoveries:
  Commercial loans                   84         33
  Real estate mortgage loans         83          2
  Consumer loans                    356        115
                               --------   --------
    Total recoveries                523        150

Provision for loan losses         5,849      5,337
                               --------   --------
Balance - end of year          $  6,582   $  4,512
                               ========   ========
</TABLE>

The provision for loan losses charged to operations was $5,849,000 for the year
ended December 31, 2003 as compared to $5,337,000 for the year ended December
31, 2002. Net charge-offs for the year ended December 31, 2003 totaled
$4,302,000 as compared to $2,203,000 for the same period of 2002. 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 $452,000 to $2,411,000 for the year ended
December 31, 2003 as compared to $1,959,000 for the year ended December 31,
2002. 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 $1,291,000 for the year ended December 31, 2003 as
compared to $960,000 for the year ended December 31, 2002. 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 $782,000 for the year
ended December 31, 2003 as compared to $644,000 for the same period in 2002.

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 low
interest rate environment experienced during 2003, activity in mortgage
refinancings continued to remain elevated, 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 2004.

NONINTEREST EXPENSE

Noninterest expenses increased by $1,866,000 to $8,037,000 for the year ended
December 31, 2003 as compared to $6,171,000 for the year ended December 31,
2002.

The increase was attributed to an increase of $764,000, or 28%, in personnel
costs as full time equivalent employees increased from sixty-four at December
31, 2002 to sixty-eight at December 31, 2003. Management determined that
additional staffing was necessary to implement additional administrative
processes to manage credit risk, maintain proper internal control and adherence
to policy and procedures. A loan review function, a fully functional credit
department, and an internal audit function were added early in the year.
Additionally, personnel costs increased due the retirement benefit costs of
$140,000 related to the retirement of former President John R. Kluck, which were
fully

                                       29

<PAGE>

accounted for during the second quarter of 2003. Please refer to the press
release dated May 14, 2003, as filed as exhibit 99.2 of the 10-QSB, filed May
15, 2003 and herein incorporated by reference, for more information regarding
the retirement of former President John R. Kluck.

Professional fees increased by $469,000 to $901,000 for the year ended December
31, 2003 as compared to $432,000 for the same period a year ago. This increase
is primarily attributable to workout specialist fees and an increase in legal
fees associated with loan collection activities and various litigation efforts.
Loss on the sale and write downs of foreclosed assets totaled $410,000 for the
year ended December 31, 2003 as compared to $88,000 for the year ended December
31, 2002, as the volume of foreclosures and the associated costs have increased,
and market values in the area have declined. Amortization of mortgage servicing
rights increased from $295,000 for the year ended December 31, 2002 to $543,000
for the year ended December 31, 2003, as residential mortgage loan customers
took increasing advantage of the low rate environment to refinance their loans.
The remaining increases are related to the growth of the Corporation during the
past year.

While management continues to identify cost-saving opportunities, the Bank is
likely to incur additional expenses associated with loan collection activities,
legal fees, CPA fees, and OCC and FDIC fees.

FEDERAL INCOME TAX EXPENSE

The Corporation had a federal income tax provision expense of $153,000 for the
year ended December 31, 2003 as compared to a tax benefit of $803,000 for the
year ended December 31, 2002.

The income tax provision for the year ended December 31, 2003 includes a
valuation allowance of $1,999,000 against the deferred tax asset. This valuation
allowance was established due to the uncertainty of the ability of the
Corporation to realize the deferred tax asset in the future. The difference
between the 2002 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 LOSS

Net loss totaled ($5,410,000) for the year ended December 31, 2003 as compared
to ($1,375,000) for the same period in 2002. Basic loss per share totaled
($10.25) for the year ended December 31, 2003 as compared to ($2.62) for the
year ended December 31, 2002. The Corporation does not have any dilutive stock
plans; therefore, basic and dilutive earnings per share are the same.

LIQUIDITY

At December 31, 2003, the Corporation held cash and cash equivalents of
$18,554,000, and $30,350,000 of the Corporation's investment securities were
classified as available for sale. However, $5,173,000 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 $10,262,000
and $1,060,000 for the years ended December 31, 2003 and 2002. Net loss was
($5,410,000) and ($1,375,000) for years ended December 31, 2003 and 2002. 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 $2,798,000 and $1,757,000 for the years ended
December 31, 2003 and 2002.

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 provided by/(used in) investing activities
totaled $42,468,000 and ($26,748,000) for the years ended December 31, 2003 and
2002. The $69,216,000 increase between years is directly related to the net
decrease in loans of $48,177,000 for 2003 as compared to an increase of
$17,036,000 for 2002.

                                       30

<PAGE>

Net cash provided by/(used in) financing activities totaled ($35,004,000) and
$26,051,000 for the years ended December 31, 2003 and 2002. 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 2002 to 2003
in a similar amount as the decrease in investing activities. The net decrease in
deposits was $26,483,000 for 2003 as compared to an increase of $25,612,000 for
2002. The net decrease in borrowings totaled $8,620,000 for 2003 as compared to
$4,365,000 for 2002. In 2002, the Corporation issued $5,000,000 of subordinated
debentures.

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                                  $  79,228    $  48,642    $  19,961    $   1,230    $   9,395
Notes Payable                                     26,286        8,375       14,911        2,500          500
Guaranteed preferred beneficial interest in
  subordiated debentures                           5,000            -            -            -        5,000
                                               ---------    ---------    ---------    ---------    ---------
Total contractual cash
  obligations                                  $ 110,514    $  57,017    $  34,872    $   3,730    $  14,895
                                               =========    =========    =========    =========    =========
</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 $48,642,000 and $8,375,000, respectively, in 2004. 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. Under the current regulatory framework,
the Bank is not allowed to accept brokered deposits as a source of liquidity
without prior approval from the FDIC. Federal Home Loan Bank advances can be
renewed, and additional advances may be obtained, at prevailing market rates. At
December 31, 2003, the Corporation had the ability to borrow an additional
$5,042,000 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.

LOAN COMMITMENTS

<TABLE>
<CAPTION>
                                                    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                  $   2,936    $   2,936    $       -    $       -    $       -
Unfunded commitments under lines
  of credit                                     4,479        4,479            -            -            -
Commercial and standby letters of credit          146          146            -            -            -
                                            ---------    ---------    ---------    ---------    ---------
Total loan commitments                      $   7,561    $   7,561    $       -    $       -    $       -
                                            =========    =========    =========    =========    =========
</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

                                       31

<PAGE>

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, 2003 (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.

<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             $    198    $          198    $           99    $      -    $    495
   Loans                                            11,470             8,877            50,706      47,522     118,575
   Investments                                         957             6,385            15,324      11,050      33,716
   Federal funds sold                               13,175                 -                 -           -      13,175
                                                  --------    --------------    --------------    --------    --------
   Total interest-earning assets                  $ 25,800    $       15,460    $       66,129    $ 58,572    $165,961
                                                  ========    ==============    ==============    ========    ========

Interest-bearing liabilities:
   Interest-bearing demand                        $      -    $        6,002    $            -    $ 18,004    $ 24,006
   Savings and money market                          1,562             3,905             1,562       8,590      15,619
   Time deposits < $100,000                          1,003            28,117             5,125       9,395      43,640
   Time deposits > $100,000                         13,177             6,345            16,066           -      35,588
   Notes payable                                     2,982             5,393            17,411         500      26,286
   Guaranteed preferred beneficial interest in
      subordinated debentures                            -                 -                 -       5,000       5,000
                                                  --------    --------------    --------------    --------    --------
   Total interest-bearing liabilities             $ 18,724    $       49,761    $       40,164    $ 41,489    $150,139
                                                  ========    ==============    ==============    ========    ========

Period:
   Rate sensitive assets (RSA)                    $ 25,800    $       15,460    $       66,129    $ 58,572
   Rate sensitive liabilities (RSL)                 18,724            49,761            40,164      41,489
                                                  --------    --------------    --------------    --------
   Interest rate sensitivity GAP (RSA-RSL)        $  7,076    $      (34,301)   $       25,965    $ 17,083
                                                  --------    --------------    --------------    --------
   Interest rate sensitivity GAP ratio                1.38              0.31              1.65        1.41
                                                  ========    ==============    ==============    ========

Cumulative:
   Rate sensitive assets (RSA)                    $ 25,800    $       41,260    $      107,389    $165,961
   Rate sensitive liabilities (RSL)                 18,724            68,485           108,649     150,138
                                                  --------    --------------    --------------    --------
   Interest rate sensitivity GAP (RSA-RSL)        $  7,076    $      (27,225)   $       (1,260)   $ 15,823
                                                  --------    --------------    --------------    --------
   Interest rate sensitivity GAP ratio                1.38              0.60              0.99        1.11
                                                  ========    ==============    ==============    ========
</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, over $27 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 2004. 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

                                       32

<PAGE>

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
2003 or 2002.

ITEM 8A. CONTROLS AND PROCEDURES.

         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.

                                       34

<PAGE>

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following is information about the directors and the other individuals who
are executive officers of the Corporation. The Corporation's directors also are
directors of the corporation's wholly-owned subsidiary, First National Bank of
Gaylord (the "Bank"). The dates as director shown prior to the Corporation's
formation in 1991 are the dates which the director began serving as a director
of the Bank.

<TABLE>
<CAPTION>
                               Director       Term
        Name            Age     Since      Expiring in      Principal Occupation
--------------------    ---    --------    -----------    ------------------------
<S>                     <C>    <C>         <C>            <C>
Matthew H. Nowicki       55      1979         2006        Former President
                                                          M&M Excavating

Fred T. Burn             68      1979         2004        President Burns Plumbing
                                                          & Heating, Inc.

Timothy W. Freeman       37      2002         2004        President Freeman Family
                                                          Enterprises, LLC

Keith Hardin Gornick     50      1988         2005        President, Otsego Club &
                                                          Resort

Larry B. Higgins         51      1995         2006        President, H & H Tube
                                                          Manufacturing, Inc.

Douglas C. Johnson       52      1986         2005        President, Mid-North
                                                          Printing, Inc.

Kellie A. Puroll         41      2002         2004        President, Alpine
                                                          Chiropractic, P.C
</TABLE>

The following is information about the Corporation's executive officers:

<TABLE>
<S>                      <C>   <C>
William A. Kirsten       38    President and Chief Executive Officer
Susan A. Norris          44    Chief Financial Officer
</TABLE>

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that
the Corporation's directors, executive officers and persons who own more than
10% of the registered class of the Corporation's equity securities file reports
of stock ownership and any subsequent changes in stock ownership with the SEC no
later than specified deadlines. During 2003, all of the required reports were
filed by the specified deadlines. In making this disclosure, the Corporation
relied on the directors' and executive officers' written representations and a
review of copies of the reports filed with the SEC on Forms 3, 4, and 5 and any
amendments thereto.

                                 Code of Ethics

The Corporation has not adopted a code of ethics that applies to its President
and Chief Executive Officer, and Chief Financial Officer as the Corporation
believes that the requirements of the Agreement adequately address all necessary
concerns at this time.

                                       35

<PAGE>

                        Audit Committee Financial Expert

The Corporation's Board of Directors has determined that the audit committee
does not have an "audit committee financial expert," as defined by applicable
law. The cost to retain an audit committee financial expert at this time is
viewed as prohibitive. However, the Board of Directors believes that each audit
committee member has sufficient knowledge in financial and auditing matters to
serve on the committee. The committee has the authority to engage legal counsel
or other experts or consultants as it deems appropriate to carry out its
responsibilities.

ITEM 10. EXECUTIVE COMPENSATION.

                            Compensation of Directors

All Directors other than the Chairman of the Board receive a director's fee of
$500 per Board meeting attended and $175 for each Committee meeting attended.
The Chairman of the Board receives $1,250 per Board meeting and $175 for each
Committee meeting attended. Additionally, the Bank will pay for health insurance
coverage for each Director and his or her spouse (if applicable). If a Director
chooses not to obtain coverage through the Bank he or she is reimbursed 100% of
the premium for single person coverage. Currently, Ms. Puroll and Messrs.
Nowicki, Burns, Higgins, Gornick and Freeman do not obtain coverage through the
Bank and are reimbursed $299.53 per month. Mr. Johnson obtains coverage through
the Bank for himself and his spouse. Such coverage costs $820.91 per month.

Directors who became members of the Board of Directors of the Bank before
January 1, 2002 are entitled to participate in a deferred compensation plan
where Directors who are members for at least ten years receive health insurance
coverage for themselves and their spouses during their lifetimes upon reaching
age sixty-five.

                             Executive Compensation

The following table sets forth the executive compensation of the Corporation's
named executive officer who received compensation of $100,000 or more for each
of the last three years. No other forms of compensation, stock options or stock
awards are provided to the named executive, except under the nonqualified
deferred compensation plan, which is discussed below.

<TABLE>
<CAPTION>
                                        Annual Compensation
                                       ---------------------
Name and Principal Position    Year     Salary*       Bonus     Other Annual Compensation
---------------------------    ----    ---------    --------    -------------------------
<S>                            <C>     <C>          <C>         <C>
William A. Kirsten             2003    $ 108,888    $  1,009              none
President of the Bank          2002    $  81,523    $    923              none
and Corporation                2001    $  72,720    $ 13,330              none
</TABLE>

*Included deferred salary under the Corporation's 401(k) plan.

The Corporation has a nonqualified deferred compensation plan with Mr. Kirsten,
whereby Mr. Kirsten or his designated beneficiary will receive approximately
$30,000 per year for fifteen years in the event of retirement, disability, or
death. To fund this obligation, the Corporation has purchased insurance on the
life of Mr. Kirsten with the Corporation as the owner and beneficiary of the
policy.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

The following table sets forth as of December 31, 2004, the beneficial ownership
of the Corporation's Common Stock by: (i) each director, (ii) each person named
in the summary compensation table under Item 10 above, and (iii) all directors
and Executive Officers as a group, together with their respective percentage
ownership of the outstanding shares.

                                       36

<PAGE>


<TABLE>
<CAPTION>
                                        Amount and Nature of
      Name of Beneficial Owner          Beneficial Ownership*    Percent of Class
      ------------------------          ---------------------    ----------------
<S>                                     <C>                      <C>
Matthew H. Nowicki                              9,802                 1.84%


Fred T. Burns                                   6,200                 1.16%

Timothy W. Freeman                              1,250                   **

Keith H. Gornick                               42,872                 8.05%

Larry B. Higgins                                2,345                   **

Douglas C. Johnson                             19,499                 3.66%

Kellie A. Puroll                                  500                   **

William A. Kirsten                                366                   **

Susan A. Norris                                    62                   **

        Directors and Executive
     Officers as a Group (consisting           82,896                15.56%
          of all of the above)
</TABLE>

*Unless otherwise indicated, each individual has sole investment and voting
power with respect to such shares. Mr. Nowicki owns 6,612 shares individually,
56 shares jointly with his children, and has an interest in 1,702 shares in a
trust account. He also has an interest in 1,432 shares held in a trust for his
spouse. Mr. Freeman has an interest in 1,250 shares held in a trust for his
wife. Mr. Gornick owns 13,972 shares individually and shares voting and
investment power over the 28,900 shares of stock of the Corporation held by The
Gornick Fund. Mr. Higgins owns 2,345 shares jointly with his wife. Mr. Johnson
owns 17,799 shares individually, 560 jointly with is wife, and has an interest
in 1,140 shares owned by his wife. Ms. Puroll owns 300 shares individually and
200 shares jointly with her husband. Mr. Kirsten owns 300 shares individually
and 66 shares jointly with his wife. Ms. Norris owns 62 shares jointly with her
husband.

**Less than 1%

To the knowledge of the Corporation, and based upon Schedules 13G filed with the
Securities and Exchange Commission, the only persons who may, in accordance with
definitions of the federal securities laws, beneficially own 5% or more of the
Corporation's common stock are Keith H. Gornick and Financial & Investment
Management Group, Ltd., as follows:

<TABLE>
<CAPTION>
                                               Amount and Nature of
         Name                  Address         Beneficial Ownership*    Percent of Class
----------------------    -----------------    ---------------------    ----------------
<S>                       <C>                  <C>                      <C>
The Gornick Fund          P.O. Box 957                28,900                  5.42%
                          Bloomfield Hills,
                          Michigan  48303

Keith H. Gornick          P.O. Box 85                 13,972                  2.62%
                          Gaylord, Michigan
                          49734

Financial & Investment    111 Cass St.                43,775                  8.21%
Management Group, Ltd.    Traverse City, MI
                          49684
</TABLE>

                                       37

<PAGE>

*Unless otherwise indicated, each person has sole investment and voting power
with respect to such shares. The Gornick Fund is a nonprofit corporation. Mr.
Gornick shares voting and investment power over the stock of the Corporation
held by The Gornick Fund and in such capacity shares the power to vote, or to
direct the voting of, such stock and the power to dispose, or to direct the
disposition of, such stock. Financial & Investment Management Group, Ltd.
reported in a Schedule 13G which was filed with the Securities and Exchange
Commission on February 18, 2004 that it shares voting and investment power over
43,775 shares of the Corporation's stock. Financial & Investment Management
Group, Ltd. further reported that it is a registered investment advisor managing
individual client accounts, that all of such shares are held in accounts owned
by its clients and that it disclaims beneficial ownership.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information appearing in Note 4 of the Notes to Consolidated Financial
Statements on page F-15 of this Form 10-K, is also incorporated herein by
reference in response to this Item.

In the ordinary course of the Bank's business, the Bank has had, and expects to
have in the future, transactions with some of the Corporation's directors,
principal officers and shareholders, their families and the companies with which
they are associated (herein collectively called "Affiliates"). All such
transactions, which included commitments to loan and loans by the Bank, were
based on terms, including rates, collateral and repayment terms substantially
the same as those prevailing at the time for comparable transactions with other
persons, and in the opinion of the Board and the management of the Corporation
and the Bank, such transactions did not and do not involve more than the normal
risk of collectibility or present other unfavorable features. All future
transactions of the Bank or the Corporation with Affiliates, including loans,
will be based on terms, including interest rates, collateral and repayment
terms, substantially the same as those prevailing at the time for comparable
transaction with other persons and will be approved by a majority of the Bank's
or the Corporation's independent directors, as the case may be, who do not have
an interest in the transaction and who had access, at the Corporation's expense,
to the Corporation's or independent legal counsel. Any loan transaction
currently in effect with any director or executive officer of the Bank is
current as of this date.

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 report on Form 8-K was filed March 5, 2004 under Items 5, 7, 9 and 12 of Form
8-K. In this report, the Corporation announced its consolidated financial
results for the three and twelve months ended December 31, 2003, The Corporation
also announced that Independent Bank Corporation, the Corporation and the Bank
have entered into an Agreement and Plan of Merger under which Independent Bank
Corporation has agreed to acquire the Corporation. The transaction is subject
to, and contingent upon, regulatory approvals and approval of the shareholders
of the Corporation.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Aggregate fees billed to the Corporation by Plante & Moran, PLLC, the
Corporation's independent accountants, for the years ended December 31, 2003 and
2002 were as follows:

<TABLE>
<CAPTION>
                        2003         2002
                      ---------    ---------
<S>                   <C>          <C>
Audit Fees            $  71,050    $  81,620

Audit-Related Fees       17,850        3,190
</TABLE>

                                       38

<PAGE>

<TABLE>
<S>                      <C>         <C>
Tax Fees                  8,000       10,055

All Other Fees           25,145      134,995
</TABLE>

Audit-related fees include consultation on financial accounting and reporting
standards and also services performed in connection with the activities of a
former employee of the Corporation. Tax fees relate to the tax return
preparation and tax consulting. All other fees for 2003 include loan review
services, validation of the Corporation's asset/liability management model, and
consultation on various matters. All other fees for 2002 include loan review
services, agreed upon procedures engagement for internal audit services,
validation of the Corporation's asset/liability management model, consultation
on regulatory compliance, consultation services relating to the Corporation's
preferred securities offering, and consultation on miscellaneous matters.

The Audit Committee pre-approves all audit and permissible non-audit services
provided by the Corporation's independent accountants. In accordance with such
practice, all of the services proved by the Corporation's independent
accountants set forth above were approved by the Audit Committee.

The Committee may delegate to one or more designated members of the Committee
the authority to grant required pre-approvals. The decisions of any member to
whom authority is delegated under this paragraph to pre-approve an activity
under this subsection shall be presented to the full Committee at its next
scheduled meeting.

                                       39

<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/ William A. Kirsten
-------------------------------------
William A. Kirsten
President and Chief Executive Officer

Dated: March 26, 2004

         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 William A. Kirsten and Susan A. Norris, 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/ William A. Kirsten                            /s/ Susan A. Norris
----------------------------                      ------------------------------
William A. Kirsten                                Susan A. Norris
President, Chief Executive Officer and Director   Chief Financial Officer
Dated: March 26, 2004                             Dated: March 26, 2004

/s/ Matthew H. Nowicki                            /s/ Fred T. Burns
----------------------------                      ------------------------------
Matthew H. Nowicki, Director                      Fred T. Burns, Director
Dated: March 30, 2004                             Dated: March 30, 2004

/s/ Timothy W. Freeman                            /s/ Keith Hardin Gornick
----------------------------                      ------------------------------
Timothy W. Freeman, Director                      Keith Hardin Gornick, Director
Dated: March 26, 2004                             Dated: March 30, 2004

/s/ Larry B. Higgins                              /s/ Douglas C. Johnson
----------------------------                      ------------------------------
Larry B. Higgins, Director                        Douglas C. Johnson, Director
Dated: March 26, 2004                             Dated: March 26, 2004

/s/ Kellie A. Puroll
----------------------------
Kellie A. Puroll, Director
Dated: March 30, 2004

                                       40

<PAGE>

                               NORTH BANCORP, INC.
                                AND SUBSIDIARIES
                     --------------------------------------

                          CONSOLIDATED FINANCIAL REPORT
                                DECEMBER 31, 2003

<PAGE>

NORTH BANCOP, INC. AND SUBSIDIARIES

                                                                        CONTENTS

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

CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated Balance Sheet                                          F-3

    Consolidated Statement of Operations                                F-4

    Consolidated Statement of Changes in Stockholders' Equity           F-5

    Consolidated Statement of Cash Flows                                F-6

    Notes to Consolidated Financial Statements                          F-7 - F-35
</TABLE>



<PAGE>

[PLANTE MORAN LOGO]                                          PLANTS & MORAN,PLLC
                                                                       Suite 70C
                                                            107 W. Michigan Ave.
                                                              Kalamazoo,MI 49007
                                                               Tel: 269.385.1858
                                                               Fax: 269.385.2936
                                                                 plantemoran.com

                          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, 2003 and 2002, and the related
consolidated results of its operations, changes in stockholders' equity and cash
flows for each year in the three-year period ended December 31, 2003. 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, 2003 and 2002, and the consolidated results
of its operations and its cash flows for each year in the three-year period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Corporation will continue as a going concern. As discussed in Note 19
to the consolidated financial statements, the Corporation has suffered
significant losses from operations resulting in a decrease to regulatory capital
below the minimum required in the Formal Agreement by the Bank's federal
regulator, the Office of the Comptroller of the Currency. Losses are expected to
continue in 2004. These capital concerns raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 22. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

                            /s/ Plante & Moran, PLLC

Kalamazoo, Michigan
February 13, 2004, except for Note 23, as to
   which the date is March 4, 2004

                                                          [A MEMBER OF MRI LOGO]

                                      F-2

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                                       December 31
                                                                                -------------------------
                                                                                  2003             2002
                                                                                --------         --------
<S>                                                                             <C>              <C>
                        ASSETS

Cash and cash equivalents:
     Cash and due from banks (Note 2)                                           $  5,379         $  4,888
     Federal funds sold                                                           13,175            3,404
                                                                                --------         --------
                    Total cash and cash equivalents                               18,554            8,292

Interest-bearing deposits in banks                                                   495            2,671
Securities available for sale (Note 3)                                            30,350           21,905
Securities held to maturity (Note 3)                                                 760            1,992
Other securities (Note 3)                                                          2,606            2,520

Loans (Note 4)                                                                   118,575          172,089
     Less: Allowance for loan losses (Note 5)                                      6,582            4,512
                                                                                --------         --------
                    Net loans                                                    111,993          167,577

Foreclosed assets (Note 6)                                                           978              646
Bank premises and equipment - Net (Note 8)                                         2,399            2,586
Accrued interest receivable                                                          756            1,275
Other assets (Notes 7, 13, and 16)                                                 3,666            3,398
                                                                                --------         --------
                    Total assets                                                $172,557         $212,862
                                                                                ========         ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
     Deposits :
          Noninterest-bearing                                                   $ 16,894         $ 16,484
          Interest-bearing (Note 9)                                              118,853          145,746
                                                                                --------         --------
                    Total deposits                                               135,747          162,230

     Notes payable (Note 11)                                                      26,286           34,906
     Guaranteed preferred beneficial interests in
          subordinated debentures (Note 12)                                        5,000            5,000
     Other liabilities (Notes 16 and 17)                                           1,537            1,285
                                                                                --------         --------
                    Total liabilities                                            168,570          203,421

STOCKHOLDERS' EQUITY (Notes 19 and 20)
     Common stock, $1 par value:
          Authorized - 3,000,000 at December 31, 2003 and 2002
          Issued and outstanding - 532,896 at December 31, 2003 and
               525,896 at December 31, 2002                                          533              526
     Additional paid-in capital                                                    6,101            6,009
     Retained earnings (Accumulated deficit)                                      (2,845)           2,565
     Accumulated other comprehensive income                                          198              341
                                                                                --------         --------
                    Total stockholders' equity                                     3,987            9,441
                                                                                --------         --------
                    Total liabilities and stockholders'
                         equity                                                 $172,557         $212,862
                                                                                ========         ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-3

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                              CONSOLIDATED RESULTS OF OPERATIONS
                                           (000S OMITTED, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                             Year Ended December 31
                                                       --------------------------------
                                                         2003        2002        2001
                                                       --------    --------    --------
<S>                                                    <C>         <C>         <C>
INTEREST INCOME
     Interest and fees on loans                        $ 10,825    $ 14,081    $ 12,590
     Investment securities:
          Taxable                                           875         899         814
          Tax-exempt                                        196         197          99
     Federal funds sold                                     210          81          18
                                                       --------    --------    --------
                    Total interest income                12,106      15,258      13,521

INTEREST EXPENSE
     Deposits                                             4,222       5,577       4,722
     Borrowings                                           1,413       2,143       2,446
     Subordinated debentures                                253         167           -
                                                       --------    --------    --------
                    Total interest expense                5,888       7,887       7,168
                                                       --------    --------    --------

NET INTEREST INCOME                                       6,218       7,371       6,353
     Provision for loan losses (Note 5)                   5,849       5,337         886
                                                       --------    --------    --------
NET INTEREST INCOME AFTER
     PROVISION FOR LOAN LOSSES                              369       2,034       5,467

NONINTEREST INCOME
     Service charges on deposit accounts                    515         558         447
     Loan servicing fees                                    228          93          54
     Gain on sale of real estate mortgages
          originated for sale                             1,291         960         517
     Gain on sale of securities available for sale           44           -          36
     Other income                                           333         348         278
                                                       --------    --------    --------
                    Total noninterest income              2,411       1,959       1,332

NONINTEREST EXPENSES
     Salaries, wages and benefits
          (Notes 15, 16, and 17)                          3,502       2,738       2,197
     Occupancy expense                                      284         267         185
     Equipment and data processing expense                  596         580         412
     Advertising and public relations                        76         187         136
     Professional fees                                      901         432         260
     Office supplies and postage                            238         233         206
     Foreclosed assets, net (Note 6)                        410          88          17
     Mortgage servicing rights amortization (Note 7)        543         295         155
     Other expenses                                       1,487       1,351       1,118
                                                       --------    --------    --------
                    Total noninterest expenses            8,037       6,171       4,686
                                                       --------    --------    --------

INCOME (LOSS) - Before income taxes                      (5,257)     (2,178)      2,113

FEDERAL INCOME TAX EXPENSE (BENEFIT) (Note 13)              153        (803)        697
                                                       --------    --------    --------
NET INCOME (LOSS)                                      $ (5,410)   $ (1,375)   $  1,416
                                                       ========    ========    ========
BASIC EARNINGS (LOSS) PER SHARE                        $ (10.25)   $  (2.62)   $   3.12
                                                       ========    ========    ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-4

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                                                Accumulated Other     Total
                                       Number of      Common     Additional Paid-     Retained    Comprehensive    Stockholders'
                                        Shares        Stock         In Capital        Earnings        Income          Equity
                                       ---------     --------    ----------------     --------  -----------------  -------------
<S>                                    <C>           <C>         <C>                  <C>       <C>                <C>
BALANCE - January 1, 2001               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

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

Net loss                                                    -               -           (5,410)            -           (5,410)

Change in net unrealized gain on
    securities available for sale                           -               -                -          (143)            (143)
                                                                                                                     --------
        Total comprehensive loss                                                                                       (5,553)

Issuance of common stock                  7,000             7              92                -             -               99
                                       --------      --------        --------         --------      --------         --------
BALANCE - December 31, 2003             532,896      $    533        $  6,101         $ (2,845)     $    198         $  3,987
                                       ========      ========        ========         ========      ========         ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                       F-5

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                            CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                  (000S OMITTED)

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31
                                                                                  ------------------------------------
                                                                                    2003          2002          2001
                                                                                  --------      --------      --------
<S>                                                                               <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                              $ (5,410)     $ (1,375)     $  1,416
   Adjustments to reconcile net income (loss) to net
     cash from operating activities:
        Depreciation                                                                   266           250           237
        Provision for loan losses                                                    5,849         5,337           886
        Deferred federal income taxes                                               (1,094)         (937)           22
        Valuation allowance for deferred tax asset                                   1,999             -             -
        Amortization of securities - Net                                               318           223            55
        Gain on sale of securities available for sale                                  (44)            -           (36)
        Accrued interest receivable and other assets                                   572          (815)         (652)
        Stock dividend received - Other securities                                     (86)            -             -
        Accrued interest payable and other liabilities                                 428          (926)         (311)
                                                                                  --------      --------      --------
               Net cash provided by operating activities                             2,798         1,757         1,617

CASH FLOWS FROM INVESTING ACTIVITIES
   Net change in interest-bearing deposits in banks                                  2,176        (2,671)            -
   Purchases of securities available for sale                                      (19,775)      (11,416)      (14,888)
   Proceeds from maturities of securities available for sale                         8,969         5,978         6,376
   Proceeds from sale of securities available for sale                               1,770             -         2,667
   Purchases of securities held to maturity                                           (300)       (1,400)         (300)
   Proceeds from maturities of securities held to maturity                           1,530           445         2,206
   Purchases of other securities                                                         -          (186)         (310)
   Net decrease (increase) in loans                                                 48,177       (17,036)      (46,571)
   Purchases of premises and equipment                                                 (79)         (462)         (817)
                                                                                  --------      --------      --------
               Net cash provided by
                    (used in) investing activities                                  42,468       (26,748)      (51,637)

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase (decrease) in deposits                                             (26,483)       25,612        50,966
   Net change in short-term borrowings                                                   -        (2,139)       (4,310)
   Proceeds from notes payable                                                       5,425        14,275        16,961
   Repayment of notes payable                                                      (14,045)      (16,501)      (13,632)
   Proceeds from issuance of subordinated debentures                                     -         5,000             -
   Dividends paid to stockholders                                                        -          (210)         (192)
   Proceeds from issuance of common stock                                               99            14         3,517
                                                                                  --------      --------      --------
               Net cash provided by
                     (used in) financing activities                                (35,004)       26,051        53,310

NET INCREASE IN CASH AND CASH EQUIVALENTS                                           10,262         1,060         3,290

CASH AND CASH EQUIVALENTS - Beginning of year                                        8,292         7,232         3,942
                                                                                  --------      --------      --------
CASH AND CASH EQUIVALENTS - End of year                                           $ 18,554      $  8,292      $  7,232
                                                                                  ========      ========      ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Cash paid (received) during the year:
     Interest                                                                     $  6,012      $  7,816      $  7,138
                                                                                  ========      ========      ========
     Federal income taxes                                                         $   (937)     $    554      $    750
                                                                                  ========      ========      ========
     Loans transferred to foreclosed assets                                       $  1,557      $    609      $     95
                                                                                  ========      ========      ========
</TABLE>

See Notes to Consolidated Financial Statements.

                                      F-6

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 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 intercompany transactions and accounts
         have been eliminated in consolidation.

         USE OF ESTIMATES - The accounting and reporting policies of the
         Corporation conform to accounting principles generally accepted in the
         United States of America. 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, foreclosed
         assets, impaired loans, deferred tax assets, and postretirement health
         benefits.

         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.
         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 in Gaylord, Michigan (Otsego County) and a
         branch office in Houghton Lake, Michigan (Roscommon County). First of
         Gaylord Financial Services, Inc., provides limited 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 3 discusses the types of securities the Corporation invests in.
         Note 4 discusses the types of lending that the Corporation engages in.
         The Corporation has one industry classification where a concentration
         exists. At December 31, 2003, loans to golf courses represent 2.6
         percent of the Bank's loan portfolio.

         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-7

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED)

         INTEREST-BEARING DEPOSITS IN BANKS - Interest-bearing deposits in banks
         mature from May 2004 through April 2006.

         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 interest 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 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.

         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 determines the uncollectibility
         of a loan balance. Subsequent recoveries, if any, are credited to the
         allowance.

                                      F-8

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         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, industry
         experience, regulatory guidance, 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.

         The allowance consists of specific, general, and unallocated
         components. The specific components relate to certain loans that are
         classified as either doubtful, substandard, or special mention. For
         such loans that are also classified as impaired, an allowance is
         established when the discounted cash flows (or collateral value or
         observable market price) of the impaired loan is lower that the
         carrying value of that loan. The general component covers classified
         and non-classified loans and is based on industry experience,
         regulatory guidance, and historical loss experience, adjusted for
         qualitative factors. An unallocated component is maintained to cover
         uncertainties that could affect management's estimate of probable
         losses. The unallocated component of the allowance reflects the
         imprecision inherent in the underlying assumptions used in the
         methodologies for estimating specific and general losses in the
         portfolio.

         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 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-9

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 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 as 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.

         OFF BALANCE SHEET 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.

         FORECLOSED ASSETS - Assets acquired through, or in lieu of, loan
         foreclosure are held for sale and are initially recorded at fair value
         (less cost to sell) at the date of the foreclosure, establishing a new
         cost basis. Subsequent to foreclosure, valuations are periodically
         performed by management and the assets are carried at the lower of
         carrying amount or fair value less cost to sell. Revenue and expenses
         from operations and changes in the valuation allowance are included in
         net expenses from foreclosed assets.

         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. Valuation
         allowances are established, when necessary, to reduce deferred tax
         assets to the amounts expected to be realized.

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

                                      F-10

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         ADOPTION OF FIN 46 - The Corporation adopted the provisions of FASB
         Interpretation No. 46, "Consolidation of Variable Interest Entities"
         ("FIN 46"). FIN 46 related to the consolidation of a finance entity
         involved in the issuance of preferred securities. As a result, the
         issuing entity has been deconsolidated. For further information on the
         adoption of FIN 46, see Note 12.

         EARNINGS PER SHARE - Earnings per share are based on the weighted
         average number of shares outstanding during each period. Weighted
         average number of shares outstanding totaled 527,680, 525,545, and
         454,486 for the years ended December 31, 2003, 2002, and 2001,
         respectively. The Corporation does not have any dilutive stock plans;
         therefore, basic and dilutive earnings per share are the same.

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

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

<TABLE>
<CAPTION>
                                          2003      2002     2001
                                         -----      ----     ----
<S>                                      <C>        <C>      <C>
Unrealized holding gains (losses) on
   securities available for sale         $(275)     $324     $142
Reclassification adjustment for gains
   realized in income                       44         -       36
                                         -----      ----     ----
Net unrealized gains (losses)             (319)      324      106
Tax effect                                (109)      110       36
                                         -----      ----     ----
     Subtotal                             (210)      214       70

Change in valuation allowance              (67)        -        -
                                         -----      ----     ----
Net-of-tax amount                        $(143)     $214     $ 70
                                         =====      ====     ====
</TABLE>

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

                                      F-11

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 2 - RESTRICTIONS ON CASH AND CASH EQUIVALENTS

         Cash and cash equivalents in the amount of $371,000 and $300,000 were
         restricted at December 31, 2003 and 2002, respectively, to meet the
         reserve requirements of the Federal Reserve System.

NOTE 3 - SECURITIES

         The amortized cost and estimated fair market values of securities are
         as follows at December 31, 2003 and 2002 (000s omitted):

<TABLE>
<CAPTION>
                                                               2003
                                ------------------------------------------------------------------
                                                Gross Unrealized   Gross Unrealized
                                Amortized Cost       Gains               Losses         Fair Value
                                --------------  ----------------   ----------------     ----------
<S>                             <C>             <C>                <C>                  <C>
Securities available for sale:
   U.S. treasury notes            $ 9,054          $    39               $    25          $ 9,068
   Obligations of other U.S.
     government agencies            6,303               63                     5            6,361
   Obligations of states and
     political subdivisions         5,657              185                     4            5,838
   Mortgage-backed securities       9,138               51                   106            9,083
                                  -------          -------               -------          -------
       Total  securities
          available for sale      $30,152          $   338               $   140          $30,350
                                  =======          =======               =======          =======
Securities held to maturity:
   Obligations of states and
     political subdivisions       $   510          $     4               $     -          $   514
   Corporate                          250                3                     -              253
                                  -------          -------               -------          -------
       Total  securities
          held to maturity        $   760          $     7               $     -          $   767
                                  =======          =======               =======          =======
</TABLE>

                                      F-12

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 3 - SECURITIES (CONTINUED)

<TABLE>
<CAPTION>
                                                                       2002
                                      ----------------------------------------------------------------------
                                                       Gross Unrealized    Gross Unrealized
                                      Amortized 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>

         The amortized cost and estimated market values of securities at
         December 31, 2003, 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                       Amortized
                                    Cost         Fair Value          Cost         Fair Value
                                  ---------      ----------       ---------       ----------
<S>                               <C>            <C>              <C>             <C>
Due in one year or less            $ 6,640         $ 6,728         $   510         $   514
Due after one year
    through five years              11,562          11,597               -               -
Due after five years
    through ten years                2,812           2,942             250             253
                                   -------         -------         -------         -------
           Total                    21,014          21,267             760             767

Mortgage-backed securities           9,138           9,083               -               -
                                   -------         -------         -------         -------
           Total                   $30,152         $30,350         $   760         $   767
                                   =======         =======         =======         =======
</TABLE>

                                      F-13

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 3 - SECURITIES (CONTINUED)

         Securities with a book value of $5,088,000 and $8,565,000 (market value
         of $5,173,000 and $8,790,000) were pledged at December 31, 2003 and
         2002, respectively, to secure borrowings from the Federal Home Loan
         Bank.

         Other securities consist of restricted Federal Home Loan Bank of
         Indianapolis stock 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, 2003, 2002, and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                               2003                2002             2001
                                              ------               ----            ------
<S>                                           <C>                  <C>             <C>
Gross proceeds                                $1,771               $ -             $2,667
Gross gains                                       44                 -                 36
Applicable income tax provision                   15                 -                 12
</TABLE>

                                      F-14

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 4 - LOANS

         Major categories of loans in the portfolio are as follows at December
         31, 2003 and 2002 (000s omitted):

<TABLE>
<CAPTION>
                                                    2003             2002
                                                  --------         --------
<S>                                               <C>              <C>
Mortgage loans on real estate:
      Residential 1-4 family                      $ 45,218         $ 57,709
      Construction                                   4,799           16,437
      Second mortgages                               1,254            2,339
      Equity lines of credit                         2,083            1,958
      Commercial                                    30,032           37,187

Commercial loans                                    12,326           19,515

Consumer installment loans:
      Direct
            Automobile loans                         4,274            7,474
            Recreational vehicles                    2,047            3,243
            Home equity closed end                   4,398            7,322
            Unsecured                                  808            1,594
            Equipment loans                            674            1,226
            Other                                    1,822            1,464
            Mobile homes                               944            1,013
      Indirect
            Automobile loans                         4,595            8,388
            Recreational vehicles                    2,989            4,824
      Personal lines of credit                         312              396
                                                  --------         --------
                              Total loans         $118,575         $172,089
                                                  ========         ========
</TABLE>

         Certain directors and executive officers of the Corporation, including
         their related entities, were loan customers of the subsidiary bank
         during 2003 and 2002. 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, 2003 and 2002 amounted to $4,443,000 and $2,909,000,
         respectively. During 2003, $6,749,000 of new loans were made and
         repayments totaled $5,216,000. At December 31, 2003, $2,415,000 of
         loans to directors and executive officers were classified substandard.

                                      F-15

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 5 - ALLOWANCE FOR LOAN LOSSES

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

<TABLE>
<CAPTION>
                                         2003             2002             2001
                                        -------          -------          -------
<S>                                     <C>              <C>              <C>
Balance - Beginning of year             $ 4,512          $ 1,228          $   843

Provision charged to operations           5,849            5,337              886
Loans charged off                        (4,302)          (2,203)            (601)
Recoveries of loans charged off             523              150              100
                                        -------          -------          -------
Balance - End of year                   $ 6,582          $ 4,512          $ 1,228
                                        =======          =======          =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                  2003            2002           2001
                                                --------         -------         ----
<S>                                             <C>              <C>             <C>
As of December 31:

Recorded investment in impaired
   loans for which there is a related
   allowance for loan losses                    $ 10,154         $ 2,009         $442

Recorded investment in impaired
   loans for which there is no related
   allowance for loan losses                       1,807               -           95
                                                --------         -------         ----

Recorded investment in impaired loans           $ 11,961         $ 2,009         $537
                                                ========         =======         ====
Valuation allowance related to
   impaired loans                               $  1,620         $   668         $163
                                                ========         =======         ====

Total non-accrual loans                         $ 12,650         $ 2,139         $513
                                                ========         =======         ====
Total loans past due 90 days or
   more and still accruing                      $      -         $   128         $313
                                                ========         =======         ====
For the year ended December 31:

Average recorded investment
   in impaired loans during the year            $  7,236         $   714         $132
                                                ========         =======         ====
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-16

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 6 - FORECLOSED ASSETS

         Expenses applicable to foreclosed assets include the following for the
         years ended December 31, 2003, 2002, and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                               2003         2002         2001
                                               ----         ----         ----
<S>                                            <C>          <C>          <C>
Net loss on sales of foreclosed assets         $ 20         $  9         $  2
Write-down of foreclosed assets                 231            -            -
Operating expenses                              159           79           15
                                               ----         ----         ----

                        Total                  $410         $ 88         $ 17
                                               ====         ====         ====
</TABLE>

NOTE 7 - 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 totaled $111,573,000 and $73,363,000 at
         December 31, 2003 and 2002, respectively.

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

<TABLE>
<CAPTION>
                                               2003           2002           2001
                                              -----          -----          -----
<S>                                           <C>            <C>            <C>
Mortgage servicing rights
       Beginning of year                      $ 599          $ 393          $ 160

Mortgage servicing rights capitalized           782            644            388

Change in valuation allowance                   143           (143)             -

Servicing rights written down due
       to prepayment and amortization          (543)          (295)          (155)
                                              -----          -----          -----
Mortgage servicing rights
        End of year                           $ 981          $ 599          $ 393
                                              =====          =====          =====
</TABLE>

         The fair value of servicing rights was determined using discount rates
         of 7.25 percent and prepayment speeds ranging from 7.72 percent to
         16.77 percent, depending on the stratification of the specific right.

                                      F-17

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 7 - MORTGAGE LOAN SERVICING (CONTINUED)

         In the event of any customer default on loans that have been sold to
         Freddie Mac, the Corporation may be required to repurchase those loans
         based on its agreement with Freddie Mac. In the event of
         nonperformance, the Corporation has the rights to the underlying
         collateral values attached to the loans.

NOTE 8 - BANK PREMISES AND EQUIPMENT

         Major classifications of bank premises and equipment are summarized as
         follows at December 31, 2003 and 2002 (000s omitted):

<TABLE>
<CAPTION>
                                             2003             2002
                                           -------          -------
<S>                                        <C>              <C>
Land and land improvements                     842              842
Building and building improvements           1,646            1,614
Furniture and equipment                      1,979            1,932
                                           -------          -------
            Total                            4,467            4,388

Less accumulated depreciation               (2,068)          (1,802)
                                           -------          -------
            Total                          $ 2,399          $ 2,586
                                           =======          =======
</TABLE>

NOTE 9 - DEPOSITS

         The following is a summary of interest-bearing deposits at December 31,
         2003 and 2002 (000s omitted):

<TABLE>
<CAPTION>
                                                      2003             2002
                                                    --------         --------
<S>                                                 <C>              <C>
NOW accounts                                        $ 24,006         $ 21,042
Savings                                               15,619           24,912
Certificates of deposit:
      $100,000 and over                               35,588           43,371
      Under $100,000                                  43,640           56,421
                                                    --------         --------
            Total interest-bearing deposits         $118,853         $145,746
                                                    ========         ========
</TABLE>

                                      F-18

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE  9 - DEPOSITS (CONTINUED)

         At December 31, 2003, the scheduled maturities of time deposits are as
         follows (000s omitted):

<TABLE>
<S>          <C>
2004         $61,093
2005          10,800
2006           3,813
2007           2,691
2008             831
             -------
  Total      $79,228
             =======
</TABLE>

NOTE 10 - SHORT-TERM BORROWINGS

         The Corporation has a line of credit for short-term borrowings
         available from the Federal Home Loan Bank of Indianapolis (FHLB)
         totaling $2,000,000. The line of credit agreement expires on March 5,
         2004. The FHLB reserves the right at any time with advance notice to
         immediately terminate the line of credit.

         Interest is computed using a variable interest rate (1.11 percent and
         1.33 percent at December 31, 2003 and 2002, respectively) established
         by the FHLB. The collateral for the line of credit is the same as that
         described in Note 11 for the term advances. The Corporation had no
         outstanding borrowings under this agreement at December 31, 2003 and
         2002.

NOTE 11 - NOTES PAYABLE

         The Corporation has various term advances from the FHLB with fixed
         interest rates ranging from 1.70 percent to 7.33 percent at December
         31, 2003, and 1.55 percent to 7.55 percent at December 31, 2002.
         Maturity dates range from January 2004 to June 2009. Interest on these
         borrowings is payable monthly. The Corporation has a specific
         collateral agreement with the FHLB covering certain investment
         securities (book value of $5,088,000 at December 31, 2003) and certain
         qualifying residential mortgage loans (book value of $42,872,000 at
         December 31, 2003).

                                      F-19

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 11 - NOTES PAYABLE (CONTINUED)

         Maturities of notes payable are as follows as of December 31, 2003
         (000s omitted):

<TABLE>
<S>          <C>
2004         $ 8,375
2005           8,911
2006           6,000
2007           1,000
2008           1,500
2009             500
             -------
  Total      $26,286
             =======
</TABLE>

NOTE 12 - 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 3.6 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. 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 preferred securities
         totaled $241,000 and are being amortized over ten years.

                                      F-20

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 12 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE CORPORATION'S JUNIOR
          SUBORDINATED DEBENTURES (CONTINUED)

         Distributions on the preferred securities are to be paid quarterly on
         March 31, June 30, September 30, and December 31. The preferred
         subordinated debenture agreement allows for suspension of these
         payments for up to 20 quarters. The OCC has restricted the Bank's
         ability to pay dividends to the Corporation, which has limited the
         Corporation's available funds. Due to limited sources of liquidity for
         the payment of the quarterly distributions, the Board of Directors
         exercised the right to defer distributions effective December 31, 2003.
         Future distributions on the preferred securities are dependent on the
         Bank's ability to pay dividends to the Corporation. It is anticipated
         that all such distributions in 2004 will be deferred, as the Bank will
         not likely have the ability to pay dividends to the Corporation.

         The Partnership meets the FIN 46 definition of a variable interest
         entity, but the Corporation is not the primary beneficiary in this
         entity. As discussed in Note 1, the Corporation deconsolidated the
         Partnership as a result of FIN 46. The Corporation is not exposed to
         loss related to this variable interest entity. Banking regulators
         announced that, until notice is given to the contrary, this debt will
         continue to qualify as Tier I capital for the Corporation.

NOTE 13 - INCOME TAXES

         The Corporation and its subsidiaries file a consolidated federal income
         tax return. At December 31, 2003, the Corporation has a net operating
         loss carryforward for federal tax purposes of $1,706,000 and a net
         operating loss carryforward for alternative minimum tax purposes of
         $153,000. These carryforwards are available to reduce future taxable
         income through the years ended December 31, 2023.

         A valuation allowance is provided against deferred tax assets when it
         is more likely than not that some or all of the deferred tax assets
         will not be realized. At December 31, 2003, the Corporation established
         a valuation allowance against the net deferred tax asset that would
         require future taxable income in order to be utilized.

                                      F-21

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 13 - INCOME TAXES (CONTINUED)

         The following is a summary of the income tax expense (benefit) for the
         years ended December 31, 2003, 2002, and 2001 (000s omitted):

<TABLE>
<CAPTION>
                                               2003             2002             2001
                                             -------          -------          -------
<S>                                          <C>              <C>              <C>
Current expense  (benefit)                   $  (752)         $   134          $   675
Deferred expense  (benefit)                   (1,094)            (937)              22
                                             -------          -------          -------
                  Subtotal                    (1,846)            (803)             697
 Change in valuation allowance                 1,999                -                -
                                             -------          -------          -------
                  Income tax expense
                         (benefit)           $   153          $  (803)         $   697
                                             =======          =======          =======
</TABLE>

         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
                                        -----------------------------------------
                                          2003             2002            2001
                                        -------          -------          -------
<S>                                     <C>              <C>              <C>
Income tax (benefit) at federal
      statutory rate of 34%             $(1,746)         $  (740)         $   718

Decreases resulting
      from non-taxable income              (109)             (76)             (42)

Increases resulting from
       non-deductible expense                 9               13               21
                                        -------          -------          -------
                  Subtotal               (1,846)            (803)             697

Change in valuation allowance             1,999                -                -
                                        -------          -------          -------
Income tax expense (benefit)            $   153          $  (803)         $   697
                                        =======          =======          =======
</TABLE>

                                      F-22

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 13 - INCOME TAXES (CONTINUED)

         The significant components of the Corporation's deferred tax assets and
         liabilities at December 31, 2003 and 2002 are as follows (000s
         omitted):

<TABLE>
<CAPTION>
                                                                 2003             2002
                                                               -------          -------
<S>                                                            <C>              <C>
Deferred tax assets:
      Accrued postretirement benefit cost                      $   106          $    83
      Allowance for loan losses                                  1,782            1,320
      Deferred compensation                                        105               58
      Net operating loss carry forward                             580                -
      Alternative minimum tax credit carry forward                  52                -
      Other                                                         78                2
                                                               -------          -------
                  Total deferred tax assets                      2,703            1,463

Deferred tax liabilities:
      Fixed assets                                                (217)            (201)
      Mortgage servicing rights                                   (333)            (204)
      Net loan fees                                               (154)            (153)
      Unrealized gain on securities available for sale               -             (176)
                                                               -------          -------
                  Total deferred tax liabilities                  (704)            (734)

                  Subtotal                                       1,999              729
                                                               -------          -------
     Valuation allowance                                        (1,999)               -
                                                               -------          -------
                  Net deferred tax assets                      $     -          $   729
                                                               =======          =======
</TABLE>

NOTE 14 - 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.

                                      F-23

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 14 - OFF BALANCE SHEET ACTIVITIES (CONTINUED)

         At December 31, 2003 and 2002, the following financial instruments were
         outstanding whose contract amounts represent credit risk (000s
         omitted):

<TABLE>
<CAPTION>
                                                      Contract Amount
                                                   ----------------------
                                                    2003           2002
                                                   ------         -------
<S>                                                <C>            <C>
Commitments to grant loans                         $2,936         $13,761
Unfunded commitments under lines of credit          4,479           9,785
Commercial and standby letters of credit              146             310
</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 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.

         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 15 - 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
         30 percent of the participants' first 3 percent of compensation
         contributed. For the years ended December 31, 2003, 2002, and 2001, the
         expense attributable to this plan was $43,000, $39,000 and $30,000,
         respectively.

                                      F-24

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 16 - DEFERRED COMPENSATION AGREEMENTS

         The Corporation has a nonqualified deferred compensation agreement with
         a former officer, whereby the former officer or designated beneficiary
         receives payments of $33,000 per year for 15 years. The accrued
         deferred compensation benefit cost at December 31, 2003 and 2002
         corresponding to this agreement was $292,000 and $170,000,
         respectively. Expense in the amount of $142,000, $38,000, and $27,000
         has been charged to operations for the years ended December 31, 2003,
         2002, and 2001, respectively.

         The Corporation has nonqualified deferred compensation agreements with
         certain current 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 benefits vest over ten years; however, in
         the event of a change in control and a participant is subsequently
         terminated, the benefits are payable upon normal retirement age as if
         the participant had been continuously employed by the Corporation until
         normal retirement age. The accrued deferred compensation benefit cost
         at December 31, 2003 and 2002 corresponding to these agreements was
         $18,000 and $8,000, respectively. Expense in the amount of $11,000,
         $8,000, and $0 has been charged to operations for the years ended
         December 31, 2003, 2002, and 2001, respectively.

         To fund the above obligations, the Corporation has purchased insurance
         on the lives of the participants with the Corporation as the owner and
         beneficiary of the policies. The cash surrender value of the life
         insurance contracts totaled $891,000 and $702,000 at December 31, 2003
         and 2002, respectively. Income in the amount of $41,000, $23,000, and
         $18,000 has been earned and recorded for the years ended December 31,
         2003, 2002, and 2001, respectively.

         The Corporation has an agreement with a former officer whereby the
         former officer receives payments of $2,600 per month for the period
         July 2003 to May 2005. The accrued liability for this agreement at
         December 31, 2003 is $44,000.

                                      F-25

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 17 - 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 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 $314,000 and $243,000 at December 31,
         2003 and 2002, respectively. Expenses for these benefits were $117,000,
         $120,000, and $86,000 for the years ended December 31, 2003, 2002, and
         2001, respectively.

         Actuarial assumptions include a discount rate of 6.5 percent and a
         health care inflation rate of 12 percent graded down to 5 percent over
         seven years. The effect of an increase or decrease of 1 percent in the
         health care inflation rate on the expense recognized for the year ended
         December 31, 2003 is not significant.

NOTE 18 - 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. SFAS 107 excludes certain
         financial instruments and all nonfinancial instruments from its
         disclosure requirements. The aggregate fair value amounts presented may
         not necessarily represent the underlying fair value of the Corporation.

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

         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.

                                      F-26

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

         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.

         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.

         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.

         PREFERRED SECURITIES - The fair values of the Corporation's preferred
         securities are estimated using discounted cash flow analyses based on
         the Corporation's current incremental borrowing rates for similar types
         of borrowing arrangements.

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

                                      F-27

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 18 - 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.

         The estimated fair values, and related carrying or notional amounts, of
         the Corporation's financial instruments at December 31, 2003 and 2002
         are as follows (000s omitted):

<TABLE>
<CAPTION>
                                                          2003                             2002
                                               --------------------------        --------------------------
                                               Carrying        Estimated         Carrying        Estimated
                                               Amounts         Fair Value        Amounts         Fair Value
                                               --------        ----------        --------        ----------
<S>                                            <C>             <C>               <C>             <C>
Financial Assets:
    Cash and cash equivalents                  $ 18,554         $ 18,554         $  8,292         $  8,292
    Interest-bearing deposits in banks              495              495            2,671            2,671
    Securities available for sale                30,350           30,350           21,905           21,905
    Securities held to maturity                     760              767            1,992            2,012
    Other securities                              2,606            2,606            2,520            2,520
    Loans - Net                                 111,993          114,914          167,577          170,433
    Accrued interest receivable                     756              756            1,275            1,275

Financial Liabilities:
    Customer deposits                           135,747          135,826          162,230          162,275
    Notes payable                                26,286           26,048           34,906           36,923
    Accrued interest payable                        318              318              442              442
    Preferred securities                          5,000            2,932            5,000            5,000
</TABLE>

NOTE 19 - 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.

                                      F-28

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 19 - REGULATORY MATTERS (CONTINUED)

         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).

         Nominally, the Bank is considered to be adequately capitalized under
         the regulatory framework for prompt corrective action. Under the
         framework, the Bank's capital levels do not allow the Bank to accept
         brokered deposits without prior approval from the FDIC. In addition, as
         a result of this classification, the Bank's premiums for deposit
         insurance will increase in 2004.

         Exclusive of the Formal Agreement, to be categorized as adequately
         capitalized, the Bank must maintain minimum total risk-based, Tier 1
         risk-based and Tier 1 leverage ratios as set forth in the following
         tables. The Corporation's and the Bank's actual capital amounts and
         ratios as of December 31, 2003 and 2002 are also presented in the table
         (000s omitted).

<TABLE>
<CAPTION>
                                                                                                    Minimum Required to be Well
                                                                     Minimum Required for Capital     Capitalized Under Prompt
                                                    Actual                 Adequacy Purposes        Corrective Action Provisions
                                         ------------------------    ----------------------------   ----------------------------
                                          Amount            Ratio      Amount              Ratio      Amount              Ratio
                                         -------            -----    ----------            ------   ---------            -------
<S>                                      <C>                <C>      <C>                   <C>      <C>                  <C>
As of December 31, 2003:

Total Capital
(to Risk Weighted Assets)
  Consolidated                           $ 9,908             9.34%      $ 8,489            8.00%        N/A               N/A
  First National Bank of Gaylord           9,929             9.38%        8,472            8.00%      $10,590            10.00%

Tier 1 Capital
(to Risk Weighted Assets)
  Consolidated                           $ 4,954             4.67%      $ 4,244            4.00%        N/A               N/A
  First National Bank of Gaylord           8,542             8.07%        4,236            4.00%      $ 6,354             6.00%

Tier 1 Capital
(to Average Assets)
  Consolidated                           $ 4,954             2.66%      $ 7,452            4.00%        N/A               N/A
  First National Bank of Gaylord           8,542             4.59%        7,444            4.00%      $ 9,305             5.00%

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%
</TABLE>

                                      F-29

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 19 - REGULATORY MATTERS (CONTINUED)

         On July 10, 2003 the Bank's Board of Directors entered into a Formal
         Agreement ("Agreement") with the Bank's primary federal regulator, the
         Office of the Comptroller of the Currency ("OCC"). The Agreement
         contains substantive requirements and restrictions regarding the Bank's
         overall capitalization and its ability to issue cash dividends to the
         Corporation. The Agreement also contains significant requirements to
         improve credit administration, management of criticized and classified
         assets, evaluation of Bank management, internal audit activities,
         management information systems, strategic planning, asset/liability
         management, interest rate risk management, and adherence to laws and
         regulations. The Agreement also prohibits average loans during any
         calendar quarter from growing by more than 1.5 percent compared to the
         previous quarterly average, until December 31, 2004. At December 31,
         2003, the Bank is not in compliance with certain provisions of the
         Agreement.

         Among other provisions, the Agreement requires the Bank to achieve, by
         December 31, 2003, a Tier 1 capital to risk-weighted assets ratio of 10
         percent and a Tier I capital to adjusted total assets ratio of 7.5
         percent. As of December 31, 2003, the Bank is not in compliance with
         the capital requirements of the Agreement. The OCC has denied a request
         to extend the December 31, 2003 compliance date for the capital
         requirements. The Bank is subject to material adverse effects,
         including the OCC placing the Bank into receivership with the FDIC, as
         a result of its deteriorating financial condition.

NOTE 20 - 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. At
         December 31, 2003, the Bank was not authorized to pay dividends to the
         Corporation without prior regulatory approval from the OCC.
         Additionally, due to restrictions in the preferred security documents,
         dividends are prohibited during the period in which distributions are
         deferred.

                                      F-30

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 20 - RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES (CONTINUED)

         As of June 30, 2003, a dividend in the amount of $65,000 was paid by
         the Bank to the Corporation to pay the quarterly distributions on the
         preferred securities. Due to the losses incurred by the Bank, prior
         approval from the OCC was required for the payment of this dividend.
         Retroactive approval was requested in August 2003 and the OCC denied
         the request for approval in October 2003. As of December 31, 2003, the
         Bank capital has not been restored for the amount of this dividend.

         Loans or advances by the Bank to the Corporation are subject to
         significant regulatory requirements. No such loans or advances were
         outstanding as of December 31, 2003 and 2002.

NOTE 21 - 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, 2003 and 2002 is as follows
         (000s omitted):

<TABLE>
<CAPTION>
                                                                      2003           2002
                                                                     ------         -------
<S>                                                                  <C>            <C>
                          ASSETS

Cash at subsidiary bank                                              $   22         $   130
Investment in subsidiary                                              8,889          14,202
Other                                                                   203             227
                                                                     ------         -------
            Total assets                                             $9,114         $14,559
                                                                     ======         =======

          LIABILITIES AND STOCKHOLDERS' EQUITY

Guaranteed preferred beneficial interest in
      junior subordinated debentures                                 $5,051         $ 5,051
Other                                                                    76              67
Stockholders' equity                                                  3,987           9,441
                                                                     ------         -------
           Total liabilities and stockholders' equity                $9,114         $14,559
                                                                     ======         =======
</TABLE>

                                      F-31

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 21 - PARENT-ONLY FINANCIAL STATEMENTS (CONTINUED)

         The condensed statement of operations for the years ended December 31,
         2003, 2002, and 2001 is as follows (000s omitted):

<TABLE>
<CAPTION>
                                                               2003            2002                 2001
                                                              -------        ---------           ---------
<S>                                                           <C>            <C>                 <C>
Dividends from subsidiary                                     $   131        $     479           $     510
Operating expense                                                 371              317                 305
                                                              -------        ---------           ---------
        Income(loss) - Before income taxes and
                equity in undistributed net income(loss)
                of subsidiary                                    (240)             162                 205
Income tax benefit                                                  -             (104)               (101)
                                                              -------        ---------           ---------
        Income (loss) - Before equity in undistributed
                net income(loss) of subsidiary                   (240)             266                 306
        Equity in undistributed net income(loss)
                of subsidiary                                  (5,170)          (1,641)              1,110
                                                              -------        ---------           ---------
                        Net income(loss)                      $(5,410)       $  (1,375)          $   1,416
                                                              =======        =========           =========
</TABLE>

                                      F-32

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 21 - PARENT-ONLY FINANCIAL STATEMENTS (CONTINUED)

         The condensed statement of cash flows for the years ended December 31,
         2003, 2002, and 2001 is as follows (000s omitted):

<TABLE>
<CAPTION>
                                                             2003             2002            2001
                                                           -------          -------          -------
<S>                                                        <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                       $(5,410)         $(1,375)         $ 1,416
   Adjustments to reconcile net income (loss)
       to net cash from operating activities:
         Equity in undistributed net (income) loss
           of subsidiary                                     5,170            1,641           (1,110)
         Change in other assets                                 24             (327)             (26)
         Change in other liabilities                             9               (2)             (13)
                                                           -------          -------          -------
              Net cash provided by
                  (used in) operating activities              (207)             (63)             267

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

CASH FLOWS FROM FINANCING ACTIVITIES
   Net change in short-term borrowings                           -           (2,139)            (911)
   Proceeds from issuance of junior
      subordinate debentures                                     -            5,051                -
   Dividends paid to stockholders                                -             (210)            (192)
   Proceeds from issuance of common stock,
      net of offering expenses                                  99               14            3,517
                                                           -------          -------          -------
              Net cash provided by
                  financing activities                          99            2,716            2,414
                                                           -------          -------          -------

NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                                       (108)              40              (69)

CASH AND CASH EQUIVALENTS
   Beginning of year                                           130               90              159
                                                           -------          -------          -------
CASH AND CASH EQUIVALENTS
   End of year                                             $    22          $   130          $    90
                                                           =======          =======          =======
</TABLE>

                                      F-33

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 22 - GOING CONCERN

         The accompanying financial statements have been prepared in conformity
         with accounting principles generally accepted in the United States of
         America, which contemplate continuation of the Corporation as a going
         concern. The Corporation has suffered substantial operating losses in
         2003 and 2002 that significantly reduced regulatory capital. Losses are
         expected to continue in 2004. As discussed in Note 19, the Bank's
         capital levels at December 31, 2003 are significantly less than the
         requirements imposed by the Office of the Comptroller of the Currency
         (OCC) in a Formal Agreement entered into on July 10, 2003. Requests for
         extension of the capital requirements were denied by the OCC. Due to
         noncompliance with the Formal Agreement, the OCC reserves the right to
         take any action it deems necessary to remedy this noncompliance,
         including placing the Bank into receivership with the FDIC. In view of
         these matters, there is substantial doubt as to the Corporation's
         ability to continue as a going concern.

         In the fourth quarter of 2003, the Board of Directors initiated a
         possible sale of the Corporation. In the event a sale of the
         Corporation does not occur, management may attempt to raise additional
         capital. Implementation of the foregoing alternatives, among other
         things, would require prior regulatory approval under terms of
         applicable banking regulations.

         The Board of Directors and management have implemented operational
         changes to effect corrective action of regulatory concerns noted in the
         Formal Agreement. These measures include, but are not limited to,
         substantial changes to the following: policy and operating procedures,
         operational expense efficiencies, strategic planning, asset/liability
         management, liquidity management, product offerings and development,
         staffing analyses, asset contraction and capital management. In the
         event that a sale of the Corporation does not occur, there are no
         guarantees that these measures will successfully improve the condition
         of the Bank and result in the termination of the Formal Agreement. In
         addition, while these measures are designed to improve the condition of
         the Bank, there are no guarantees that such measures will successfully
         enable the Corporation to continue as a going concern.

                                      F-34

<PAGE>

NORTH BANCORP, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               DECEMBER 31, 2003, 2002, AND 2001

NOTE 23 - SUBSEQUENT EVENT

         On March 4, 2004, the Corporation executed a definitive agreement with
         Independent Bank Corporation. Under the agreement, stockholders of
         North Bancorp, Inc. will receive $16.00 per share all payable in
         Independent Bank Corporation common stock. Based on the number of
         outstanding shares of North Bancorp, Inc. and subject to certain
         contingent purchase price adjustments, the aggregate transaction value
         is $8.5 million. The primary contingency that could impact the
         aggregate transaction value is that, at the month end immediately prior
         to closing, North Bancorp, Inc. must have at least $3.8 million of
         total stockholders' equity. In the event that North Bancorp, Inc.'s
         total stockholders' equity is below $3.8 million, the total transaction
         value is reduced dollar for dollar by the amount that North Bancorp,
         Inc.'s total stockholders' equity is below $3.8 million and the per
         share transaction value would be adjusted accordingly.

         The agreement provides for the merger of North Bancorp, Inc. into
         Independent Bank Corporation, and the subsequent consolidation of First
         National Bank of Gaylord into Independent Bank, a wholly-owned
         subsidiary of Independent Bank Corporation.

         It is anticipated that the transaction will be completed by July 31,
         2004, pending regulatory approvals, the approval of the stockholders of
         North Bancorp, Inc., and completion of other customary closing
         conditions.

                                      F-35
<PAGE>

                                  EXHIBIT INDEX

Number   Exhibit

2        Agreement and Plan of Merger dated March 4, 2004 among Independent Bank
         Corporation, North Bancorp, Inc. and First National Bank of Gaylord.

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, incorporated herein by reference to exhibit
         10.2 of the Registrant's Form 10-KSB dated March 31, 2003.

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.

21       Subsidiaries of North Bancorp, Inc.

<PAGE>

31.1     Certification of Chief Executive Officer

31.2     Certification of Chief Financial Officer

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