UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

________________



FORM 10-K

(Mark One)



ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



For the fiscal year ended December 31, 2003



OR



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



Commission File Number 0-24433



POINTE FINANCIAL CORPORATION

(Exact name of Registrant as specified in its charter)



|Florida                                                        | 65-0451402                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer
Identification Number)
|                                                              

21845 Powerline Road, Boca Raton, Florida 33433

(Address of principal executive offices)(Zip Code)

Registrants telephone number, including area code:  (561) 368-6300



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



Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $.01 par value



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.   Yes   ý    No    ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ý



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes    ̈    No   ý



The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the average bid and asked prices as quoted on the NASDAQ Stock Market on June 30, 2003, the last business day of the most recently completed second fiscal quarter, was $32,439,220*.



The Registrant had 2,258,688 shares of Common Stock outstanding on February 26, 2004.



DOCUMENTS INCORPORATED BY REFERENCE



The Registrants Definitive Proxy Statement for its 2004 Annual Meeting of Stockholders will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Rule G(2) and Rule G(3) of the General Instructions for Form 10-K.  Information from such Definitive Proxy Statement will be incorporated by reference into Part II, Item 5 and Part III, Items 10, 11, 12 and 13 hereof.



* Based on reported beneficial ownership of all directors and executive officers of the Registrant; this determination does not, however, constitute an admission of affiliated status for any of these individual stockholders.

---

INDEX



|PART I                   |                                                                                       |      
|------------------------ | ------------------------------------------------------------------------------------- | -----
|                         |                                                                                       |      
|Item 1.                  | Description of Business                                                               |      
|                         | Introduction                                                                          | 1-2  
|                         | Business                                                                              | 2    
|                         | Investment Banking Joint Venture                                                      | 2    
|                         | Market Area and Competition                                                           | 2-3  
|                         | Employees                                                                             | 3    
|                         | Forward-Looking Statements                                                            | 3    
|                         |                                                                                       |      
|Item 2.                  | Properties                                                                            | 4    
|                         |                                                                                       |      
|Item 3.                  | Legal Proceedings                                                                     | 5    
|                         |                                                                                       |      
|Item 4.                  | Submission of Matters to a Vote of Security Holders                                   | 5    
|                         |                                                                                       |      
|PART II                  |                                                                                       |      
|                         |                                                                                       |      
|Item 5.                  | Market for Registrants Common Equity and Related Stockholder Matters                 | 6    
|                         |                                                                                       |      
|Item 6.                  | Selected Financial Data                                                               | 7-8  
|                         |                                                                                       |      
|Item 7.                  | Managements Discussion and Analysis of Financial Condition
and Results of Operations | 9-24 
|                         |                                                                                       |      
|Item 7A.                 | Quantitative and Qualitative Disclosure About Market Risk                             | 25   
|                         |                                                                                       |      
|Item 8.                  | Financial Statements and Supplementary Data (See index page 25)                       | 25   
|                         |                                                                                       |      
|Item 9.                  | Change In and Disagreements with Accountants on Accounting
and Financial Disclosure   | 25   
|                         |                                                                                       |      
|PART III                 |                                                                                       |      
|                         |                                                                                       |      
|Item 10.                 | Directors and Executive Officers of the Registrant                                    | 26-27
|                         |                                                                                       |      
|Item 11.                 | Executive Compensation                                                                | 27   
|                         |                                                                                       |      
|Item 12.                 | Security Ownership of Certain Beneficial Owners and Management                        | 27   
|                         |                                                                                       |      
|Item 13.                 | Certain Relationships and Related Transactions                                        | 28   
|                         |                                                                                       |      
|Item 14.                 | Controls and Procedures                                                               | 28   
|                         |                                                                                       |      
|PART IV                  |                                                                                       |      
|                         |                                                                                       |      
|Item 15.                 | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       | 28-29
|                         |                                                                                       |      
|Supplemental Information | 29                                                                                   
|                         |                                                                                       |      
|SIGNATURES               | 30                                                                                   
|                         |                                                                                      
|                         |                                                                                      

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PART I



Item 1.

Description of Business



Introduction



Pointe Financial Corporation, a Florida corporation, (Pointe or the Company) is a bank holding company headquartered in Boca Raton. Pointes principal business consists of operating its commercial bank subsidiary, Pointe Bank, a Florida state chartered commercial bank (the Bank). At December 31, 2003, the Company has total assets of $348.7 million and stockholders equity of $34.9 million.



As a bank holding company registered under the Bank Holding Company Act (the BHCA), the Company is subject to the regulation and supervision of the Board of Governors of the Federal Reserve System (the FRB). The Company is required to file with the FRB annual reports and other information regarding its business operations and those of its subsidiaries.



As a state-chartered commercial bank, the Bank is subject to extensive regulation by the Florida Department of Financial Services, Office of Financial Regulation (Florida OFR), the FRB and the Federal Deposit Insurance Corporation (FDIC). The Bank files reports with Florida OFR and FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. Periodic examinations and inspections are performed by the Florida OFR and the FRB to monitor the Banks compliance with the various regulatory requirements.



There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by law and regulatory policy that are designed to minimize potential loss to the depositors of such depository institutions and the FDIC insurance funds in the event the depository institution becomes in danger of default. Under a policy of the FRB with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so absent such policy. The FRB also has the authority under the BHCA to require a bank holding company to terminate any activity or to relinquish control of a non-bank subsidiary upon the FRBs determination that such activity or control constitutes a serious risk to the financial soundness and stability of any depository institution subsidiary of the bank holding company.



The BHCA has been substantially amended by the Gramm-Leach-Bliley Financial Modernization Act of 1999 (the Modernization Act). The portion of the Modernization Act affecting the powers of the Company became effective March 13, 2000. Prior to the Modernization Act, the BHCA prohibited a bank holding company, with certain limited exceptions, from:



(i)

acquiring or retaining direct or indirect ownership or control of more than 5% of the outstanding voting stock of any company which is not a bank or bank holding company; or



(ii)

engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or performing services for its subsidiaries, unless such non-banking business is determined by the FRB to be so closely related to banking or managing or controlling banks as to be properly incident thereto.



The Modernization Act, among other things:



(i)

allows bank holding companies meeting management, capital and Community Reinvestment Act standards to elect the status of financial holding company and thereafter engage in a substantially broader range of non-banking activities, including insurance underwriting and making merchant banking investments in commercial and financial companies;



(ii)

allows insurers and other financial services companies to acquire banks or bank holding companies;



(iii)

removes various restrictions that currently apply to bank holding company ownership of securities firms and mutual fund advisory companies; and



(iv)

establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations.





---

The Company filed a declaration with the Federal Reserve Bank to become a financial holding company under the Modernization Act. The FRB advised the Company that its election to become a financial holding company was effective on March 13, 2000. The Company elected to relinquish the financial holding company status early in 2002. The Company believes that the relinquishment of this status does not have any effect on its business plan.



Business



The Company was incorporated under the laws of the State of Florida on September 29, 1993 for the dual purpose of serving as a holding company for Pointe Federal Savings Bank, a federally chartered thrift (the Thrift), and to facilitate the acquisition of the Bank, then known as Flamingo Bank, in mid-1994. Both the Bank and the Thrift were established in the mid-1980s. The Thrift, headquartered in Boca Raton, had been a mortgage banking thrift highly focused on residential mortgage lending. The Bank had focused on small business commercial lending, with emphasis on originating Small Business Administration (SBA) guaranteed loans. After the acquisition of the Bank in mid-1994, the Company had been both a bank holding company (subject to regulation by the FRB) and a thrift holding company (subject to regulation by the Office of Thrift Supervision (the OTS)). This was a very complex regulatory environment for the Company. The Company streamlined its operations through the merger in April 1997 of the Thrift into the Bank. As a result of the merger of the Thrift into the Bank, the Company is no longer subject to regulation by the OTS. The merger thus allowed the Company to alleviate some of its regulatory burdens without negatively impacting its ability to service its customers.



On June 12, 1998, the Company completed an initial public offering issuing 869,565 shares of its common stock. The proceeds totaled $12.1 million of which $6.0 million was invested in the Bank; the remainder was retained by the Company for general corporate purposes. Following its business plan to build its network of banking center locations into communities that are consistent with the Banks focus on small businesses, professionals and individuals, in 1999 the Bank opened two branches in Palm Beach County. In 2001, the Bank opened one de novo branch in Broward County and acquired four branches in Miami-Dade County from Republic Bancshares, Inc. of St. Petersburg, Florida. During the year ending December 31, 2002, the Company entered into a lease agreement for a de novo branch office in Miami-Dade Countys South Beach. The office was opened for business during the last quarter of the year.



During 2003, the Company closed two unprofitable banking offices located in Doral and West Boca Raton.  The Doral office was a lease obligation acquired in the Republic Bancshares acquisition. The customers accounts of the Doral office were transferred to the Banks Airpark facility during the second quarter of 2003. The customers accounts of the West Boca Raton office located on State Road 7 were transferred to the Banks main office. The vacated West Boca Raton office was under contract for sale at December 31, 2003.  The Company does not believe that the closure of these offices will have a negative impact on its business.



The Companys principal business, conducted through the Bank, is making commercial, consumer and real estate loans. Attracting deposits from the general public, along with utilizing Federal Home Loan Bank (FHLB) advances and other borrowings, are the primary sources of funds used to make these loans, and to a lesser extent, purchase security investments. The Bank conducts business through its nine full service facilities located in Palm Beach, Broward and Miami-Dade counties. The Company derives revenues principally from interest income earned on loans and securities, fee income associated with loans serviced and originated, service charges on depository accounts and the sale of assets designated as available for sale.



Investment Banking Joint Venture



In July, 2000, the Company formed Pointe Capital, LLC (Pointe Capital) an investment banking joint venture with First Integrated Capital. Pointe Capital offered investment banking services to customers who are overlooked by larger investment banking firms.  In 2001, Pointe Capital became a broker-dealer registered with the Securities and Exchange Commission and is a member of the National Association of Securities Dealers. During the years ended December 31, 2003, 2002 and 2001, the Company recognized losses of $92,000, $171,000 and $149,000, respectively. In 2003, the Board of Directors of Pointe Capital decided to exit the investment banking service business. It is expected that Pointe Capital will cease operating during the early part of 2004.



Market Area and Competition



The financial services industry in which the Company operates is highly competitive. The Bank competes with national and state banks, savings and loan associations and credit unions for loans and deposits. In addition, the Bank competes with other providers of financial services, from both inside and outside Florida, including finance companies, institutional buyers of commercial paper, money market funds, brokerage firms, investment companies, insurance companies,

2



---

insurance agencies and governmental agencies. These competitors are actively engaged in marketing various types of loans, commercial paper, short-term obligations, investments, insurance and other products and services. The Company anticipates that the intensity of competition among financial institutions will increase due to the provisions in the Modernization Act. The Modernization Act permits banks, securities firms, and insurance companies to affiliate which could then serve their customers varied financial needs through a single corporate structure.



The consolidation of the financial services industry has continued to create opportunities and challenges for the Company. Mergers among institutions have disrupted many customer relationships and created opportunities for the Bank to acquire new customers. The Banks objective is to compete for deposits and loans by offering the customers a higher level of personal service, together with a wide range of products offered at competitive rates. Management continues to evaluate market needs and products to meet those needs, which would also allow Pointe to control the growth of its assets and liabilities.



Employees



As of December 31, 2003, the Company had 116 employees of which 113 were full-time and 3 part-time. The Companys employees are not represented by a collective bargaining group, and the Company considers its relations with its employees to be good. The Company provides employees with benefits customary in the banking industry, which include major medical insurance, group term life insurance, dental insurance, long-term disability insurance, a 401(k) plan, and vacation and sick leave.



Forward-Looking Statements



When used in this Form 10-K or future filings by the Company with the Securities and Exchange Commission, in the Companys press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the word or phrases will likely result, expect, will continue, anticipate, estimate, project, believe and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including general economic factors and conditions, changes in levels of market interest rates, credit risks of lending activities, competitive and regulatory factors, and expansion strategies could affect the Companys financial performance and could cause the Companys actual results for future periods to differ materially from those anticipated or projected. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.



3



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Item 2.

Properties



The Bank conducts its business through its main office and eight branch offices. The following table sets forth certain information regarding the Banks office properties:



|Location                      |  | Date
Acquired/
Leased
December 31, 2003 |  | Lease Expiration
and
Renewal Terms |  | Book
Value of Land
and Building at
December 31, 2003 |  | Book Value
Of Leasehold
Improvements
and Furniture
Fixtures and
Equipment at
December 31, 2003 |  | Square
Footage
|----------------------------- |  | --------------------------------------- |  | ---------------------------------- |  | ---------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | --------------
|                              |  |                                         |  |                                    |  | (Dollars in thousands)                               |  | (Dollars in thousands)                                                                         |  |               
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Main Office (1)               |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|21845 Powerline Road          |  |                                         |  | 08/31/2012                         |  |                                                      |  |                                                                                                |  |               
|Boca Raton, Florida 33433     |  | 2002                                    |  | 2 - 5 year period                  |  | $                                                   |  | $625                                                                                           |  | 18,929        
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Pembroke Pines (1)            |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|One S.W. 129th Avenue         |  |                                         |  | 02/28/2006                         |  |                                                      |  |                                                                                                |  |               
|Pembroke Pines, Florida 33027 |  | 1994                                    |  |                                   |  |                                                     |  | 81                                                                                             |  | 4,659         
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Aventura (1)                  |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|20495 Biscayne Boulevard      |  |                                         |  | 09/30/2008                         |  |                                                      |  |                                                                                                |  |               
|Aventura, Florida 33180       |  | 2001                                    |  | 3-10 year period                   |  |                                                     |  | 59                                                                                             |  | 3,200         
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Boca Raton (2)                |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|19645 State Road 7            |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Boca Raton, Florida 33498     |  | 1998                                    |  |                                   |  | 504                                                  |  | 40                                                                                             |  | 3,200         
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Ocean Ridge (1)               |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|5112 N. Ocean Boulevard       |  |                                         |  | 05/31/2004                         |  |                                                      |  |                                                                                                |  |               
|Ocean Ridge, Florida 33435    |  | 1999                                    |  | 1 - 5 year period                  |  |                                                     |  | 51                                                                                             |  | 2,500         
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Coral Springs                 |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|4697 North State Road 7       |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Coral Springs, Florida 33067  |  | 1999                                    |  |                                   |  | 1,254                                                |  | 132                                                                                            |  | 3,000         
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Coral Gables (1)              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|2222 Ponce de Leon Boulevard  |  |                                         |  | 05/07/2008                         |  |                                                      |  |                                                                                                |  |               
|Coral Gables, Florida  33134  |  | 2001                                    |  | 2-5 year period                    |  |                                                     |  | 128                                                                                            |  | 11,801        
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|South Miami (1)               |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|8211 South Dixie Highway      |  |                                         |  | 02/28/2005                         |  |                                                      |  |                                                                                                |  |               
|Miami, Florida  33143         |  | 2001                                    |  |                                   |  |                                                     |  | 32                                                                                             |  | 1,946         
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|Airpark (1)                   |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|720 N.W. 57th Avenue          |  |                                         |  | 10/29/2009                         |  |                                                      |  |                                                                                                |  |               
|Miami, Florida  33126         |  | 2001                                    |  | 1-10 year period                   |  |                                                     |  | 141                                                                                            |  | 3,250         
|                              |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|South Beach (1)               |  |                                         |  |                                    |  |                                                      |  |                                                                                                |  |               
|500 South Pointe Drive        |  |                                         |  | 12/31/2012                         |  |                                                      |  |                                                                                                |  |               
|Miami Beach, Florida  33139   |  | 2002                                    |  | 1-5 year period                    |  |                                                     |  | 435                                                                                            |  | 2,402         



(1)

Leased branch office.

(2)

On June 30, 2003, the Company closed this facility and transferred all of the accounts to its Main Office. The closed office was sold to Union Planters Bank in February 2004. The Company will realize a gain on the transaction of $320,000 on a pre-tax basis, which is expected to add approximately $.10 of earnings per share to the first quarter results for 2004.



The Bank owns and operates personal computers, teller terminals and associated equipment. At December 31, 2003, such equipment had a net book value of $372,000, included above.



4



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Item 3.

Legal Proceedings



The Company and the Bank are parties to various legal proceedings in the ordinary course of business. Management does not believe that there is any pending or threatened proceeding against the Company and the Bank which, if determined adversely, would have a material adverse effect on the business, results of operations, or financial position of the Company or the Bank.



Item 4.

Submission of Matters to a Vote of Security Holders



No matters were submitted to a vote of the stockholders during the fourth quarter of the fiscal year ended December 31, 2003, through the solicitation of proxies or otherwise.





























[Balance of page intentionally left blank]

5



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PART II



Item 5.

Market For Registrants Common Equity And Related Stockholder Matters



Market Price and Dividends



(a)

The common stock of the Company, par value $.01 per share, has been traded on the Nasdaq National Market System under the symbol PNTE since June 12, 1998. Prior to June 12, 1998 there was no established public trading market for the Companys common stock. The following table sets forth the high and low bids for the common stock for the periods indicated as reported by Nasdaq.





| |                            |  | Year Ended        |      
| | -------------------------- |  | ----------------- | -----
| |                            |  | December 31, 2003 |      
| |                            |  | High              |      
| |                            |  |                   |      
| | Quarter ended March 31     |  | $                 | 15.91
| | Quarter ended June 30      |  |                   | 20.08
| | Quarter ended September 30 |  |                   | 23.50
| | Quarter ended December 31  |  |                   | 25.00



Currently the Company has eleven market makers in its common stock:



Advest, Inc.

Archipelago Exchange (The)

Knight Equity Markets, L.P.

THE BRUT ECN, LLC

Keefe, Bruyette & Woods, Inc.

Alternative Display Facility

Goldman Sachs & Co.

McConnell Budd & Downes

National Stock Exchange

Ryan Beck & Co., Inc.

William R. Hough & Co.



As of December 31, 2003, there were 2,252,028 common shares issued and outstanding held by approximately 128 shareholders of record and 419 beneficial shareholders, not including persons or entities where stock is held in nominee or street name through various brokerage firms or banks.



The following table sets forth cash dividends paid during the years ended 2003 and 2002.



| | 2003          |          | 2002 |              
| | ------------- | -------- | ---- | -------------
| | Quarter Ended | Dividend |      | Quarter Ended
| |               |          |      |              
| | March 31      | $.05     |      | March 31     
| | June 30       | $.05     |      | June 30      
| | September 30  | $.07     |      | September 30 
| | December 31   | $.07     |      | December 31  





Future payments of dividends are subject to determination and declaration by the Board of Directors. See Note 17 to the Audited Consolidated Financial Statements for discussion of restrictions on dividend payments.



Information regarding the Companys securities authorized for issuance under the Companys equity compensation plans is set forth below under Item 12.



6



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Item 6.

Selected Financial Data



SELECTED FINANCIAL DATA

(Dollars in thousands, except per share amounts)





|                                           |  | At December 31, |        
|------------------------------------------ |  | --------------- | -------
|                                           |  | 2003            |        
|                                           |  |                 |        
|Cash and cash equivalents                  |  | $               | 12,943 
|Securities                                 |  |                 | 71,738 
|Loans                                      |  |                 | 250,331
|Loans held for sale                        |  |                 | 3,084  
|All other assets                           |  |                 | 10,618 
|                                           |  |                 |        
|Total assets                               |  | $               | 348,714
|                                           |  |                 |        
|Deposits                                   |  | $               | 263,866
|Other borrowings                           |  |                 | 45,925 
|All other liabilities                      |  |                 | 4,006  
|Stockholders equity                       |  |                 | 34,917 
|                                           |  |                 |        
|Total liabilities and stockholders equity |  | $               | 348,714
|                                           |  |                 |        



|                                                             |  | Year Ended December 31,
|------------------------------------------------------------ |  | -----------------------
|                                                             |  | 2003                   
|                                                             |  |                        
|Total interest income                                        |  | $                      
|Total interest expense                                       |  |                        
|                                                             |  |                        
|Net interest income                                          |  |                        
|(Credit) provision for loan losses                           |  |                        
|                                                             |  |                        
|Net interest income after (credit) provision for loan losses |  |                        
|Noninterest income                                           |  |                        
|Noninterest expense                                          |  |                        
|                                                             |  |                        
|Earnings before income taxes and extraordinary item          |  |                        
|Income taxes                                                 |  |                        
|Extraordinary item (1)                                       |  |                        
|                                                             |  |                        
|Net earnings                                                 |  | $                      
|                                                             |  |                        
|Earnings per common share - basic (2)                        |  | $                      
|                                                             |  |                        
|Earnings per common share - diluted (2)                      |  | $                      
|                                                             |  |                        



7



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SELECTED FINANCIAL DATA, continued

(Dollars in thousands, except per share amounts)



|                                            |  | At or For The
Year Ended December 31, |          
|------------------------------------------- |  | ------------------------------------- | ---------
|                                            |  | 2003                                  |          
|                                            |  |                                       |          
|For the Period:                             |  |                                       |          
|Return on average assets                    |  |                                       | .75      
|Return on average equity                    |  |                                       | 7.42     
|Average equity to average assets            |  |                                       | 10.07    
|Interest rate spread during the period (3)  |  |                                       | 3.78     
|Net interest margin                         |  |                                       | 4.25     
|Noninterest income to average assets        |  |                                       | .97      
|Noninterest expense to average assets       |  |                                       | 3.92     
|Efficiency ratio                            |  |                                       | 80.66    
|                                            |  |                                       |          
|At the End of the Period:                   |  |                                       |          
|Ratio of average interest-earning assets to |  |                                       |          
|average interest-bearing liabilities        |  |                                       | 1.33     
|Nonperforming loans and foreclosed real     |  |                                       |          
|estate as a percentage of total assets      |  |                                       | .21      
|Allowance for loan losses as a percentage   |  |                                       |          
|of total loans                              |  |                                       | 1.35     
|Allowance for loan losses as a percentage   |  |                                       |          
|of nonperforming loans                      |  |                                       | 472.02   
|Total number of offices                     |  |                                       | 10       
|Full-service banking offices                |  |                                       | 9        
|Total shares outstanding at                 |  |                                       |          
|end of period                               |  |                                       | 2,252,028
|Book value per share                        |  | $                                     | 15.50    
|Tangible Book Value Per Share (4)           |  | $                                     | 14.18    



(1)

In 2000, the Company sold $5.0 million of a FHLB advance recording a pre-tax gain of $125,000. The gain is reported as an extraordinary item; gain on extinguishment of debt, net of tax of $47,000.

(2)  Basic earnings per share (EPS) of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding.  Outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS which is computed using the treasury stock method.

(3)

Difference between weighted-average yield on all interest-earning assets and weighted-average rate on all interest-bearing liabilities.

(4)

Intangible asset is a result of acquired branches in April 2001.



8



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Item 7.

Managements Discussion and Analysis of Financial Condition and Results of Operations



Critical Accounting Policies



Managements discussion and analysis of the Companys financial condition and results of operations are based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to the allowance for loan losses. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amount derived from managements estimates and assumptions under different assumptions or conditions.



Management believes the allowance for loan losses policy is a critical accounting policy that required the most significant estimates and assumptions used in the preparation of the consolidated financial statements. The allowance for loan losses is based on managements evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio. Management believes the allowance for loan losses is a significant estimate and, therefore, regularly evaluates it for adequacy by taking into consideration factors such as prior loan loss experience, the character and size of the loan portfolio, business and economic conditions and managements estimation of future losses. The use of different estimates or assumptions could produce different provisions for loan losses. The allowance for loan losses is also discussed as part of Credit Risk and in Note 3 to the consolidated financial statements. The significant accounting policies are discussed in Note 1 to the consolidated financial statements.



General



Pointe Financial Corporation owns 100% of the outstanding stock of Pointe Bank. The Bank is a Florida State chartered commercial bank. The Bank provides a variety of community banking services to small and middle-market businesses and individuals through its nine banking offices located in Broward, Miami-Dade and Palm Beach counties, Florida. On February 12, 2002, the Bank formed a subsidiary, Will No-No, Inc., a Florida corporation, for the purpose of owning, maintaining and disposing of the Banks foreclosed assets. Will No-No, Inc. had no activity during the year ended December 31, 2003. The Company owns an inactive subsidiary, Pointe Financial Services and is a 50% owner of Pointe Capital, an investment banking joint venture that the Company expects to cease operating in the early part of 2004.



On June 12, 1998, the Company consummated an initial public offering (the Offering) of 869,565 shares of common stock, par value $.01 per share. The shares were sold at an offering price of $15.375 per share. Keefe, Bruyette & Woods, Inc. and McGinn, Smith & Co. acted as the representatives of the underwriters of the Offering. The net proceeds of the Offering totaled $12.1 million of which $6.0 million was invested in the Bank. The remaining proceeds retained by the Company will continue to fund branch expansion and support growth in the loan and security portfolio.



At December 31, 2003, the Company had total consolidated assets of $348.7 million, an increase of $21.4 million or 6.5% over total assets of $327.3 million at December 31, 2002. Total loans outstanding were $253.4 million at December 31, 2003 compared to $215.0 million at the end of 2002, $38.4 million or a 17.9% increase.  The Company realized $137.9 million in loan originations to the loan portfolio during 2003 compared to $102.8 million during 2002. During 2003, the Company received principal reductions in the loan portfolio exceeding $101.9 million compared to the $110.2 million during 2002. The Banks deposits increased to $263.9 million as of December 31, 2003 from $233.5 million as of December 31, 2002, a 13.0% increase. At December 31, 2003, the Companys noninterest bearing demand accounts were $71.3 million, increasing by more than $26.1 million or 57.8%.  At December 31, 2003, the Companys time deposits were $75.5 million which represents a decrease of $14.0 million or 15.7% from December 31, 2002.  The Company continues to focus on relationship banking and is becoming less dependent on time deposits as a funding source. The Companys borrowings, FHLB Advances and Repurchase Sweep Accounts ended December 31, 2003 at $45.9 million, compared to $57.9 million at the end of 2002, reflecting a $12.0 million or 20.7% decrease.  During the first quarter of 2003, the Company had a $15.0 million FHLB advance mature which was repaid with lower costing funds. The Companys net earnings for the year ended December 31, 2003 of $2.5 million compared to $1.8 million, an increase of $729,000 or 41.3% over the year ended December 31, 2002. Net interest income was $13.4 million in 2003 compared to $12.6 million during 2002, a $758,000 increase, or 6.0%. The Companys net interest income to average interest earning assets ending December 31, 2003 increased to 4.25%, compared to 4.09% in 2002. The net interest spread (the difference between the weighted-average yield on interest earning assets less the weighted-average cost paid on interest-bearing liabilities) ending December 31, 2003 increased to 3.78%, compared to 3.53% in 2002. The improvements of net interest income, margin and spread result from the continuing shifting of deposit balances from time deposits to less costly interest bearing transaction accounts and noninterest-bearing demand deposits.

9



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Credit Risk



The Banks primary business is making commercial, business, consumer and real estate loans. That activity entails potential loan losses, the magnitude of which depend on a variety of economic factors affecting borrowers which are beyond the control of the Bank. While management has instituted underwriting guidelines and credit review procedures in an effort to minimize avoidable credit losses, some losses will inevitably occur.



The following table sets forth certain information regarding nonaccrual loans and foreclosed real estate, including the ratio of such loans and foreclosed real estate to total assets as of the dates indicated, and certain other related information.



|                                               |  | At December 31,        |    
|---------------------------------------------- |  | ---------------------- | ---
|                                               |  | 2003                   |    
|                                               |  | (Dollars in thousands) |    
|                                               |  |                        |    
|Nonaccrual loans:                              |  |                        |    
|Residential real estate                        |  | $                      | 66 
|Commercial real estate                         |  |                        |   
|Commercial                                     |  |                        | 645
|Consumer and other                             |  |                        | 18 
|                                               |  |                        |    
|Total nonaccrual loans                         |  | $                      | 729
|                                               |  |                        |    
|Total nonperforming assets                     |  |                        | 729
|                                               |  |                        |    
|Total nonperforming assets to total loans      |  |                        | .29
|                                               |  |                        |    
|Foreclosed real estate-                        |  |                        |    
|Real estate acquired by foreclosure or deed    |  |                        |    
|in lieu of foreclosure                         |  |                        |   
|                                               |  |                        |    
|Total nonperforming loans and foreclosed       |  |                        |    
|real estate                                    |  | $                      | 729
|                                               |  |                        |    
|Total nonperforming and foreclosed real estate |  |                        |    
|to total assets                                |  |                        | .21
|                                               |  |                        |    



Interest income that would have been recorded under the original terms of nonaccrual loans and the interest income actually recognized are summarized below:



|                                                |  | Year Ended December 31, |   
|----------------------------------------------- |  | ----------------------- | --
|                                                |  | 2003                    |   
|                                                |  | (Dollars in thousands)  |   
|                                                |  |                         |   
|Interest income that would have been recognized |  | $                       | 37
|Interest income recognized                      |  |                         | 22
|Interest income foregone                        |  | $                       | 15
|                                                |  |                         |   

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The following table sets forth information with respect to activity in the Banks allowance for loan losses during the years indicated:



|                                              |  | Year Ended December 31, |        
|--------------------------------------------- |  | ----------------------- | -------
|                                              |  | 2003                    |        
|                                              |  | (Dollars in thousands)  |        
|                                              |  |                         |        
|Average loans outstanding                     |  | $                       | 233,521
|                                              |  |                         |        
|Allowance at beginning of year                |  |                         | 3,519  
|                                              |  |                         |        
|Charge-offs:                                  |  |                         |        
|Residential real estate                       |  |                         |       
|Commercial                                    |  |                         | (122   
|Consumer and other                            |  |                         | (52    
|                                              |  |                         |        
|Total loans charged-off                       |  |                         | (174   
|                                              |  |                         |        
|Recoveries                                    |  |                         | 196    
|                                              |  |                         |        
|Net recoveries (charge-offs)                  |  |                         | 22     
|                                              |  |                         |        
|Provision (credit) for loan losses            |  |                         | (100   
|                                              |  |                         |        
|Allowance on loans received in acquisition of |  |                         |        
|branches                                      |  |                         |       
|                                              |  |                         |        
|Allowance at end of year                      |  | $                       | 3,441  
|                                              |  |                         |        
|Net (recoveries) charge-offs to               |  |                         |        
|average loans outstanding                     |  |                         | (.01   
|                                              |  |                         |        
|Allowance as a percent of total loans         |  |                         | 1.35   
|                                              |  |                         |        
|Allowance as a percentage of                  |  |                         |        
|nonperforming loans                           |  |                         | 472.02 
|                                              |  |                         |        
|Total loans at end of year                    |  |                         | 254,226



The Companys non-performing loans were $729,000 December 31, 2003, compared to $213,000 at the end of 2002. The ratio of nonperforming loans to total loans outstanding at .29% and nonperforming loans to total assets at .21% are considered to be low in the industry. Although no assurances can be given, management believes that nonperforming loans will remain relatively stable in the near term.  The allowance at December 31, 2003 was $3.4 million, which represents 1.35% of total loans outstanding and 472.0% of nonperforming loans. At December 31, 2002, the allowance was $3.5 million, or 1.61% outstanding and 1,652.1% of nonperforming loans. The Company recorded a credit to the provision for loan losses of $100,000 for the year ended December 31, 2003 compared to a provision of $811,000 for the year ending December 31, 2002. During the year ending December 31, 2003, the Company realized continued recoveries from commercial and commercial real estate loans charged-off in previous reporting periods. The Company has historically had strong asset quality as evidenced by the fact that the percentage of net charge-offs to average loans outstanding over the last five years was .16%. Management believes that the allowance for loan losses of $3.4 million was adequate at December 31, 2003.



11



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The following table presents information regarding the Banks total allowance for loan losses as well as the allocation of such amounts to the various categories of loans:



|                   |  | At December 31,        |      
|------------------ |  | ---------------------- | -----
|                   |  | 2003                   |      
|                   |  | Amount
Of
Allowance    |      
|                   |  | (Dollars in thousands) |      
|                   |  |                        |      
|Commercial loans   |  | $                      | 1,916
|Commercial real    |  |                        |      
|estate loans       |  |                        | 1,120
|Residential real   |  |                        |      
|estate loans       |  |                        | 78   
|Consumer and other |  |                        |      
|loans              |  |                        | 327  
|Total allowance    |  |                        |      
|for loan losses    |  | $                      | 3,441



The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Management regularly reviews its loan portfolio and charge-off experience to maintain the allowance at a level management feels is adequate. The most dominant category of loans at the end of 2003, commercial and commercial real estate loans, comprise 58.67% of the portfolio compared to 50.99% in 2002. At the end of 2003, residential real estate loans consist of 29.81% of the portfolio compared to 35.80% at the end of 2002. Consumer loans at the end of 2003 were 11.52% of the loan portfolio compared to the 13.21% at the end of 2002.



Results of Operations



The operating results of the Company depend primarily on its net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, consisting primarily of deposits. Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (the interest-rate spread) and the relative amounts of interest-earning assets and interest-bearing liabilities. The Companys interest-rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. In addition, the Companys net earnings are also affected by the level of nonperforming loans and foreclosed real estate, as well as the level of its noninterest income, and its noninterest expenses, such as salaries and employee benefits, occupancy and equipment costs and income taxes.



12



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The following table sets forth for the periods indicated, information regarding is: (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest/dividend income; (iv) interest-rate spread; (v) interest margin; and (vi) ratio of average interest-earning assets to average interest-bearing liabilities.



|                                |  | Year Ended December 31, |        
|------------------------------- |  | ----------------------- | -------
|                                |  | 2003                    |        
|                                |  | Average
Balance         |        
|                                |  | (Dollars in thousands)  |        
|                                |  |                         |        
|Interest-earning assets:        |  |                         |        
|Loans                           |  | $                       | 233,521
|Securities (1)                  |  |                         | 69,582 
|Other interest-earning          |  |                         |        
|assets (2)                      |  |                         | 12,314 
|Total interest-earning          |  |                         |        
|assets                          |  |                         | 315,417
|Noninterest-earning             |  |                         |        
|assets (3)                      |  |                         | 18,219 
|Total assets                    |  | $                       | 333,636
|Interest-bearing liabilities:   |  |                         |        
|Savings and NOW deposits        |  | $                       | 27,616 
|Money-market deposits           |  |                         | 79,711 
|Time deposits                   |  |                         | 82,100 
|Borrowings                      |  |                         | 47,628 
|Total interest-bearing          |  |                         |        
|liabilities                     |  |                         | 237,055
|Demand deposits                 |  |                         | 58,681 
|Noninterest-bearing liabilities |  |                         | 4,292  
|Stockholders equity            |  |                         | 33,608 
|Total liabilities and           |  |                         |        
|stockholders                   |  |                         |        
|equity                          |  | $                       | 333,636
|                                |  |                         |        
|Net interest income             |  |                         |        
|                                |  |                         |        
|Interest-rate spread (4)        |  |                         |        
|                                |  |                         |        
|Net interest margin (5)         |  |                         |        
|Ratio of average interest-      |  |                         |        
|earning assets to               |  |                         |        
|average interest-               |  |                         |        
|bearing liabilities             |  |                         | 1.33   



(1)

Yield on securities is stated on a tax equivalent basis.

(2)

Includes interest-bearing deposits and federal funds sold.

(3)

Includes nonaccrual loans.

(4)

Interest-rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities.

(5)

Net interest margin is net interest income divided by average interest-earning assets.



13



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Rate/Volume Analysis



The following table sets forth certain information regarding changes in interest income and interest expense of the Company for the years indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in rate (change in rate multiplied by prior volume), (ii) changes in volume (change in volume multiplied by prior rate) and (iii) changes in rate-volume (change in rate multiplied by change in volume).



|                                  |  | Year Ended December 31,
2003 vs. 2002 |       
|--------------------------------- |  | ------------------------------------- | ------
|                                  |  | Increase (Decrease) Due To            |       
|                                  |  | Rate                                  |       
|                                  |  | (In Thousands)                        |       
|Interest-earning assets:          |  |                                       |       
|Loans                             |  | $                                     | (1,608
|Securities                        |  |                                       | (556  
|Other interest-earning assets     |  |                                       | (100  
|                                  |  |                                       |       
|Total                             |  |                                       | (2,264
|                                  |  |                                       |       
|Interest-bearing liabilities:     |  |                                       |       
|Savings and NOW deposits          |  |                                       | (33   
|Money-market deposits             |  |                                       | (483  
|Time deposits                     |  |                                       | (934  
|Borrowings                        |  |                                       | (275  
|                                  |  |                                       |       
|Total                             |  |                                       | (1,725
|                                  |  |                                       |       
|Net change in net interest income |  | $                                     | (539  
|                                  |  |                                       |       
|                                  |  |                                       |       
|                                  |  | Year Ended December 31,
2003 vs. 2002 |       
|                                  |  | Increase (Decrease) Due To            |       
|                                  |  | Rate                                  |       
|                                  |  | (In Thousands)                        |       
|Interest-earning assets:          |  |                                       |       
|Loans                             |  | $                                     | (2,136
|Securities                        |  |                                       | (438  
|Other interest-earning assets     |  |                                       | (251  
|                                  |  |                                       |       
|Total                             |  |                                       | (2,825
|                                  |  |                                       |       
|Interest-bearing liabilities:     |  |                                       |       
|Savings and NOW deposits          |  |                                       | (51   
|Money-market deposits             |  |                                       | (658  
|Time deposits                     |  |                                       | (1,702
|Borrowings                        |  |                                       | (503  
|                                  |  |                                       |       
|Total                             |  |                                       | (2,914
|                                  |  |                                       |       
|Net change in net interest income |  | $                                     | 89    



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Liquidity and Capital Resources



A Florida chartered commercial bank is required to maintain a liquidity reserve of at least 15% of its total transaction accounts and 8% of its total nontransaction accounts. The liquidity reserve may consist of cash on hand, cash on demand with other correspondent banks and other investments and short-term marketable securities as determined by the rules of Florida OFR, such as federal funds sold and United States securities or securities guaranteed by the United States or agencies thereof. As of December 31, 2003 and December 31, 2002, the Bank had liquidity of approximately $52.4 million and $74.6 million, or approximately 19.60% and 31.16%, respectively.



During the year ended December 31, 2003, the Companys primary sources of funds consisted of net increases in deposits, principal payments on loans and securities, maturities and sales of securities and net cash flows from operating activities. The Company used its capital resources principally to fund existing and continuing loan commitments and the purchase of securities. At December 31, 2003, the Company had commitments to originate loans totaling $12.8 million. Scheduled maturities of certificates of deposit during the 12 months following December 31, 2003 totaled $58.5 million. Management believes the Company has adequate resources to fund all of its commitments, that substantially all of its existing commitments will be funded within the next twelve months and, if so desired, that it can adjust the rates on certificates of deposit to attract deposits in a changing interest-rate environment.



The following table sets forth, by maturity distribution, certain information pertaining to the securities portfolio:



|                                  |  | One Year Or Less       |       | After One Year
To Five Years |  | After Five Years |   | Total            |       
|--------------------------------- |  | ---------------------- | ----- | ---------------------------- |  | ---------------- | - | ---------------- | ------
|                                  |  | Carrying Average       |       | Carrying Average             |  | Carrying Average |   | Carrying Average |       
|                                  |  | Value                  |       | Yield                        |  | Value            |   | Yield            |       
|                                  |  | (Dollars in thousands) |      
|                                  |  |                        |       |                              |  |                  |   |                  |       
|At December 31, 2003:             |  |                        |       |                              |  |                  |   |                  |       
|U.S. Government agency securities |  | $                      |      |                              |  |                 | % | $                | 41,920
|U.S. Treasury securities          |  |                        |      |                              |  |                 |   |                  | 8,189 
|Tax-exempt securities             |  |                        |      |                              |  |                 |   |                  |      
|Mutual funds                      |  |                        | 1,964 |                              |  | 4.65             |   |                  |      
|Mortgage-backed securities        |  |                        |      |                              |  |                 |   |                  | 1,653 
|Other                             |  |                        | 25    |                              |  | 7.50             |   |                  | 200   
|                                  |  |                        |       |                              |  |                  |   |                  |       
|Total.                            |  | $                      | 1,989 |                              |  | 4.69             | % | $                | 51,962
|                                  |  |                        |       |                              |  |                  |   |                  |       
|At December 31, 2002:             |  |                        |       |                              |  |                  |   |                  |       
|U.S. Government agency securities |  | $                      |      |                              |  |                 | % | $                | 37,368
|U.S. Treasury securities          |  |                        |      |                              |  |                 |   |                  | 7,275 
|Tax-exempt securities             |  |                        |      |                              |  |                 |   |                  |      
|Mortgage-backed securities        |  |                        |      |                              |  |                 |   |                  | 2,085 
|Preferred Stock                   |  |                        |      |                              |  |                 |   |                  |      
|Other                             |  |                        |      |                              |  |                 |   |                  | 125   
|                                  |  |                        |       |                              |  |                  |   |                  |       
|Total                             |  | $                      | 0     |                              |  | 0                | % | $                | 46,853



Regulatory Capital Requirements



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



The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys and the Banks financial statements. Under capital adequacy guidelines, the Company 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 judgment by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.



Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and percentages (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2003 and 2002, that the Company and the Bank met all capital adequacy requirements to which they are subject.

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Under Federal Reserve Board regulations, the Bank is required to meet certain minimum regulatory capital requirements. This is not a valuation allowance and has not been created by charges against earnings. It represents a restriction on stockholders equity.



As of December 31, 2003, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Banks category. The Company and the Banks actual capital amounts and capital percentages as of December 31, 2003 and 2002 are also presented in the table (dollars in thousands).



|                                 |  | Actual |        | Minimum Capital
Requirement |  | Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |  
|-------------------------------- |  | ------ | ------ | --------------------------- |  | ------------------------------------------------------------------------ | -
|                                 |  | Amount |        | %                           |  | Amount                                                                   |  
|                                 |  |        |        |                             |  |                                                                          |  
|As of December 31, 2003:         |  |        |        |                             |  |                                                                          |  
|Total capital to Risk-           |  |        |        |                             |  |                                                                          |  
|Weighted assets:                 |  |        |        |                             |  |                                                                          |  
|Consolidated                     |  | $      | 34,556 |                             |  | 13.40                                                                    | %
|Bank.                            |  |        | 31,619 |                             |  | 12.31                                                                    |  
|                                 |  |        |        |                             |  |                                                                          |  
|Tier I Capital to Risk-          |  |        |        |                             |  |                                                                          |  
|Weighted Assets:                 |  |        |        |                             |  |                                                                          |  
|Consolidated                     |  |        | 31,331 |                             |  | 12.15                                                                    |  
|Bank                             |  |        | 28,406 |                             |  | 11.06                                                                    |  
|                                 |  |        |        |                             |  |                                                                          |  
|Tier I Capital to Average Assets |  |        |        |                             |  |                                                                          |  
|Consolidated                     |  |        | 31,331 |                             |  | 8.99                                                                     |  
|Bank                             |  |        | 28,406 |                             |  | 8.17                                                                     |  
|                                 |  |        |        |                             |  |                                                                          |  
|As of December 31, 2002:         |  |        |        |                             |  |                                                                          |  
|Total capital to Risk-           |  |        |        |                             |  |                                                                          |  
|Weighted assets:                 |  |        |        |                             |  |                                                                          |  
|Consolidated                     |  | $      | 30,919 |                             |  | 14.13                                                                    | %
|Bank                             |  |        | 28,007 |                             |  | 12.85                                                                    |  
|                                 |  |        |        |                             |  |                                                                          |  
|Tier I Capital to Risk-          |  |        |        |                             |  |                                                                          |  
|Weighted Assets:                 |  |        |        |                             |  |                                                                          |  
|Consolidated                     |  |        | 28,175 |                             |  | 12.88                                                                    |  
|Bank                             |  |        | 25,273 |                             |  | 11.60                                                                    |  
|                                 |  |        |        |                             |  |                                                                          |  
|Tier I Capital to Average Assets |  |        |        |                             |  |                                                                          |  
|Consolidated                     |  |        | 28,175 |                             |  | 8.73                                                                     |  
|Bank                             |  |        | 25,273 |                             |  | 7.86                                                                     |  



Management of Interest-Rate Risk and Market Risk



Market risk is the uncertainty of loss from adverse changes in market prices and rates. The Companys market risk arises primarily from interest-rate risk inherent in its lending and deposit taking activities. To that end, management actively monitors and manages its interest-rate risk exposure. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 9 of Notes to Consolidated Financial Statements.



The Companys primary objective in managing interest-rate risk is to minimize the adverse impact of changes in interest rates on the Banks net interest income and capital, while adjusting the Companys asset-liability structure to obtain the maximum yield-cost spread on that structure. The Company relies primarily on its asset-liability structure to control interest-rate risk. However, a sudden and substantial increase or decrease in interest rates may impact the Companys earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. The Company does not engage in trading activities.



As part of its asset and liability management, the Company has emphasized establishing and implementing internal asset-liability decision processes, as well as communications and control procedures to aid in managing the Companys earnings. Management believes that these processes and procedures provide the Company with better capital planning, asset

16



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mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines which should result in tighter controls and less exposure to interest-rate risk.



The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are interest-rate sensitive and by monitoring an institutions interest-rate sensitivity gap. An asset or liability is said to be interest-rate sensitive within a specific time period if it will mature or reprice within that time period. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. The gap ratio is computed as dividing rate-sensitive assets by rate-sensitive liabilities. A gap ratio of 1.0% represents perfect matching. A gap is considered positive when the amount of interest-rate sensitive assets exceeds interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income.



In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, the Companys management continues to monitor asset and liability management policies to better match the maturities and repricing terms of its interest-earning assets and interest-bearing liabilities. Such policies have consisted primarily of: (i) emphasizing the origination of adjustable-rate loans; (ii) maintaining a stable core deposit base; and (iii) maintaining a significant portion of liquid assets (cash and short-term investments).



The following table sets forth certain information relating to the Companys interest-earning assets and interest-bearing liabilities at December 31, 2003 that are estimated to mature or are scheduled to reprice within the period shown:



|                                 |  | Three
Months     |         | More
Than
Three
Months
To Six
Months |  | More
Than Six
Months
To One
Year |   | More
Than One
Year To
Five Years |        | More
Than
Five Years |  | Total  |  
|-------------------------------- |  | ---------------- | ------- | ------------------------------------ |  | -------------------------------- | - | -------------------------------- | ------ | -------------------- |  | ------ | -
|                                 |  | ($ In thousands) |        
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Loans (1), (2)                   |  | $                | 134,935 |                                      |  | 16,360                           |   |                                  | 16,694 |                      |  | 54,564 |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Securities (3)                   |  |                  | 28,950  |                                      |  | 4,625                            |   |                                  | 12,610 |                      |  | 7,700  |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Interest-bearing deposits        |  |                  | 602     |                                      |  |                                 |   |                                  |       |                      |  |       |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Total rate-sensitive assets      |  |                  | 164,487 |                                      |  | 20,985                           |   |                                  | 29,304 |                      |  | 62,264 |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Deposit accounts (4):            |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Savings and NOW                  |  |                  | 32,562  |                                      |  |                                 |   |                                  |       |                      |  |       |  
|Money-market                     |  |                  | 84,443  |                                      |  |                                 |   |                                  |       |                      |  |       |  
|Time deposits                    |  |                  | 16,458  |                                      |  | 16,189                           |   |                                  | 25,883 |                      |  | 17,005 |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Total deposit accounts           |  |                  | 133,463 |                                      |  | 16,189                           |   |                                  | 25,883 |                      |  | 17,005 |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Borrowings (5)                   |  |                  | 25,925  |                                      |  |                                 |   |                                  |       |                      |  | 5,000  |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Total rate-sensitive liabilities |  |                  | 159,388 |                                      |  | 16,189                           |   |                                  | 25,883 |                      |  | 22,005 |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Gap (repricing differences)      |  | $                | 5,099   |                                      |  | 4,796                            |   |                                  | 3,421  |                      |  | 40,259 |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Cumulative GAP                   |  | $                | 5,099   |                                      |  | 9,895                            |   |                                  | 13,316 |                      |  | 53,575 |  
|                                 |  |                  |         |                                      |  |                                  |   |                                  |        |                      |  |        |  
|Cumulative GAP/total assets.     |  |                  | 1.46    | %                                    |  | 2.84                             | % |                                  | 3.82   | %                    |  | 15.36  | %



(1)

In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature. Fixed-rate loans are scheduled, including repayment, according to their contractual maturities.

(2)

Includes nonaccrual loans and loans held for sale.

(3)

Securities are scheduled according to their respective repricing, predicted call dates and maturity dates, includes FHLB stock and Federal Reserve Bank stock.

(4)

Savings, NOW and money-market accounts are regarded as readily accessible withdrawable accounts. All other time accounts are scheduled according to their respective maturity dates.

(5)

Borrowings include FHLB fixed and floating rate convertible advances which have a call option and investment repurchase agreements.

17



---

The following table reflects the contractual principal repayments of the Companys loan portfolio at December 31, 2003:



|                                 |  | Commercial
Loans       |        | Residential
Real Estate
Loans |  | Mortgage
Loans |  | Consumer
Loans |        | Total | 
|-------------------------------- |  | ---------------------- | ------ | ----------------------------- |  | -------------- |  | -------------- | ------ | ----- | 
|                                 |  | (Dollars in thousands) |       
|                                 |  |                        |        |                               |  |                |  |                |        |       | 
|Due within one year              |  | $                      | 59,179 |                               |  | 42,949         |  |                | 7,557  |       | 
|Due after one through five years |  |                        | 6,074  |                               |  | 29,463         |  |                | 11,764 |       | 
|Due after five years             |  |                        | 1,088  |                               |  | 10,388         |  |                | 56,488 |       | 
|                                 |  |                        |        |                               |  |                |  |                |        |       | 
|Total                            |  | $                      | 66,341 |                               |  | 82,800         |  |                | 75,809 |       | 



Of the $119.9 million in loans due after one year, 43.4% of such loans have fixed interest rates and 56.6% have adjustable rates.



The following table displays loan originations by type of loan and principal reductions during the years indicated:



|                                   |  | Year Ended December 31, |         
|---------------------------------- |  | ----------------------- | --------
|                                   |  | 2003                    |         
|                                   |  | (Dollars in thousands)  |         
|                                   |  |                         |         
|Originations:                      |  |                         |         
|Commercial loans                   |  | $                       | 51,031  
|Commercial real estate loans       |  |                         | 47,941  
|Residential real estate            |  |                         | 32,228  
|Consumer loans                     |  |                         | 6,662   
|                                   |  |                         |         
|Total loans originated             |  | $                       | 137,862 
|                                   |  |                         |         
|Principal reductions               |  |                         | (101,908
|Increase (Decrease) in gross loans |  | $                       | 35,954  





In addition to the originations in the table above, the Company originated $3.1 million of single-family mortgages into the loans held for sale portfolio during 2003. During the years ending December 2002 and 2001, the Company did not originate any loans held for sale. The table above also excludes originations of loans to correspondent banks of $18.8 million, $7.1 million and $2.5 million for years ended December 31, 2003, 2002 and 2001, respectively. The loans were originated by the Company and sold to correspondent banks generating $311,000, $254,000 and $231,000 in fees, during such respective years.



Loan Portfolio Composition



The following table sets forth information concerning the Companys loan portfolio by type of loan at December 31.



|              |  | 2003                   |         | 2002       |  | 2001   |   | 2000       |         | 1999   | 
|------------- |  | ---------------------- | ------- | ---------- |  | ------ | - | ---------- | ------- | ------ | 
|              |  | Amount                 |         | % Of
Total |  | Amount |   | % Of
Total |         | Amount | 
|              |  | (Dollars in thousands) |        
|              |  |                        |         |            |  |        |   |            |         |        | 
|Commercial    |  | $                      | 66,341  |            |  | 26.10  | % | $          | 57,090  |        | 
|Commercial    |  |                        |         |            |  |        |   |            |         |        | 
|real estate   |  |                        | 82,800  |            |  | 32.57  |   |            | 54,481  |        | 
|Residential   |  |                        |         |            |  |        |   |            |         |        | 
|real estate   |  |                        | 75,809  |            |  | 29.81  |   |            | 78,316  |        | 
|Consumer      |  |                        | 29,276  |            |  | 11.52  |   |            | 28,897  |        | 
|              |  |                        |         |            |  |        |   |            |         |        | 
|Total loans   |  | $                      | 254,226 |            |  | 100.00 | % | $          | 218,784 |        | 
|Less:         |  |                        |         |            |  |        |   |            |         |        | 
|Net deferred  |  |                        |         |            |  |        |   |            |         |        | 
|loan fees     |  |                        | (454    | )          |  |        |   |            | (425    | )      | 
|              |  |                        |         |            |  |        |   |            |         |        | 
|Allowance for |  |                        |         |            |  |        |   |            |         |        | 
|loan losses   |  |                        | (3,441  | )          |  |        |   |            | (3,519  | )      | 
|              |  |                        |         |            |  |        |   |            |         |        | 
|Loans, net    |  | $                      | 250,331 |            |  |        |   | $          | 214,840 |        | 

18



---

The Bank originates, purchases and participates in loans for its own portfolio and for sale in the secondary market. The Bank provides commercial business loans, commercial and residential real estate loans, and consumer loans. Loans secured by real estate generally include commercial and residential real estate, loans to refinance or purchase existing properties and home equity loans. Over the past five years, the Company has continued to increase its originations of commercial and commercial real estate loans. Management intends to continue to focus on these types of lending.



Commercial business loans totaled $66.3 million or 26.10% of the Banks loan portfolio, as of December 31, 2003. Commercial business loan underwriting practices assess the borrowers creditworthiness and ability to repay, including an evaluation of the value of any collateral securing the proposed loan. While commercial business loans generally are made for shorter terms and at higher yields than one-to-four family residential loans, such loans generally involve a higher level of risk than one-to-four family residential loans.



The Banks commercial real estate loans at December 31, 2003 totaled $82.8 million or 32.57% of the Banks portfolio. The portfolio generally has terms ranging from five to seven and in some cases ten years and interest rate adjustment periods ranging from monthly to five years. Amortization periods for commercial mortgage loans generally are 15 to 20 years and do not exceed 25 years. Commercial real estate loans originated by the Bank are primarily secured by income-producing properties such as office buildings, warehouse buildings, retail space and to a lesser extent multi-family property. Generally, in underwriting commercial real estate loans, the Bank requires the personal guaranty of borrowers, a maximum loan to value ratio of 75%, and a cash flow to debt service ratio of 1.25 to 1 or higher. The Banks residential real estate mortgage loans at December 31, 2003 totaled $75.8 million or 29.81% of the Banks total loan portfolio. The Banks residential mortgage loans have terms which do not exceed 30 years and are secured by one-to-four family residences. Loans made for an amount in excess of 80% of the appraised value of the financed residences are generally originated with private mortgage insurance, which essentially insures that portion of the loan which is in excess of 80% of the appraised value of the financed residences. The Company will originate loans targeted at those low and moderate income home buyers whose underwriting standard may exceed what is considered typical. As of December 31, 2003, the residential loan portfolio of the Bank consisted of approximately 36.3% in adjustable rate mortgages and 63.7% in fixed-rate loans. During 2003, the Company originated residential real estate mortgage loans to correspondent banks, servicing released totaling $18.8 million. The Company originated $32.2 million of residential real estate mortgages to the portfolio. Residential mortgage loans generally are underwritten by the Bank in accordance with guidelines of the Federal National Mortgage Association (the FNMA) and the Federal Home Loan Mortgage Corporation (the FHLMC).



Consumer loans are extended for a variety of purposes including the purchase of automobiles, home improvement, lines of credit, credit cards and unsecured personal loans. As of December 31, 2003, consumer loans were approximately $29.3 million or 11.52% of total loans. Consumer loan underwriting standards include an examination of the applicants payment history on other debts and an evaluation of the applicants ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the applicant is of primary importance, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. While consumer loans generally involve a higher element of credit risk than one-to-four family residential loans, consumer loans are typically made at higher interest rates and for shorter terms, or at adjustable rates, and are helpful in maintaining a profitable spread between the Banks loan yield and its cost of funds.



Deposit Composition



The Company attracts both short-term and long-term deposits from the Companys primary market area by offering a wide assortment of accounts and rates. The Company offers checking accounts (both interest bearing and non-interest bearing), money market accounts, savings accounts, fixed interest rate certificates of deposits with varying maturities and individual retirement accounts.



The following table shows the distribution of, and certain other information relating to, deposit accounts by type:



|                                    |  | At December 31,        |        
|----------------------------------- |  | ---------------------- | -------
|                                    |  | 2003                   |        
|                                    |  | Balance                |        
|                                    |  | (Dollars in thousands) |        
|                                    |  |                        |        
|Noninterest-bearing demand deposits |  | $                      | 71,326 
|Savings and NOW deposits            |  |                        | 32,562 
|Money-market deposits               |  |                        | 84,443 
|Time deposits                       |  |                        | 75,535 
|                                    |  |                        |        
|Total deposits                      |  | $                      | 263,866

19



---

Jumbo certificates ($100,000 and over) included above mature as follows:



|                                     |  | At December 31,       
|------------------------------------ |  | ----------------------
|                                     |  | 2003                  
|                                     |  | (Dollars in thousands)
|                                     |  |                       
|Due three months or less             |  | $                     
|Due over three months to six months. |  |                       
|Due over six months to one year.     |  |                       
|Due over one year                    |  |                       
|                                     |  |                       
|Total                                |  | $                     



The scheduled maturities of time deposits are as follows:



|                                                |  | At December 31,       
|----------------------------------------------- |  | ----------------------
|                                                |  | 2003                  
|                                                |  | (Dollars in thousands)
|                                                |  |                       
|Due in one year or less                         |  | $                     
|Due in more than one but less than three years  |  |                       
|Due in more than three but less than five years |  |                       
|                                                |  |                       
|Total                                           |  | $                     



The following table sets forth the net deposit flows of the Company during the year indicated:



|                                      |  | Year Ended December 31,
|------------------------------------- |  | -----------------------
|                                      |  | 2003                   
|                                      |  | (Dollars in thousands) 
|                                      |  |                        
|Net increase before interest credited |  | $                      
|Net interest credited                 |  |                        
|                                      |  |                        
|Net deposit increase                  |  | $                      



The following table indicates the daily average balances and weighted average interest rates paid on interest bearing deposits for each of the three years ended December 31, 2003, 2002 and 2001:



|                       |  | Years Ended December 31, |        
|---------------------- |  | ------------------------ | -------
|                       |  | 2003                     |        
|                       |  | Average
Balance          |        
|                       |  | (Dollars in thousands)   |        
|                       |  |                          |        
|Savings and NOW        |  |                          |        
|deposits               |  | $                        | 27,616 
|Money-market           |  |                          |        
|deposits               |  |                          | 79,711 
|Time deposits          |  |                          | 82,100 
|                       |  |                          |        
|Total interest-bearing |  |                          |        
|deposits               |  |                          | 189,427
|                       |  |                          |        
|Noninterest bearing    |  |                          |        
|deposits.              |  |                          | 58,681 
|                       |  |                          |        
|Total                  |  | $                        | 248,108

20



---

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit and construction loans and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of the Company's involvement in particular classes of financial instruments.

The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, unused lines of credit and construction loans and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

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. Since certain commitments expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counter party.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

The following is a summary of the Companys contractual obligations, including certain on-balance sheet obligations, at December 31, 2003 (in thousands):



|                                                  |  |   |         |  | Payments Due by Period |                 
|------------------------------------------------- |  | - | ------- |  | ---------------------- | ----------------
|                                                  |  |   | Total   |  |                        | Less
Than 1
Year
|Contractual Obligations                           |  |   |         |  |                        |                 
|                                                  |  |   |         |  |                        |                 
|Deposits                                          |  | $ | 263,866 |  |                        | 246,861         
|FHLB advances                                     |  |   | 30,875  |  |                        | 875             
|Other borrowings                                  |  |   | 15,050  |  |                        | 15,050          
|Operating leases                                  |  |   | 7,706   |  |                        | 1,291           
|Loan Commitments                                  |  |   | 12,785  |  |                        | 12,785          
|Standby letters of credit                         |  |   | 2,625   |  |                        | 2,625           
|Undisbursed construction and line of credit loans |  |   | 38,336  |  |                        | 38,336          
|                                                  |  |   |         |  |                        |                 
|Total                                             |  | $ | 371,243 |  | $                      | 317,823         





21



---

Comparison of Years Ended December 31, 2003 and 2002



General



Net earnings for the twelve months ended December 31, 2003, were $2.5 million compared to $1.8 million in 2002. The increase in net earnings is attributed to the $13.5 million of net interest income after the loan loss (credit) provision for the year ended December 31, 2003, compared to the $11.8 million in 2002, an increase of $1.7 million or 14.10%. Net interest income improved primarily because a shift of deposit accounts from high cost time deposits into lower cost transaction accounts and noninterest-bearing demand deposit accounts. The Companys earnings per share were $1.12 basic and $1.08 diluted for the year ended December 31, 2003 compared to $.84 per basic and $.82 diluted share in 2002.



Interest Income and Expense



Interest income decreased by $1.8 million, or 8.8%, from $20.2 million for the year ended December 31, 2002 to $18.4 million for the year ended December 31, 2003. Interest income on loans decreased $1.1 million primarily due to a decrease in the average yield earned from 7.39% in 2002 to 6.68% in 2003, partially offset by an increase in the average loan portfolio balance from $226.4 million for the year ended December 31, 2002 to $233.5 million in 2003. Interest on securities decreased $459,000 primarily due to a decrease in the weighted-average yield earned of .85%, partially offset by an increase in the average securities portfolio balance from $65.5 million in 2002 to $69.6 million in 2003. The marginal decrease in interest income on other interest-earning assets of $180,000 was due to a decrease in the weighted-average yield earned of .59% and the decrease of average balances from $17.0 million to $12.3 million in 2003.



Interest expense on deposits decreased to $3.2 million for the year ended December 31, 2003 from $4.9 million for the year ending December 31, 2002. Interest expense on deposits decreased due to a decrease in the average rate paid on deposits from 2.64% in 2002 to 1.68% in 2003, partially offset by an increase in the average balance from $184.9 million in 2002 to $189.4 million in 2003.



Interest expense on borrowings decreased $854,000 to $1.9 million for the year ended December 31, 2003 from $2.7 million in 2002. Interest expense on borrowings decreased due to a decrease in the average rate paid for borrowings from 4.33% in 2002 to 3.89% in 2003 and a decrease in average borrowings from $62.5 million to $47.6 million in 2003.



Provision for Loan Losses



The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Bank, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as they relate to the Banks market areas, and other factors related to the collectibility of the Banks loan portfolio. The Company recorded a credit to the provision of $100,000 for the period ended December 31, 2003 compared to a provision of $811,000 in 2002. The credit to the provision is a direct result in realizing recoveries on previously charged-off loans. Managements decision to decrease reserves is based on the composition and risk associated in the loan portfolio. Managements assessment is that the allowance for loan losses of $3.4 million was adequate at December 31, 2003.



Noninterest Income



Total noninterest income for the year ended December 31, 2003 was $3.2 million compared to the $2.9 million in 2002. The net increase in noninterest income of $360,000 was primarily due to the increase in service charges on deposit accounts of $165,000, an increase of $94,000 from profit realized on securities available for sale and an increase of $57,000 being earned from loan correspondent fees associated with the Companys mortgage originations.



Noninterest Expenses



Total noninterest expenses increased $951,000 to $13.1 million for the year ended December 31, 2003 from $12.1 million in 2002. The increase in noninterest expenses in 2003 was primarily a result of an increase in salaries and employee benefits of $701,000 due to the required staff to support the Companys growth. Occupancy expenses increased $152,000 primarily as a result of the lease associated with the South Beach office which opened on December 31, 2002. Data processing expenses increased $123,000 as a result of the Companys investment spending in state of the art technology.



22



---

Provision for Income Taxes



The provision for income taxes increased from $829,000 (an effective rate at 32%) during the year ended December 31, 2002 to $1.2 million (an effective rate at 32%) during the year ended December 31, 2003.



Comparison of Years Ended December 31, 2002 and 2001



General



Net earnings for the twelve months ended December 31, 2002, were $1.8 million compared to $1.7 million in 2001. The marginal increase in earnings reflects the full year absorption of four acquired Miami-Dade banking offices and the de novo Coral Springs office opened during the spring of 2001. The Companys earnings per share were $.84 basic and $.82 diluted for the year ended December 31, 2002, compared to $.82 basic and $.81, diluted in 2001.



Interest Income and Expense



Interest income decreased by $1.5 million, or 6.8%, from $21.7 million for the year ended December 31, 2001 to $20.2 million in 2002. Interest income on loans decreased $1.2 million primarily due to a decrease in the average yield earned from 8.39% in 2001 to 7.39% in 2002, partially offset by an increase in the average loan portfolio balance from $213.6 million in 2001 to $226.4 million in 2002. Interest on securities decreased $163,000 primarily due to a decrease in the weighted-average yield earned of .74%, partially offset by an increase in the average securities portfolio balance from $59.2 million in 2001 to $65.5 million in 2002. The marginal decrease in interest income on other interest-earning assets of $115,000 was due to a decrease in the weighted-average yield earned of 2.27%, partially offset by an increase in the average other interest-earning assets balance from $11.1 million in 2001 to $17.0 million in 2002.



Interest expense on deposits decreased to $4.9 million for the year ended December 31, 2002 from $7.2 million in 2001. Interest expense on deposits decreased due to a decrease in the average rate paid on deposits from 4.25% in 2001 to 2.64% in 2002, partially offset by an increase in the average balance from $169.3 million in 2001 to $184.9 million in 2002.



Interest expense on borrowings decreased $554,000 to $2.7 million for the year ended December 31, 2002 from $3.3 million in 2001. Interest expense on borrowings decreased due to a decrease in the weighted-average rate paid for year ended December 31, 2002 to 4.33% compared to 5.12% in 2001.



Provision for Loan Losses



The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Bank, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as they relate to the Banks market areas, and other factors related to the collectibility of the Banks loan portfolio. A provision of $811,000 was made for year ended December 31, 2002 compared to the $1.3 million provision in 2001. The decrease in the provision is a direct result in realizing recoveries on previously charged-off loans. Managements decision to decrease allowance is based on the composition and risk associated in the loan portfolio. Managements assessment is that the allowance for loan losses of $3.5 million was adequate at December 31, 2002.



Noninterest Income



Total noninterest income for the year ended December 31, 2002 was $2.9 million compared to the $2.7 million in 2001. The net increase in noninterest income of $169,000 was primarily due to the increase in service charges on deposit accounts of $402,000 related to the greater number of transaction-based deposit accounts that the Company services. The increase in other income was a result of a $67,000 profit earned on the sale of real estate owned. The increase in noninterest revenue was offset by a decrease in gains realized from the sale of securities available for sale of $399,000.



Noninterest Expenses



Total noninterest expenses increased $1.9 million to $12.1 million for the year ended December 31, 2002 from $10.2 million in 2001. The increase in noninterest expenses in 2002 was primarily a result of an increase in salaries and employee benefits of $1.0 million due to the increase in staff to support the Companys growth.



23



---

Occupancy expenses increased $552,000 as we realized the full year effect of the four acquired Miami-Dade banking offices and the de novo Coral Springs office opened in the spring of 2001. The amortization of intangible assets increased by $76,000 as the Company realized a years effect resulting from the application of purchase accounting principles to the acquisition of the four Miami-Dade County branch offices in 2001.



Provision for Income Taxes



The provision for income taxes increased from $814,000 (an effective rate at 33%) during the year ended December 31, 2001 to $829,000 (an effective rate at 32%) during the year ended December 31, 2002. The decrease in the effective income tax rate is directly related to bank qualified municipal investments in the securities available for sale during the year ended December 31, 2002.



Quarterly Data



The following table presents summarized quarterly financial data (in thousands, except per share amounts):



|                                                    |  | Year Ended December 31, 2003 |      
|--------------------------------------------------- |  | ---------------------------- | -----
|                                                    |  | First
Quarter                |      
|                                                    |  | (Dollars in thousands)       |      
|                                                    |  |                              |      
|Interest income                                     |  | $                            | 4,501
|                                                    |  |                              |      
|Interest expense                                    |  |                              | 1,447
|                                                    |  |                              |      
|Net interest income                                 |  |                              | 3,054
|                                                    |  |                              |      
|Provision (credit) for loan losses                  |  |                              | (100 
|                                                    |  |                              |      
|Net interest income after provision for loan losses |  |                              | 3,154
|                                                    |  |                              |      
|Noninterest income                                  |  |                              | 733  
|Noninterest expense                                 |  |                              | 3,230
|                                                    |  |                              |      
|Net earnings before income taxes                    |  |                              | 657  
|Income taxes                                        |  |                              | 196  
|                                                    |  |                              |      
|Net Earnings                                        |  |                              | 461  
|                                                    |  |                              |      
|Basic earnings per common share                     |  | $                            | .21  
|                                                    |  |                              |      
|Diluted earnings per common share                   |  | $                            | .21  



|                                                    |  | Year Ended December 31, 2002 |      
|--------------------------------------------------- |  | ---------------------------- | -----
|                                                    |  | First
Quarter                |      
|                                                    |  | (Dollars in thousands)       |      
|                                                    |  |                              |      
|Interest income                                     |  | $                            | 5,194
|                                                    |  |                              |      
|Interest expense                                    |  |                              | 2,017
|Net interest income                                 |  |                              | 3,177
|                                                    |  |                              |      
|Provision (credit) for loan losses                  |  |                              | 471  
|                                                    |  |                              |      
|Net interest income after provision for loan losses |  |                              | 2,706
|                                                    |  |                              |      
|Noninterest income                                  |  |                              | 761  
|Noninterest expense                                 |  |                              | 2,903
|                                                    |  |                              |      
|Net earnings before income taxes                    |  |                              | 564  
|Income taxes                                        |  |                              | 166  
|                                                    |  |                              |      
|Net Earnings                                        |  |                              | 398  
|                                                    |  |                              |      
|Basic earnings per common share                     |  | $                            | .19  
|                                                    |  |                              |      
|Diluted earnings per common share                   |  | $                            | .19  



24



---

Item 7a.

Quantitative and Qualitative Disclosure About Market Risk.



See Part I, Item 7. Credit Risk and Management of Interest Rate-Risk and Market Risk



Item 8.

Financial Statements and Supplementary Data.



INDEX



|                                                                                                     |  | Page(s)  
|---------------------------------------------------------------------------------------------------- |  | ---------
|Audited Consolidated Financial Statements                                                            |  |          
|                                                                                                     |  |          
|Report of Independent Certified Public Accountants (Hacker, Johnson & Smith PA)                      |  | F-1      
|                                                                                                     |  |          
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                         |  | F-2      
|                                                                                                     |  |          
|Consolidated Statements of Earnings for the years ended December 31, 2003, 2002 and 2001             |  | F-3      
|                                                                                                     |  |          
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |  | F-4      
|                                                                                                     |  |          
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001           |  | F-5, F-6 
|                                                                                                     |  |          
|Notes to Consolidated Financial Statements                                                           |  | F-7, F-28
|                                                                                                     |  |          
|Independent Auditors Report on Supplementary Information                                            |  | F-29     
|                                                                                                     |  |          
|Consolidated Balance Sheets as of December 31, 2003                                                  |  | F-30     
|                                                                                                     |  |          
|Consolidated Statements of Earnings for the year ended December 31, 2003                             |  | F-31     



Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.



None



25



---



Independent Auditors Report







Pointe Financial Corporation

Boca Raton, Florida:



We have audited the accompanying consolidated balance sheets of Pointe Financial Corporation and Subsidiaries (the Company) at December 31, 2003 and 2002, and the related consolidated statements of earnings, stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 the Company at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.









HACKER, JOHNSON & SMITH PA

Fort Lauderdale, Florida

January 13, 2004















F-1



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Consolidated Balance Sheets

($ in thousands, except share amounts)



|                                                                                                                                             | At December 31, |        
|-------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | -------
|Assets                                                                                                                                       | 2003            |        
|                                                                                                                                             |                 |        
|                                                                                                                                             |                 |        
|Cash and due from banks                                                                                                                      | $               | 12,341 
|Interest-bearing deposits with banks                                                                                                         |                 | 602    
|                                                                                                                                             |                 |        
|Total cash and cash equivalents                                                                                                              |                 | 12,943 
|                                                                                                                                             |                 |        
|Securities available for sale                                                                                                                |                 | 69,344 
|Loans, net of allowance for loan losses of $3,441
in 2003 and $3,519 in 2002                                                                 |                 | 250,331
|Loans held for sale                                                                                                                          |                 | 3,084  
|Accrued interest receivable                                                                                                                  |                 | 2,072  
|Premises and equipment, net                                                                                                                  |                 | 3,482  
|Federal Home Loan Bank stock, at cost                                                                                                        |                 | 1,915  
|Federal Reserve Bank stock, at cost                                                                                                          |                 | 479    
|Foreclosed real estate                                                                                                                       |                 |       
|Branch acquisition intangible asset                                                                                                          |                 | 2,974  
|Deferred income tax asset                                                                                                                    |                 | 786    
|Other assets                                                                                                                                 |                 | 1,304  
|                                                                                                                                             |                 |        
|Total                                                                                                                                        | $               | 348,714
|                                                                                                                                             |                 |        
|Liabilities and Stockholders Equity                                                                                                         |                 |        
|                                                                                                                                             |                 |        
|Liabilities:                                                                                                                                 |                 |        
|Noninterest-bearing demand deposits                                                                                                          |                 | 71,326 
|Savings and NOW deposits                                                                                                                     |                 | 32,562 
|Money-market deposits                                                                                                                        |                 | 84,443 
|Time deposits                                                                                                                                |                 | 75,535 
|                                                                                                                                             |                 |        
|Total deposits                                                                                                                               |                 | 263,866
|                                                                                                                                             |                 |        
|Official checks                                                                                                                              |                 | 2,143  
|Federal Home Loan Bank advances                                                                                                              |                 | 30,875 
|Other borrowings                                                                                                                             |                 | 15,050 
|Accrued interest payable                                                                                                                     |                 | 393    
|Advance payments by borrowers for taxes and insurance                                                                                        |                 | 260    
|Other liabilities                                                                                                                            |                 | 1,210  
|                                                                                                                                             |                 |        
|Total liabilities                                                                                                                            |                 | 313,797
|                                                                                                                                             |                 |        
|Commitments and contingencies (Notes 4, 8 and 9)                                                                                             |                 |        
|                                                                                                                                             |                 |        
|Stockholders equity:                                                                                                                        |                 |        
|Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued                                                                    |                 |       
|Common stock, $.01 par value, 5,000,000 shares authorized; 2,549,028 and
2,471,668 shares issued at December 31, 2003 and 2002, respectively |                 | 25     
|                                                                                                                                             |                 |        
|Additional paid-in capital                                                                                                                   |                 | 26,617 
|Retained earnings                                                                                                                            |                 | 10,835 
|Accumulated other comprehensive income                                                                                                       |                 | 576    
|Treasury stock, at cost (297,000 shares)                                                                                                     |                 | (3,000 
|Stock incentive plan                                                                                                                         |                 | (136   
|                                                                                                                                             |                 |        
|Total stockholders equity                                                                                                                   |                 | 34,917 
|                                                                                                                                             |                 |        
|Total                                                                                                                                        | $               | 348,714



See Accompanying Notes to Consolidated Financial Statements.

F-2



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Consolidated Statements of Earnings

($ in thousands, except per share amounts)



|                                                             | Year Ended December 31, |          
|------------------------------------------------------------ | ----------------------- | ---------
|                                                             | 2003                    |          
|                                                             |                         |          
|Interest income:                                             |                         |          
|Loans                                                        | $                       | 15,588   
|Securities available for sale                                |                         | 2,648    
|Other                                                        |                         | 208      
|                                                             |                         |          
|Total interest income                                        |                         | 18,444   
|                                                             |                         |          
|Interest expense:                                            |                         |          
|Deposits                                                     |                         | 3,185    
|Borrowings                                                   |                         | 1,854    
|                                                             |                         |          
|Total interest expense                                       |                         | 5,039    
|                                                             |                         |          
|Net interest income                                          |                         | 13,405   
|                                                             |                         |          
|(Credit) provision for loan losses                           |                         | (100     
|                                                             |                         |          
|Net interest income after (credit) provision for loan losses |                         | 13,505   
|                                                             |                         |          
|Noninterest income:                                          |                         |          
|Service charges on deposit accounts                          |                         | 1,881    
|Net realized gain on sale of securities                      |                         | 436      
|Loan correspondent fees                                      |                         | 311      
|Other                                                        |                         | 615      
|                                                             |                         |          
|Total noninterest income                                     |                         | 3,243    
|                                                             |                         |          
|Noninterest expenses:                                        |                         |          
|Salaries and employee benefits                               |                         | 6,867    
|Occupancy expense                                            |                         | 2,547    
|Advertising and promotion                                    |                         | 231      
|Professional fees                                            |                         | 342      
|Data processing                                              |                         | 816      
|Amortization of intangible asset                             |                         | 242      
|Other                                                        |                         | 2,032    
|                                                             |                         |          
|Total noninterest expenses                                   |                         | 13,077   
|                                                             |                         |          
|Earnings before income taxes                                 |                         | 3,671    
|                                                             |                         |          
|Income taxes                                                 |                         | 1,178    
|                                                             |                         |          
|Net earnings                                                 | $                       | 2,493    
|                                                             |                         |          
|Earnings per share:                                          |                         |          
|Basic                                                        | $                       | 1.12     
|                                                             |                         |          
|Diluted                                                      | $                       | 1.08     
|                                                             |                         |          
|Weighted-average shares outstanding for basic                |                         | 2,230,613
|                                                             |                         |          
|Weighted-average shares outstanding for diluted              |                         | 2,301,391



See Accompanying Notes to Consolidated Financial Statements



F-3



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Consolidated Statements of Stockholders Equity

($ In thousands)



|                                                                             | Common Stock |   | Additional
Paid-in
Capital |    | Stock
Incentive
Plan |        | Treasury
Stock |      | Retained
Earnings |        | Accumulated
Other
Compre-
hensive
Income
(Loss) |        | Total
Stockholders
Equity |     
|---------------------------------------------------------------------------- | ------------ | - | -------------------------- | -- | -------------------- | ------ | -------------- | ---- | ----------------- | ------ | ----------------------------------------------- | ------ | -------------------------- | ----
|
|
|
|
|Shares                                                                       |              |   | Amount                    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Balance at December 31, 2000                                                 | 2,319,227    |   | $                          | 23 |                      | 23,835 |                | (29  | )                 | (3,000 | )                                               | 6,274  |                            | (373
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Comprehensive income:                                                        |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Net earnings                                                                 |             |   |                            |   |                      |       |                |     |                   |       |                                                 | 1,668  |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Net change in unrealized loss on
available-for-sale securities,
net of taxes |             |   |                            |   |                      |       |                |     |                   |       |                                                 |       |                            | 356 
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Comprehensive income                                                         |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Shares issued in stock incentive plan                                        | 10,659       |   |                            |   |                      | 113    |                | (113 | )                 |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Shares committed to participants in
stock incentive plan                     |             |   |                            |   |                      |       |                | 34   |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Shares cancelled in stock incentive plan                                     | (460         | ) |                            |   |                      | (4     | )              | 4    |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Cash dividends paid                                                          |             |   |                            |   |                      |       |                |     |                   |       |                                                 | (407   | )                          |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Common stock options exercised                                               | 7,337        |   |                            |   |                      | 70     |                |     |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Issuance of common stock to directors
as compensation                        | 8,532        |   |                            |   |                      | 96     |                |     |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Balance at December 31, 2001                                                 | 2,345,295    |   |                            | 23 |                      | 24,110 |                | (104 | )                 | (3,000 | )                                               | 7,535  |                            | (17 
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Comprehensive income:                                                        |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Net earnings                                                                 |             |   |                            |   |                      |       |                |     |                   |       |                                                 | 1,764  |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Net change in unrealized loss on
available-for-sale securities, net
of taxes |             |   |                            |   |                      |       |                |     |                   |       |                                                 |       |                            | 957 
|                                                                            
|                                                                            
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Comprehensive income                                                         |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Common stock options exercised                                               | 129,540      |   |                            | 2  |                      | 1,463  |                |     |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Shares committed to participants in stock
incentive plan                     |             |   |                            |   |                      |       |                | 19   |                   |       |                                                 |       |                            |    
|                                                                            
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Shares cancelled in stock incentive plan                                     | (3,167       | ) |                            |   |                      | (33    | )              | 33   |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Cash dividends paid                                                          |             |   |                            |   |                      |       |                |     |                   |       |                                                 | (421   | )                          |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Balance at December 31, 2002                                                 | 2,471,668    |   |                            | 25 |                      | 25,540 |                | (52  | )                 | (3,000 | )                                               | 8,878  |                            | 940 
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Comprehensive income:                                                        |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Net earnings                                                                 |             |   |                            |   |                      |       |                |     |                   |       |                                                 | 2,493  |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Net change in unrealized gain on
available-for-sale securities,
net of taxes |             |   |                            |   |                      |       |                |     |                   |       |                                                 |       |                            | (364
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Comprehensive income                                                         |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Common stock options exercised                                               | 70,884       |   |                            |   |                      | 965    |                |     |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Shares issued in stock incentive plan                                        | 10,891       |   |                            |   |                      | 165    |                | (165 | )                 |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Shares committed to participants in stock
incentive plan                     |             |   |                            |   |                      |       |                | 28   |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Shares cancelled in stock incentive plan                                     | (4,415       | ) |                            |   |                      | (53    | )              | 53   |                   |       |                                                 |       |                            |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Cash dividends paid                                                          |             |   |                            |   |                      |       |                |     |                   |       |                                                 | (536   | )                          |    
|                                                                             |              |   |                            |    |                      |        |                |      |                   |        |                                                 |        |                            |     
|Balance at December 31, 2003                                                 | 2,549,028    |   | $                          | 25 |                      | 26,617 |                | (136 | )                 | (3,000 | )                                               | 10,835 |                            | 576 



See Accompanying Notes to Consolidated Financial Statements

F-4



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Consolidated Statements of Cash Flows

($ in thousands)



|                                                                                    | Year Ended December 31, |        
|----------------------------------------------------------------------------------- | ----------------------- | -------
|                                                                                    |                         | 2003   
|                                                                                    |                         |        
|Cash flows from operating activities:                                               |                         |        
|Net earnings                                                                        | $                       | 2,493  
|Adjustments to reconcile net earnings to net cash provided by
operating activities: |                         |        
|(Credit) `provision for loan losses                                                 |                         | (100   
|Depreciation and amortization                                                       |                         | 724    
|Net amortization of fees, premiums, discounts and other                             |                         | 1,256  
|Deferred income taxes (benefit)                                                     |                         | 56     
|Common stock issued as compensation for services                                    |                         |       
|Shares committed to participants in incentive stock plan                            |                         | 28     
|Gain on sale of securities                                                          |                         | (436   
|Gain on sale of foreclosed real estate                                              |                         | (12    
|Originations of loans held for sale                                                 |                         | (3,111 
|Repayments of loans held for sale                                                   |                         | 177    
|(Increase) decrease in other assets                                                 |                         | (36    
|(Increase) decrease in accrued interest receivable                                  |                         | (89    
|(Decrease) increase in official checks                                              |                         | 224    
|Decrease in accrued interest payable                                                |                         | (201   
|Increase in other liabilities                                                       |                         | 441    
|                                                                                    |                         |        
|Net cash provided by operating activities                                           |                         | 1,414  
|                                                                                    |                         |        
|Cash flows from investing activities:                                               |                         |        
|Purchase of securities available for sale                                           |                         | (89,122
|Proceeds from sale of securities available for sale                                 |                         | 12,772 
|Maturities and calls of securities available for sale                               |                         | 68,027 
|Principal repayments on securities available for sale                               |                         | 1,407  
|Net (increase) decrease in loans                                                    |                         | (35,954
|Purchase of premises and equipment, net                                             |                         | (588   
|Proceeds from sale of foreclosed real estate                                        |                         | 129    
|Net decrease (increase) in other securities                                         |                         | 585    
|Increase in branch acquisition intangible asset                                     |                         |       
|                                                                                    |                         |        
|Net cash (used in) provided by investing activities                                 |                         | (42,744
|                                                                                    |                         |        
|Cash flows from financing activities:                                               |                         |        
|Net increase in deposits                                                            |                         | 30,365 
|Net decrease in Federal Home Loan Bank advances                                     |                         | (14,125
|Net increase (decrease) in other borrowings                                         |                         | 2,087  
|Increase (decrease) in advance payments for taxes and insurance                     |                         | 30     
|Proceeds from exercise of stock options                                             |                         | 804    
|Cash dividends paid on common stock                                                 |                         | (536   
|                                                                                    |                         |        
|Net cash provided by (used in) financing activities                                 |                         | 18,625 
|                                                                                    |                         |        
|Net (decrease) increase in cash and cash equivalents                                |                         | (22,705
|                                                                                    |                         |        
|Cash and cash equivalents at beginning of year                                      |                         | 35,648 
|                                                                                    |                         |        
|Cash and cash equivalents at end of year                                            | $                       | 12,943 



(continued)

F-5



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Consolidated Statements of Cash Flows, Continued

($ in thousands)



|                                                                                                                     |   | Year  Ended December 31, |  
|-------------------------------------------------------------------------------------------------------------------- | - | ------------------------ | -
|                                                                                                                     |   | 2003                     |  
|                                                                                                                     |   |                          |  
|Supplemental disclosure of cash flow information:                                                                    |   |                          |  
|Cash paid during the year for:                                                                                       |   |                          |  
|Interest                                                                                                             | $ | 5,240                    |  
|                                                                                                                     |   |                          |  
|Income taxes                                                                                                         | $ | 1,265                    |  
|                                                                                                                     |   |                          |  
|Noncash transactions:                                                                                                |   |                          |  
|Reclassification of loans to foreclosed real estate                                                                  | $ |                         |  
|                                                                                                                     |   |                          |  
|Reclassification of other assets to foreclosed real estate                                                           | $ |                         |  
|                                                                                                                     |   |                          |  
|Accumulated other comprehensive income (loss), change in
net unrealized gain (loss) on securities available for sale | $ | (364                     | )
|                                                                                                                     |   |                          |  
|Transfer of loans to loans held for sale                                                                             | $ |                         |  
|                                                                                                                     |   |                          |  
|Securitization of loans                                                                                              | $ |                         |  
|                                                                                                                     |   |                          |  
|Tax benefit related to exercise of common stock options                                                              | $ | 161                      |  
|                                                                                                                     |   |                          |  
|Activity in stock incentive plan, net                                                                                | $ | (84                      | )
|                                                                                                                     |   |                          |  
|Acquisition of branches:                                                                                             |   |                          |  
|Fair value of premises and equipment acquired                                                                        | $ |                         |  
|                                                                                                                     |   |                          |  
|Fair value of loans acquired                                                                                         | $ |                         |  
|Deposits assumed                                                                                                     | $ |                         |  



See Accompanying Notes to Consolidated Financial Statements.





F-6



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements

At December 31, 2003 and 2002 and For the Years Ended

December 31, 2003, 2002 and 2001

(1)

Description of Business and Summary of Significant Accounting Policies

General.Pointe Financial Corporation (the Holding Company) owns all the common stock of Pointe Bank (the Bank), a state-chartered commercial bank and Pointe Financial Services, Inc. On February 12, 2002, the Bank incorporated a subsidiary, Will No-No, Inc., a Florida corporation, formed for the purpose to own, maintain and dispose of the Banks foreclosed assets (collectively the Company). The Bank provides a variety of community banking services to small and middle-market businesses and individuals through its nine banking offices located in Broward, Miami-Dade and Palm Beach counties, Florida. Pointe Financial Services, Inc. is an inactive subsidiary and Will No-No, Inc. had minimal activity during the year ended December 31, 2003.



In 2000, the Company formed Pointe Capital, an investment banking joint venture with First Integrated Capital Corporation, a subsidiary of McGinn, Smith & Company, Inc., a related party. The Company owns 50% of Pointe Capital. Pointe Capital offered investment banking services to small and medium-size businesses in South Florida. During 2003, Pointe Capital discontinued operations. The Company accounts for its investment in Pointe Capital using the equity method of accounting.



Basis of Presentation.The accompanying consolidated financial statements include the accounts of the Holding Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.



The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The following summarizes the more significant of these policies and practices.



Use of Estimates.In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and deferred tax assets.



Cash and Cash Equivalents.For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks and interest-bearing deposits with banks.



The Bank is required under Federal Reserve Board regulations to maintain reserves, generally consisting of cash or noninterest-earning accounts, against its transaction accounts. At December 31, 2003 and 2002, balances maintained as reserves were approximately $3.1 million and $3.3 million, respectively.



(continued)





F-7



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued

(1)

Description of Business and Summary of Significant Accounting Policies, Continued

Securities.The Company may classify its securities as either trading, held to maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in earnings. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are excluded from earnings and reported in other comprehensive income. Gains and losses on the sale of available-for-sale securities are recorded on the trade date and are determined using the specific-identification method. Premiums and discounts on securities available for sale are recognized in interest income using the interest method over the period to maturity.



Loans.Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.



Loan origination fees are deferred and certain direct origination costs are capitalized. Both are recognized as an adjustment of the yield of the related loan.



The accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well-collateralized 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.



Loans Held for Sale.Loans held for sale are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to earnings. At December 31, 2003 and 2002, the book value of loans held for sale approximated fair value in the aggregate.



Loan origination fees are deferred and direct loan origination costs are capitalized until the related loan is sold, at which time the net fees are included in the gain on sale of loans in the consolidated statements of earnings.



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



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



(continued)



F-8



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued

(1)

Description of Business and Summary of Significant Accounting Policies, Continued

Allowance for Loan Losses, Continued.A loan is considered impaired when, based on current information and events, it is probable that the Company 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 the 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 commercial real estate 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 smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.



Foreclosed Real Estate.Real estate acquired through, or in lieu of, foreclosure is initially recorded at the lower of fair value or the loan balance plus acquisition costs at the date of foreclosure. After foreclosure, valuations are periodically performed by management and the real estate is 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 earnings.



Premises and Equipment.Land is stated at cost. Building, furniture, fixtures, equipment and leasehold improvements are carried at cost, less accumulated depreciation and amortization computed using the straight-line method over the shorter of the lease term or estimated useful life of each type of asset.



Branch Acquisition Intangible Asset.On April 20, 2001, the Company purchased four branch offices in Miami-Dade County from another financial institution. The branches had a combined deposit base of approximately $55.0 million. The Company also acquired in this transaction consumer loans of approximately $7.5 million and $25.4 million of short-term participation interests in existing commercial real estate loans in the sellers portfolio. The excess of the fair value of liabilities assumed over the fair value of tangible assets acquired in this transaction was $3.6 million. This $3.6 million constitutes an unidentifiable intangible asset. The transaction in which the unidentifiable intangible asset arose was not a business combination. In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 147, Acquisition of Certain Financial Institutions, the unidentified intangible asset continues to be amortized over the estimated average remaining life of the existing customer base, fifteen years. The annual amortization will be $247,000 through 2016.



Transfer of Financial Assets.Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.



Income Taxes. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Valuation allowances are provided against assets which are not likely to be realized.

(continued)

F-9



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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued

(1)

Description of Business and Summary of Significant Accounting Policies, Continued

Stock Compensation Plans.SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting for Stock-Based Compensation Transition and Disclosure (collectively, SFAS No. 123) encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (Opinion No. 25) whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Companys stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in Opinion No 25.



The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation (in thousands, except per share amounts).



| |                                                                                                                           |   | Year Ended December 31, | 
| | ------------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | 
| |                                                                                                                           |   | 2003                    | 
| |                                                                                                                           |   |                         | 
| | Net earnings, as reported                                                                                                 | $ | 2,493                   | 
| |                                                                                                                           |   |                         | 
| | Deduct:
Total stock-based employee compensation
determined under the fair value based
method for all awards, net of taxes |   | 238                     | 
| |                                                                                                                           |   |                         | 
| | Pro forma net earnings                                                                                                    | $ | 2,255                   | 
| |                                                                                                                           |   |                         | 
| | Basic earnings per share:                                                                                                 |   |                         | 
| | As reported                                                                                                               | $ | 1.12                    | 
| |                                                                                                                           |   |                         | 
| | Pro forma                                                                                                                 | $ | 1.01                    | 
| |                                                                                                                           |   |                         | 
| | Diluted earnings per share:                                                                                               |   |                         | 
| | As reported                                                                                                               | $ | 1.08                    | 
| |                                                                                                                           |   |                         | 
| | Pro forma                                                                                                                 | $ | .98                     | 



(continued)



F-10



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued

(1)

Description of Business and Summary of Significant Accounting Policies, Continued

Stock Compensation Plans, Continued.The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:



| |                                                                          |   | Year  Ended December 31, |  
| | ------------------------------------------------------------------------ | - | ------------------------ | -
| |                                                                          |   | 2003                     |  
| |                                                                          |   |                          |  
| | Risk-free interest rate                                                  |   | 4.25-4.50                | %
| | Dividend yield                                                           |   | 2.0-4.0                  | %
| | Expected volatility                                                      |   | 13.5-17.7                | %
| | Expected life in years                                                   |   | 10                       |  
| |                                                                          |   |                          |  
| | Weighted-average grant date fair value of options
issued during the year | $ | 2.64                     |  



Earnings Per Share.Basic earnings per share is computed on the basis of the weighted-average number of common shares outstanding. Diluted earnings per share is computed based on the weighted-average number of shares outstanding plus the effect of outstanding stock options, computed using the treasury stock method.



Off-Balance-Sheet Financial Instruments.In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, unused lines of credit and stand-by letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded.



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 Company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. Certain financial instruments and all nonfinancial instruments are excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used by the Company in estimating fair values of financial instruments:



Cash and Cash Equivalents.The carrying amounts of cash and cash equivalents approximate their fair value.



Securities.Fair values for securities available for sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying value of Federal Home Loan Bank stock and Federal Reserve Bank stock approximates fair value.



Loans Held for Sale.Fair values of loans held for sale are based on commitments on hand from investors or prevailing market prices.



(continued)



F-11



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued

(1)

Description of Business and Summary of Significant Accounting Policies, Continued

Fair Values of Financial Instruments, Continued.

Loans.For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and commercial 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 nonperforming loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable.



Accrued Interest Receivable.Book value approximates fair value.



Deposit Liabilities.The fair values disclosed for demand, NOW, money market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities of time deposits.



Borrowed Funds.The carrying amounts of other borrowings approximate their fair values. Fair values of advances from Federal Home Loan Bank are estimated using discounted cash flow analysis based on the Companys current incremental borrowing rates for similar types of borrowings.



Off-Balance-Sheet Instruments.Fair values for off-balance-sheet lending commitments 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.



Advertising.The Company expenses all advertising as incurred.



Recent Pronouncements.In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others (FIN 45), which expands previously issued accounting guidance and disclosure requirements for certain guarantees. FIN 45 requires the Company to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability is applied on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material affect on the Companys consolidated financial statements.



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance on the recognition and measurement of liabilities for costs associated with exit or disposal activities. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. The adoption of this Statement had no effect on the Companys consolidated financial statements.



In January 2003, the FASB issued (Revised in December 2003) FASB Interpretation No. 46 Consolidation of Variable Interest Entities (FIN 46) which addresses consolidation by business enterprises of variable interest entities. FIN 46 applies to variable interest entities created after January 31, 2003. The Company has no variable interest entities, therefore FIN 46 had no effect on the Companys consolidated financial statements.



(continued)

F-12



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued

(1)

Description of Business and Summary of Significant Accounting Policies, Continued

Recent Pronouncements, Continued.In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement is effective for contracts entered into or modified after June 30, 2003. The adoption of this Statement had no effect on the Companys consolidated financial statements.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this Statement had no effect on the Companys consolidated financial statements.



Comprehensive Income.Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net earnings. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items along with net earnings, are components of comprehensive income. The components of other comprehensive income and related tax effects are as follows (in thousands):



| |                                                                |   | Before
Tax |   |  | Tax
Effect |   |  | After
Tax |  
| | -------------------------------------------------------------- | - | ---------- | - |  | ---------- | - |  | --------- | -
| |                                                                |   |            |   |  |            |   |  |           |  
| | Year Ended December 31, 2003:                                  |   |            |   |  |            |   |  |           |  
| |                                                                |   |            |   |  |            |   |  |           |  
| | Unrealized holding losses                                      | $ | (151       | ) |  | 59         |   |  | (92       | )
| | Reclassification adjustment for gains
included in net earnings |   | (436       | ) |  | 164        |   |  | (272      | )
| |                                                                |   |            |   |  |            |   |  |           |  
| |                                                                | $ | (587       | ) |  | 223        |   |  | (364      | )
| | Year Ended December 31, 2002:                                  |   |            |   |  |            |   |  |           |  
| |                                                                |   |            |   |  |            |   |  |           |  
| | Unrealized holding gains                                       |   | 1,886      |   |  | (716       | ) |  | 1,170     |  
| | Reclassification adjustment for gains
included in net earnings |   | (342       | ) |  | 129        |   |  | (213      | )
| |                                                                |   |            |   |  |            |   |  |           |  
| |                                                                | $ | 1,544      |   |  | (587       | ) |  | 957       |  
| | Year Ended December 31, 2001:                                  |   |            |   |  |            |   |  |           |  
| |                                                                |   |            |   |  |            |   |  |           |  
| | Unrealized holding gains                                       |   | 1,312      |   |  | (494       | ) |  | 818       |  
| | Reclassification adjustment for gains
included in net earnings |   | (741       | ) |  | 279        |   |  | (462      | )
| |                                                                | $ | 571        |   |  | (215       | ) |  | 356       |  



(continued)

F-13



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued

(2)

Securities Available for Sale

Securities have been classified according to managements intention. The carrying amount of securities and their approximate fair values are summarized as follows (in thousands):



| |                                   |   | Amortized
Cost |  |  | Gross
Unrealized
Gains |  |  | Gross
Unrealized
Losses |   |  | Fair
Value | 
| | --------------------------------- | - | -------------- |  |  | ---------------------- |  |  | ----------------------- | - |  | ---------- | 
| |                                   |   |                |  |  |                        |  |  |                         |   |  |            | 
| | At December 31, 2003:             |   |                |  |  |                        |  |  |                         |   |  |            | 
| | U.S. Treasury securities          | $ | 7,921          |  |  | 277                    |  |  | (9                      | ) |  | 8,189      | 
| | U.S. Government agency securities |   | 41,671         |  |  | 251                    |  |  | (2                      | ) |  | 41,920     | 
| | Tax-exempt securities             |   | 14,773         |  |  | 420                    |  |  |                        |   |  | 15,193     | 
| | Mortgage-backed securities        |   | 1,624          |  |  | 29                     |  |  |                        |   |  | 1,653      | 
| | Mutual funds                      |   | 2,000          |  |  |                       |  |  | (36                     | ) |  | 1,964      | 
| | Other                             |   | 425            |  |  |                       |  |  |                        |   |  | 425        | 
| |                                   |   |                |  |  |                        |  |  |                         |   |  |            | 
| | Total                             | $ | 68,414         |  |  | 977                    |  |  | (47                     | ) |  | 69,344     | 
| |                                   |   |                |  |  |                        |  |  |                         |   |  |            | 
| | At December 31, 2002:             |   |                |  |  |                        |  |  |                         |   |  |            | 
| | U.S. Treasury securities          |   | 6,848          |  |  | 427                    |  |  |                        |   |  | 7,275      | 
| | U.S. Government agency securities |   | 40,015         |  |  | 663                    |  |  | (2                      | ) |  | 40,676     | 
| | Tax-exempt securities             |   | 10,241         |  |  | 321                    |  |  | (17                     | ) |  | 10,545     | 
| | Preferred stock                   |   | 1,000          |  |  | 58                     |  |  |                        |   |  | 1,058      | 
| | Mortgage-backed securities        |   | 3,085          |  |  | 66                     |  |  |                        |   |  | 3,151      | 
| | Other                             |   | 325            |  |  |                       |  |  |                        |   |  | 325        | 
| |                                   |   |                |  |  |                        |  |  |                         |   |  |            | 
| | Total                             | $ | 61,514         |  |  | 1,535                  |  |  | (19                     | ) |  | 63,030     | 



At December 31, 2003 and 2002, approximately $566,000 and $585,000 respectively, of securities were pledged for the Companys treasury tax and loan account, approximately $20,854,000 and $16,651,000, respectively, were pledged as collateral for investment repurchase agreements and approximately $8,430,000 and $8,023,000, respectively, were pledged for public deposits.



(continued)

F-14



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued

(2)

Securities Available for Sale, Continued

The following summarizes sales of securities (in thousands):



| |                                      |   | Year Ended December 31, |  
| | ------------------------------------ | - | ----------------------- | -
| |                                      |   | 2003                    |  
| |                                      |   |                         |  
| | Proceeds from sale of securities     | $ | 12,772                  |  
| |                                      |   |                         |  
| | Gross gains from sale of securities  |   | 440                     |  
| | Gross losses from sale of securities |   | (4                      | )
| |                                      |   |                         |  
| | Net gains                            | $ | 436                     |  
| |                                      |   |                         |  



The scheduled maturities of securities available for sale at December 31, 2003 are as follows (in thousands):



| |                            |   | Amortized
Cost |  |  | Fair
Value | 
| | -------------------------- | - | -------------- |  |  | ---------- | 
| |                            |   |                |  |  |            | 
| | Due in less than one year  | $ | 25             |  |  | 25         | 
| | Due from one to five years |   | 49,792         |  |  | 50,309     | 
| | Due from five to ten years |   | 200            |  |  | 200        | 
| | Due in over ten years      |   | 14,773         |  |  | 15,193     | 
| | Mortgage-backed securities |   | 1,624          |  |  | 1,653      | 
| | Mutual funds               |   | 2,000          |  |  | 1,964      | 
| |                            |   |                |  |  |            | 
| |                            | $ | 68,414         |  |  | 69,344     | 



(3)

Loans

The components of loans are summarized as follows (in thousands):



| |                           |   | At December 31, | 
| | ------------------------- | - | --------------- | 
| |                           |   | 2003            | 
| |                           |   |                 | 
| | Residential real estate   | $ | 75,809          | 
| | Commercial real estate    |   | 82,800          | 
| | Commercial                |   | 66,341          | 
| | Consumer                  |   | 29,276          | 
| |                           |   |                 | 
| | Total loans               |   | 254,226         | 
| |                           |   |                 | 
| | Deduct:                   |   |                 | 
| | Net deferred loan fees    |   | (454)           | 
| | Allowance for loan losses |   | (3,441)         | 
| |                           |   |                 | 
| |                           | $ | 250,331         | 



(continued)



F-15



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(3)

Loans, Continued

An analysis of the change in the allowance for loan losses follows (in thousands):



| |                                                      |  | Year Ended December 31, |      
| | ---------------------------------------------------- |  | ----------------------- | -----
| |                                                      |  | 2003                    |      
| |                                                      |  |                         |      
| | Balance at beginning of year                         |  | $                       | 3,519
| |                                                      |  |                         |      
| | Loans charged-off                                    |  |                         | (174 
| | Recoveries                                           |  |                         | 196  
| |                                                      |  |                         |      
| | Net loans recovered (charged-off)                    |  |                         | 22   
| |                                                      |  |                         |      
| | (Credit) provision for loan losses                   |  |                         | (100 
| | Reserve on loans received in acquisition of branches |  |                         |     
| |                                                      |  |                         |      
| | Balance at end of year                               |  | $                       | 3,441



The following summarizes the amount of impaired loans (in thousands):



| |                                                        |  | At December 31, |  
| | ------------------------------------------------------ |  | --------------- | -
| |                                                        |  | 2003            |  
| |                                                        |  |                 |  
| | Loans identified as impaired:                          |  |                 |  
| | Gross loans with no related allowance for losses       |  | $               | 
| | Gross loans with related allowance for losses recorded |  |                 | 
| | Less:  Allowances on these loans                       |  |                 | 
| |                                                        |  |                 |  
| | Net investment in impaired loans                       |  | $               | 



The average net investment in impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):



| |                                              |  | Year Ended December 31, |  
| | -------------------------------------------- |  | ----------------------- | -
| |                                              |  | 2003                    |  
| |                                              |  |                         |  
| | Average investment in impaired loans         |  | $                       | 
| |                                              |  |                         |  
| | Interest income recognized on impaired loans |  | $                       | 
| |                                              |  |                         |  
| | Interest income received on impaired loans   |  | $                       | 



Nonaccrual and accruing past due loans were as follows (in thousands):



| |                                                  |  | At December 31, |    
| | ------------------------------------------------ |  | --------------- | ---
| |                                                  |  | 2003            |    
| |                                                  |  |                 |    
| | Nonaccrual loans                                 |  | $               | 729
| | Past due ninety days or more, but still accruing |  |                 | 120
| |                                                  |  |                 |    
| |                                                  |  | $               | 849



(continued)

F-16



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(4)

Premises and Equipment

Premises and equipment is summarized as follows (in thousands):



| |                                                |  | At December 31, |       
| | ---------------------------------------------- |  | --------------- | ------
| |                                                |  | 2003            |       
| |                                                |  |                 |       
| | Land                                           |  | $               | 964   
| | Building                                       |  |                 | 913   
| | Leasehold improvements                         |  |                 | 1,552 
| | Furniture, fixtures and equipment              |  |                 | 4,260 
| |                                                |  |                 |       
| | Total, at cost                                 |  |                 | 7,689 
| |                                                |  |                 |       
| | Less accumulated depreciation and amortization |  |                 | (4,207
| |                                                |  |                 |       
| | Net book value                                 |  | $               | 3,482 



The Company leases certain banking offices.  The lease terms range up to ten years.  Some of the leases contain escalation clauses providing for increased rent expense based primarily on increases in the average consumer index or percentages stipulated in the lease agreements.  Rental expense was approximately $1,451,000, $1,304,000 and $947,000 for the years ended December 31, 2003, 2002 and 2001, respectively. Approximate future minimum annual rental payments under noncancellable leases are as follows (in thousands):



| | Year Ending
December 31, |  | Amount |      
| | ------------------------ |  | ------ | -----
| |                          |  |        |      
| | 2004                     |  | $      | 1,291
| | 2005                     |  |        | 1,263
| | 2006                     |  |        | 1,138
| | 2007                     |  |        | 1,117
| | 2008                     |  |        | 886  
| | Thereafter               |  |        | 2,011
| |                          |  |        |      
| | Total                    |  | $      | 7,706



(5)

Deposits

The aggregate amount of jumbo time deposits with a minimum denomination of $100,000, was approximately $28.6 million and $29.7 million at December 31, 2003 and 2002, respectively.



At December 31, 2003, the scheduled maturities of all time deposits are as follows (in thousands):



| | Year Ending
December 31, |  | Amount |       
| | ------------------------ |  | ------ | ------
| |                          |  |        |       
| | 2004                     |  | $      | 58,530
| | 2005                     |  |        | 11,029
| | 2006                     |  |        | 2,487 
| | 2007                     |  |        | 2,890 
| | 2008 and thereafter      |  | 599    |       
| |                          |  |        |       
| |                          |  | $      | 75,535



(6)

Other Borrowings

The Company enters into retail investment repurchase agreements with its customers requiring the Company to pledge securities as collateral for the balance in the accounts.  At December 31, 2003 and 2002 the balance totaled approximately $15.1 million and $13.0 million, respectively and the Company pledged securities as collateral for these agreements with a carrying value of approximately $20.9 million and $16.7 million, respectively.



(continued)

F-17



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(7)

Federal Home Loan Bank Advances

Maturities and interest rates on the Federal Home Loan Bank (FHLB) advances were as follows ($ in thousands):



|     | Maturing in
Year Ending
December 31, |      |  | Interest
Rate |   | At December 31, |       
|---- | ------------------------------------ | ---- |  | ------------- | - | --------------- | ------
|2003 |                                      | 2002
|     |                                      |      |  |               |   |                 |       
|     | 2003                                 |      |  | 4.13 - 5.33%  |   | $               |      
|     | 2004                                 |      |  | 1.15%         |   |                 | 875   
|     | 2005                                 |      |  | 3.71 - 6.49%  |   |                 | 15,000
|     | 2008                                 |      |  | 5.09%         |   |                 | 5,000 
|     | 2010                                 |      |  | 5.77 - 6.19%  |   |                 | 10,000
|     |                                      |      |  |               |   |                 |       
|     | Total                                |      |  |               | $ | 30,875          |       



At December 31, 2003, the FHLB has the option to call $20.0 million of the above advances at an earlier date than the maturity date.  At December 31, 2003 and 2002, pursuant to the collateral agreement with the FHLB, advances are collateralized by the Companys FHLB stock and a blanket lien on the Companys qualifying first mortgage, one-to-four family residential loans.



(8)

Contingencies

Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Companys consolidated financial statements.



(9)

Financial Instruments

The estimated fair values of the Companys financial instruments were as follows (in thousands):



| |                                 |  | At December 31, 2003 |         | At December 31, 2002 | 
| | ------------------------------- |  | -------------------- | ------- | -------------------- | 
| |                                 |  | Carrying
Amount      |         | Fair
Value           | 
| |                                 |  |                      |         |                      | 
| | Financial assets:               |  |                      |         |                      | 
| | Cash and cash equivalents       |  | $                    | 12,943  |                      | 
| | Securities available for sale   |  |                      | 69,344  |                      | 
| | Loans, net                      |  |                      | 250,331 |                      | 
| | Loans held for sale             |  |                      | 3,084   |                      | 
| | Accrued interest receivable     |  |                      | 2,072   |                      | 
| | Other securities                |  |                      | 2,394   |                      | 
| |                                 |  |                      |         |                      | 
| | Financial liabilities:          |  |                      |         |                      | 
| | Deposit liabilities             |  |                      | 263,866 |                      | 
| | Other borrowings                |  |                      | 15,050  |                      | 
| | Federal Home Loan Bank advances |  |                      | 30,875  |                      | 



(continued)

F-18



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(9)

Financial Instruments, Continued

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments are commitments to extend credit, available lines of credit and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated balance sheet.  The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.



The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, available lines of credit and standby letters of credit is represented by the contractual amount of those instruments.  The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.



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.  Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company evaluates each customers credit worthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on managements credit evaluation of the counterparty.



Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.



Unused lines of credit and commitments to extend credit typically result in loans with a market interest rate when funded. A summary of the contractual amounts of the Companys financial instruments, which approximate fair value, with off- balance sheet risk at December 31, 2003 follows (in thousands):



| |                                             |  | Contractual
Amount |        | Carrying
Amount |  | Fair
Value | 
| | ------------------------------------------- |  | ------------------ | ------ | --------------- |  | ---------- | 
| |                                             |  |                    |        |                 |  |            | 
| | Unfunded loan commitments at fixed rates    |  | $                  | 220    |                 |  |           | 
| |                                             |  |                    |        |                 |  |            | 
| | Unfunded loan commitments at variable rates |  | $                  | 12,565 |                 |  |           | 
| |                                             |  |                    |        |                 |  |            | 
| | Available lines of credit                   |  | $                  | 38,336 |                 |  |           | 
| |                                             |  |                    |        |                 |  |            | 
| | Standby letters of credit                   |  | $                  | 2,625  |                 |  |           | 



(continued)

F-19



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(10)

Credit Risk

The Company grants a majority of its loans to borrowers primarily in Palm Beach, Broward and Miami-Dade counties, Florida.  Although the Company has a diversified loan portfolio, a significant portion of its borrowers ability to honor their contracts is dependent upon the economy of these counties in Florida.  The contractual amounts of credit-related financial instruments such as commitments to extend credit and standby letters of credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer default and the value of any existing collateral become worthless.



(11)

Income Taxes

Allocation of Federal and state income taxes between current and deferred portions is as follows (in thousands):



| |                               |  | Current |       | Deferred |  | Total |  
| | ----------------------------- |  | ------- | ----- | -------- |  | ----- | -
| | Year Ended December 31, 2003: |  |         |       |          |  |       |  
| |                               |  |         |       |          |  |       |  
| | Federal                       |  | $       | 914   |          |  | 48    |  
| | State                         |  |         | 208   |          |  | 8     |  
| |                               |  |         |       |          |  |       |  
| | Total                         |  | $       | 1,122 |          |  | 56    |  
| |                               |  |         |       |          |  |       |  
| | Year Ended December 31, 2002: |  |         |       |          |  |       |  
| |                               |  |         |       |          |  |       |  
| | Federal                       |  |         | 1,001 |          |  | (307  | )
| | State                         |  |         | 187   |          |  | (52   | )
| |                               |  |         |       |          |  |       |  
| | Total                         |  | $       | 1,188 |          |  | (359  | )
| |                               |  |         |       |          |  |       |  
| | Year Ended December 31, 2001: |  |         |       |          |  |       |  
| |                               |  |         |       |          |  |       |  
| | Federal                       |  |         | 591   |          |  | 92    |  
| | State                         |  |         | 115   |          |  | 16    |  
| |                               |  |         |       |          |  |       |  
| | Total                         |  | $       | 706   |          |  | 108   |  



The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows:



| |                                                       |  |  | Year Ended December 31, |  
| | ----------------------------------------------------- |  |  | ----------------------- | -
| |                                                       |  |  | 2003                    |  
| |                                                       |  |  |                         |  
| | Income taxes at statutory Federal rate                |  |  | 34                      | %
| | Increase (decrease) in taxes resulting from:          |  |  |                         |  
| | State taxes, net of Federal tax benefit               |  |  | 4                       |  
| | Tax-exempt income, net of disallowed interest expense |  |  | (6                      | )
| |                                                       |  |  |                         |  
| | Effective tax rates                                   |  |  | 32                      | %



(continued)

F-20



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(11)

Income Taxes, Continued

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities relate to the following (in thousands):



| |                                      |  | At December 31, |     
| | ------------------------------------ |  | --------------- | ----
| |                                      |  | 2003            |     
| |                                      |  |                 |     
| | Deferred tax assets:                 |  |                 |     
| | Allowance for loan losses            |  | $               | 753 
| | Accumulated depreciation             |  |                 | 102 
| | Stock incentive plan                 |  |                 | 28  
| | Interest income from impaired loans  |  |                 | 14  
| | Other                                |  |                 |    
| |                                      |  |                 |     
| | Total gross deferred tax assets      |  |                 | 897 
| |                                      |  |                 |     
| | Deferred tax liabilities:            |  |                 |     
| | Intangible asset                     |  |                 | (106
| | Accrued dividends                    |  |                 | (5  
| |                                      |  |                 |     
| | Total gross deferred tax liabilities |  |                 | (111
| |                                      |  |                 |     
| | Net deferred tax assets              |  | $               | 786 



(12)

Related Parties

The Company has entered into transactions with officers, directors and principal stockholders in the ordinary course of business. Loans to such related parties amounted to approximately $2,368,000 and $2,287,000 at December 31, 2003 and 2002, respectively. During the year ended December 31, 2003, total principal additions were approximately $538,000 and total principal payments were approximately $457,000. Deposits from such related parties at December 31, 2003 and 2002 were approximately $3,979,000 and $7,353,000, respectively.



(13)

Profit Sharing Plan

The Company sponsors a 401(k) profit sharing plan (the Plan). The Plan is available to all employees electing to participate after meeting certain length-of-service requirements. The Companys contributions to the Plan are discretionary and are determined annually. Expense relating to the Companys contributions to the Plan was approximately $92,000, $79,000 and $58,000 for 2003, 2002 and 2001, respectively.



(14)

Deferred Compensation Plans

The Company has a deferred compensation plan for the Board of Directors. The plan permits the directors to receive common stock of the Company in lieu of cash as payment of their annual directors retainer and provides the directors the opportunity to defer portions of these retainers. At December 31, 2003, the total number of remaining shares available under this plan is 83,071. For the years ended December 31, 2003 and 2002, all fees were paid in cash. For the year ended December 31, 2001, a total of 8,532 shares were paid in lieu of cash of $96,000 to the directors.



(continued)

F-21



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(15)

Stock Award Plans

Certain key employees and directors of the Company have options to purchase shares of the Companys common stock under a nonqualified stock option plan adopted in 1994. In 1998, a new Incentive Compensation and Stock Award Plan (1998 Plan) was adopted under which both qualified and nonqualified options can be granted and stock can be awarded to employees as compensation. The Companys Board of Directors in 2001 determined that all new options would be granted under the 1998 Plan. Directors options vest immediately and officers and employees vest over three or five years. A total of 400,000 options or shares can be granted to directors and employees of the Company under the 1998 plan. As of December 31, 2003, 17,524 options or shares remain available for grant. A summary of stock option transactions follows ($ in thousands, except per share amounts):



| |                                  |  |  | Number
of Shares |   | Range of
Per Share
Option Price |               | Weighted-
Average
Per Share
Price |  | Aggregate
Option
Price | 
| | -------------------------------- |  |  | ---------------- | - | ------------------------------- | ------------- | --------------------------------- |  | ---------------------- | 
| |                                  |  |  |                  |   |                                 |               |                                   |  |                        | 
| | Outstanding at December 31, 2000 |  |  | 335,201          |   | $                               | 8.62 - 15.38  |                                   |  | 10.00                  | 
| |                                  |  |  |                  |   |                                 |               |                                   |  |                        | 
| | Options granted                  |  |  | 85,767           |   |                                 | 10.50 - 11.80 |                                   |  | 10.67                  | 
| | Options exercised                |  |  | (7,337           | ) |                                 | 9.00 -   9.75 |                                   |  | 9.57                   | 
| | Options forfeited                |  |  | (54,579          | ) |                                 | 9.00 - 15.38  |                                   |  | 10.65                  | 
| |                                  |  |  |                  |   |                                 |               |                                   |  |                        | 
| | Outstanding at December 31, 2001 |  |  | 359,052          |   |                                 | 8.62 - 15.38  |                                   |  | 10.07                  | 
| |                                  |  |  |                  |   |                                 |               |                                   |  |                        | 
| | Options granted                  |  |  | 113,334          |   |                                 | 11.95 - 14.75 |                                   |  | 12.47                  | 
| | Options exercised                |  |  | (129,540         | ) |                                 | 9.00 - 11.25  |                                   |  | 9.61                   | 
| | Options forfeited                |  |  | (31,319          | ) |                                 | 9.00 - 15.38  |                                   |  | 11.22                  | 
| |                                  |  |  |                  |   |                                 |               |                                   |  |                        | 
| | Outstanding at December 31, 2002 |  |  | 311,527          |   |                                 | 8.62 - 15.38  |                                   |  | 11.02                  | 
| |                                  |  |  |                  |   |                                 |               |                                   |  |                        | 
| | Options granted                  |  |  | 82,605           |   |                                 | 15.15 - 24.15 |                                   |  | 16.74                  | 
| | Options exercised                |  |  | (70,884          | ) |                                 | 8.62 - 16.30  |                                   |  | 11.34                  | 
| | Options forfeited                |  |  | (13,162          | ) |                                 | 9.00 - 15.15  |                                   |  | 12.71                  | 
| |                                  |  |  |                  |   |                                 |               |                                   |  |                        | 
| | Outstanding at December 31, 2003 |  |  | 310,086          |   | $                               | 8.62 - 24.15  |                                   |  | 12.40                  | 



The weighted-average remaining contractual life of the outstanding stock options at December 31, 2003, 2002 and 2001 was eighty-six months, seventy-eight months and fifty-six months, respectively.



These options are exercisable as follows:



| | Year Ending |  |  | Number of
Shares |  | Weighted-Average
Exercise Price |       
| | ----------- |  |  | ---------------- |  | ------------------------------- | ------
| |             |  |  |                  |  |                                 |       
| | Currently   |  |  | 182,133          |  |                                 | $11.23
| | 2004        |  |  | 63,825           |  |                                 | 13.14 
| | 2005        |  |  | 46,400           |  |                                 | 14.18 
| | 2006        |  |  | 17,728           |  |                                 | 17.06 
| |             |  |  |                  |  |                                 |       
| |             |  |  | 310,086          |  |                                 | $12.40



(continued)

F-22



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(15)

Stock Award Plans, Continued

Also, the Company awarded shares of restricted common stock to employees under the 1998 Plan. Four years following the date of grant these restricted stock awards become entirely vested. The Company is amortizing these restricted stock awards into salaries and employee benefits over the four-year period. From the date awarded, the employees are entitled to dividends paid on common stock and may vote these shares. These restricted shares are as follows:



| |                                         |  |  | Shares |  
| | --------------------------------------- |  |  | ------ | -
| |                                         |  |  |        |  
| | Shares outstanding at December 31, 2000 |  |  | 5,110  |  
| | Shares granted                          |  |  | 10,659 |  
| | Shares forfeited                        |  |  | (460   | )
| |                                         |  |  |        |  
| | Shares outstanding at December 31, 2001 |  |  | 15,309 |  
| | Shares forfeited                        |  |  | (3,167 | )
| |                                         |  |  |        |  
| | Shares outstanding at December 31, 2002 |  |  | 12,142 |  
| | Shares granted                          |  |  | 10,891 |  
| | Shares vested                           |  |  | (2,955 | )
| | Shares forfeited                        |  |  | (4,415 | )
| |                                         |  |  |        |  
| | Shares outstanding at December 31, 2003 |  |  | 15,663 |  



(16)

Regulatory Matters

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the Federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Companys and the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Prompt corrective action provisions are not applicable to bank holding companies.



Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and percentages (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2003 and 2002, that the Company and the Bank met all capital adequacy requirements to which they are subject.



(continued)

F-23



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(16)

Regulatory Matters, Continued

As of December 31, 2003, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Banks category. The Company and the Banks actual capital amounts and percentages as of December 31, 2003 and 2002 are also presented in the table ($ in thousands).



|                         |  | Actual |        | Minimum Capital
Requirement |  | Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |  
|------------------------ |  | ------ | ------ | --------------------------- |  | ------------------------------------------------------------------------ | -
|                         |  | Amount |        | %                           |  | Amount                                                                   |  
|                         |  |        |        |                             |  |                                                                          |  
|As of December 31, 2003: |  |        |        |                             |  |                                                                          |  
|Total capital to Risk-   |  |        |        |                             |  |                                                                          |  
|Weighted assets:         |  |        |        |                             |  |                                                                          |  
|Consolidated             |  | $      | 34,556 |                             |  | 13.40                                                                    | %
|Bank.                    |  |        | 31,619 |                             |  | 12.31                                                                    |  
|                         |  |        |        |                             |  |                                                                          |  
|Tier I Capital to Risk-  |  |        |        |                             |  |                                                                          |  
|Weighted Assets:         |  |        |        |                             |  |                                                                          |  
|Consolidated             |  |        | 31,331 |                             |  | 12.15                                                                    |  
|Bank                     |  |        | 28,406 |                             |  | 11.06                                                                    |  
|                         |  |        |        |                             |  |                                                                          |  
|Tier I Capital           |  |        |        |                             |  |                                                                          |  
|to Average Assets        |  |        |        |                             |  |                                                                          |  
|Consolidated             |  |        | 31,331 |                             |  | 8.99                                                                     |  
|Bank                     |  |        | 28,406 |                             |  | 8.17                                                                     |  
|                         |  |        |        |                             |  |                                                                          |  
|As of December 31, 2002: |  |        |        |                             |  |                                                                          |  
|Total capital to Risk-   |  |        |        |                             |  |                                                                          |  
|Weighted assets:         |  |        |        |                             |  |                                                                          |  
|Consolidated             |  |        | 30,919 |                             |  | 14.13                                                                    |  
|Bank                     |  |        | 28,007 |                             |  | 12.85                                                                    |  
|                         |  |        |        |                             |  |                                                                          |  
|Tier I Capital to Risk-  |  |        |        |                             |  |                                                                          |  
|Weighted Assets:         |  |        |        |                             |  |                                                                          |  
|Consolidated             |  |        | 28,175 |                             |  | 12.88                                                                    |  
|Bank                     |  |        | 25,273 |                             |  | 11.60                                                                    |  
|                         |  |        |        |                             |  |                                                                          |  
|Tier I Capital           |  |        |        |                             |  |                                                                          |  
|to Average Assets        |  |        |        |                             |  |                                                                          |  
|Consolidated             |  |        | 28,175 |                             |  | 8.73                                                                     |  
|Bank                     |  |        | 25,273 |                             |  | 7.86                                                                     |  



(continued)

F-24



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(17)

Stockholders Equity

In 1999, the Companys Board of Directors approved a stock repurchase program.  The program was initially allocated $3.0 million and in 2000, the Board authorized up to an additional $3.0 million to be used to repurchase Company stock. As of December 31, 2003, the Company has repurchased 297,000 shares in treasury stock at a net cost of approximately $3.0 million.



The Companys ability to pay cash dividends on its common stock is limited to the amount of dividends it could receive from the Bank plus its own cash and cash equivalents, which amounted to $1,666,000 at December 31, 2003. The amount of dividends the Bank is permitted to pay to the Company is restricted to 100% of its calendar year-to-date net earnings plus retained earnings for the preceding two years. Twenty percent of the net earnings in the preceding two-year period may not be paid in dividends, but must be retained to increase capital surplus until such surplus equals the amount of the Banks common stock then outstanding. In addition, no bank may pay a dividend at any time that net earnings in the current year when combined with retained earnings from the preceding two years produce a loss. Under Florida law, a Florida chartered commercial bank may not pay cash dividends that would cause the Banks capital to fall below the minimum amount required by Federal or Florida law.



(18)

Earnings Per Share

Basic earnings per share represents earnings available to common stockholders divided by the weighted-average number of common shares outstanding during the year. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued.  Potential common shares that may be issued by the Company relate solely to outstanding stock options, and are determined using the treasury stock method. Earnings per common share have been computed based on the following:



| |                                                                                                          |  | Year Ended December 31, |          
| | -------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------
| |                                                                                                          |  | 2003                    |          
| |                                                                                                          |  |                         |          
| | Weighted-average number of common shares outstanding                                                     |  |                         | 2,230,613
| | Effect of dilutive options                                                                               |  |                         | 70,778   
| |                                                                                                          |  |                         |          
| | Weighted-average number of common shares outstanding used
to calculate diluted earnings per common share |  |                         | 2,301,391
| |                                                                                                         



(continued)

F-25



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(19)

Investment in Joint Venture

The Company is a joint venture partner in Pointe Capital, which is accounted for using the equity method of accounting. During 2003, Pointe Capital discontinued operating activities. The following is a summary of condensed financial information pertaining to this joint venture (in thousands).



| |                              |  |                         |      |      | At December 31, |     
| | ---------------------------- |  | ----------------------- | ---- | ---- | --------------- | ----
| |                              |  |                         |      |      | 2003            |     
| |                              |  |                         |      |      |                 |     
| | Total assets                 |  |                         |      |      | $               | 87  
| | Total liabilities            |  |                         |      |      |                 | 5   
| |                              |  |                         |      |      |                 |     
| | Capital  the Company        |  |                         |      |      |                 | 41  
| | Capital  other              |  |                         |      |      |                 | 41  
| |                              |  |                         |      |      |                 |     
| | Total equity                 |  |                         |      |      |                 | 82  
| | Total liabilities and equity |  |                         |      |      | $               | 87  
| |                              |  |                         |      |      |                 |     
| |                              |  | Year Ended December 31, |     
| |                              |  | 2003                    |      | 2002 |                 | 2001
| |                              |  |                         |      |      |                 |     
| | Total revenues               |  | $                       | 2    |      |                 | 39  
| | Total expenses               |  |                         | (186 | )    |                 | (380
| |                              |  |                         |      |      |                 |     
| | Net loss                     |  | $                       | (184 | )    |                 | (341





During the years ended December 31, 2003, 2002 and 2001, the Company recognized losses of $92,000, $171,000 and $149,000, respectively related to its investment in this joint venture, which represents its distributive share of the joint ventures net losses above. The Companys investment in this joint venture is included in other assets in the consolidated balance sheets.



(continued)

F-26



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(20)

Holding Company Financial Information

The Holding Companys unconsolidated financial information is as follows (in thousands):



| | Condensed Balance Sheets                   | 
| | ------------------------------------------ | 
| |                                            | 
| |                                            | 
| | Assets                                     | 
| |                                            | 
| | Cash and cash equivalents                  | 
| | Investment in subsidiaries                 | 
| | Other assets                               | 
| |                                            | 
| | Total assets                               | 
| |                                            | 
| | Liabilities and Stockholders Equity       | 
| |                                            | 
| | Other liabilities                          | 
| | Stockholders equity                       | 
| |                                            | 
| | Total liabilities and stockholders equity | 
| |                                            | 
| | Condensed Statements of Earnings           | 
| |                                            | 
| |                                            | 
| |                                            | 
| |                                            | 
| | Revenues                                   | 
| | Expenses                                   | 
| |                                            | 
| | Loss before earnings of subsidiaries       | 
| | Earnings of subsidiaries                   | 
| |                                            | 
| | Net earnings                               | 



(continued)

F-27



---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Notes to Consolidated Financial Statements, Continued



(20)

Holding Company Financial Information, Continued



| | Condensed Statements of Cash Flows                                                                                                                               | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |                                                                                                                                                                  | 
| |                                                                                                                                                                  | 
| |                                                                                                                                                                  | 
| |                                                                                                                                                                  | 
| | Cash flows from operating activities:                                                                                                                            | 
| | Net earnings                                                                                                                                                     | 
| | Adjustments to reconcile net earnings to net cash
used in operating activities:                                                                                  | 
| | Undistributed earnings of subsidiaries                                                                                                                           | 
| | Common stock issued as compensation for services                                                                                                                 | 
| | Shares committed to participants in incentive stock plan                                                                                                         | 
| | Decrease (increase) in other assets                                                                                                                              | 
| | Increase (decrease) in other liabilities                                                                                                                         | 
| |                                                                                                                                                                  | 
| | Net cash used in operating activities                                                                                                                            | 
| |                                                                                                                                                                  | 
| | Cash flows from financing activities:                                                                                                                            | 
| | Cash dividends paid on common stock                                                                                                                              | 
| | Proceeds from exercise of stock options                                                                                                                          | 
| |                                                                                                                                                                  | 
| | Net cash provided by (used in) financing activities                                                                                                              | 
| |                                                                                                                                                                  | 
| | Net increase (decrease) in cash and cash equivalents                                                                                                             | 
| |                                                                                                                                                                  | 
| | Cash and cash equivalents at beginning of the year                                                                                                               | 
| |                                                                                                                                                                  | 
| | Cash and cash equivalents at end of year                                                                                                                         | 
| |                                                                                                                                                                  | 
| | Noncash transactions:                                                                                                                                            | 
| | Change in investment in subsidiaries due to accumulated other
comprehensive income (loss), net change in unrealized gain
(loss) on securities available for sale | 
| |                                                                                                                                                                  | 
| | Tax benefit related to exercise of common stock options                                                                                                          | 
| |                                                                                                                                                                  | 
| | Activity in stock incentive plan, net                                                                                                                            | 





F-28



---



Independent Auditors Report on Supplementary Information









Pointe Financial Corporation

Boca Raton, Florida



We have audited the accompanying consolidated financial statements of Pointe Financial Corporation and Subsidiaries at and for the year ended December 31, 2003, and have issued our report thereon dated January 13, 2004. Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidating information in the accompanying schedules is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position and results of operations of the individual companies. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.









HACKER, JOHNSON & SMITH PA

Fort Lauderdale, Florida

January 13, 2004



F-29



---

Schedule

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Consolidating Balance Sheet

December 31, 2003

(in thousands)



|                                                      |  | Pointe
Financial
Corporation |        | Pointe
Bank |  | Pointe
Financial
Services |  | Eliminations |      | Consolidated
Total | 
|----------------------------------------------------- |  | ---------------------------- | ------ | ----------- |  | ------------------------- |  | ------------ | ---- | ------------------ | 
|                                                      |  |                              |        |             | 
|                                                      |  |                              |        |             | 
|Assets                                                |  |                              |        |             |  |                           |  |              |      |                    | 
|                                                      |  |                              |        |             |  |                           |  |              |      |                    | 
|Cash and cash equivalents                             |  | $                            | 1,666  |             |  | 12,943                    |  |              | 7    |                    | 
|Securities available for sale                         |  |                              |       |             |  | 69,344                    |  |              |     |                    | 
|Loans, net                                            |  |                              |       |             |  | 250,331                   |  |              |     |                    | 
|Loans held for sale                                   |  |                              |       |             |  | 3,084                     |  |              |     |                    | 
|Accrued interest receivable                           |  |                              |       |             |  | 2,072                     |  |              |     |                    | 
|Premises and equipment, net                           |  |                              |       |             |  | 3,482                     |  |              |     |                    | 
|Other securities                                      |  |                              |       |             |  | 2,394                     |  |              |     |                    | 
|Investment in subsidiaries                            |  |                              | 32,000 |             |  |                          |  |              |     |                    | 
|Branch acquisition intangible asset, net              |  |                              |       |             |  | 2,974                     |  |              |     |                    | 
|Deferred income tax asset                             |  |                              | 29     |             |  | 757                       |  |              |     |                    | 
|Other assets                                          |  |                              | 1,226  |             |  | 78                        |  |              |     |                    | 
|                                                      |  |                              |        |             |  |                           |  |              |      |                    | 
|Total                                                 |  | $                            | 34,921 |             |  | 347,459                   |  |              | 7    |                    | 
|                                                      |  |                              |        |             |  |                           |  |              |      |                    | 
|Liabilities and Stockholders Equity                  |  |                              |        |             |  |                           |  |              |      |                    | 
|                                                      |  |                              |        |             |  |                           |  |              |      |                    | 
|Liabilities:                                          |  |                              |        |             |  |                           |  |              |      |                    | 
|Deposits                                              |  |                              |       |             |  | 265,539                   |  |              |     |                    | 
|Official checks                                       |  |                              |       |             |  | 2,143                     |  |              |     |                    | 
|Federal Home Loan Bank advances                       |  |                              |       |             |  | 30,875                    |  |              |     |                    | 
|Other borrowings                                      |  |                              |       |             |  | 15,050                    |  |              |     |                    | 
|Accrued interest payable                              |  |                              |       |             |  | 393                       |  |              |     |                    | 
|Advance payments by borrowers for taxes and insurance |  |                              |       |             |  | 260                       |  |              |     |                    | 
|Other liabilities                                     |  |                              | 4      |             |  | 1,206                     |  |              |     |                    | 
|                                                      |  |                              |        |             |  |                           |  |              |      |                    | 
|Total liabilities                                     |  |                              | 4      |             |  | 315,466                   |  |              |     |                    | 
|                                                      |  |                              |        |             |  |                           |  |              |      |                    | 
|Stockholders equity:                                 |  |                              |        |             |  |                           |  |              |      |                    | 
|Common stock                                          |  |                              | 25     |             |  | 306                       |  |              | 1    |                    | 
|Additional paid-in capital                            |  |                              | 26,617 |             |  | 15,662                    |  |              | 220  |                    | 
|Retained earnings (accumulated deficit)               |  |                              | 10,835 |             |  | 15,449                    |  |              | (214 | )                  | 
|Accumulated other comprehensive income                |  |                              | 576    |             |  | 576                       |  |              |     |                    | 
|Treasury stock                                        |  |                              | (3,000 | )           |  |                          |  |              |     |                    | 
|Stock incentive plan                                  |  |                              | (136   | )           |  |                          |  |              |     |                    | 
|                                                      |  |                              |        |             |  |                           |  |              |      |                    | 
|Total stockholders equity                            |  |                              | 34,917 |             |  | 31,993                    |  |              | 7    |                    | 
|                                                      |  |                              |        |             |  |                           |  |              |      |                    | 
|Total                                                 |  | $                            | 34,921 |             |  | 347,459                   |  |              | 7    |                    | 





(a)

to eliminate intercompany cash

(b)

to eliminate investment in subsidiaries



(continued)







F-30



---

Schedule

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES



Consolidating Statement of Earnings

Year Ended December 31, 2003

(in thousands)



|                                                 |  |   | Pointe
Financial
Corporation |   |  | Pointe
Bank |  |  | Pointe
Financial
Services |  |  | Eliminations |     |  | Consolidated
Total |  
|------------------------------------------------ |  | - | ---------------------------- | - |  | ----------- |  |  | ------------------------- |  |  | ------------ | --- |  | ------------------ | -
|                                                 |  |   |                              |   |  |             |  |  |                           |  | 
|                                                 |  |   |                              |   |  |             |  |  |                           |  | 
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Interest income:                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Loans                                            |  | $ |                             |   |  | 15,588      |  |  |                          |  |  |             |     |  | 15,588             |  
|Securities available for sale                    |  |   |                             |   |  | 2,648       |  |  |                          |  |  |             |     |  | 2,648              |  
|Other                                            |  |   | 7                            |   |  | 201         |  |  |                          |  |  |             |     |  | 208                |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Total interest income                            |  |   | 7                            |   |  | 18,437      |  |  |                          |  |  |             |     |  | 18,444             |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Interest expense:                                |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Deposits                                         |  |   |                             |   |  | 3,185       |  |  |                          |  |  |             |     |  | 3,185              |  
|Borrowings                                       |  |   |                             |   |  | 1,854       |  |  |                          |  |  |             |     |  | 1,854              |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Total interest expense                           |  |   |                             |   |  | 5,039       |  |  |                          |  |  |             |     |  | 5,039              |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Net interest income                              |  |   | 7                            |   |  | 13,398      |  |  |                          |  |  |             |     |  | 13,405             |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Credit for loan losses                           |  |   |                             |   |  | (100)       |  |  |                          |  |  |             |     |  | (100               | )
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Net interest income after credit for loan losses |  |   | 7                            |   |  | 13,498      |  |  |                          |  |  |             |     |  | 13,505             |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Noninterest income:                              |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Service charges on deposit accounts              |  |   |                             |   |  | 1,881       |  |  |                          |  |  |             |     |  | 1,881              |  
|Net realized gain on sale of securities          |  |   |                             |   |  | 436         |  |  |                          |  |  |             |     |  | 436                |  
|Earnings of subsidiaries                         |  |   | 2,927                        |   |  |            |  |  |                          |  |  | 2,927        | (a) |  |                   |  
|Loan correspondent fees                          |  |   |                             |   |  | 311         |  |  |                          |  |  |             |     |  | 311                |  
|Other                                            |  |   |                             |   |  | 615         |  |  |                          |  |  |             |     |  | 615                |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Total noninterest income                         |  |   | 2,927                        |   |  | 3,243       |  |  |                          |  |  | 2,927        |     |  | 3,243              |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Noninterest expenses:                            |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Salaries and employee benefits                   |  |   | 427                          |   |  | 6,440       |  |  |                          |  |  |             |     |  | 6,867              |  
|Occupancy expense                                |  |   |                             |   |  | 2,547       |  |  |                          |  |  |             |     |  | 2,547              |  
|Advertising and promotion                        |  |   | 48                           |   |  | 183         |  |  |                          |  |  |             |     |  | 231                |  
|Professional fees                                |  |   | 61                           |   |  | 281         |  |  |                          |  |  |             |     |  | 342                |  
|Data processing                                  |  |   | 3                            |   |  | 813         |  |  |                          |  |  |             |     |  | 816                |  
|Amortization of intangible asset                 |  |   |                             |   |  | 242         |  |  |                          |  |  |             |     |  | 242                |  
|Other                                            |  |   | 168                          |   |  | 1,864       |  |  |                          |  |  |             |     |  | 2,032              |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Total noninterest expenses                       |  |   | 707                          |   |  | 12,370      |  |  |                          |  |  |             |     |  | 13,077             |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Earnings before income taxes                     |  |   | 2,227                        |   |  | 4,371       |  |  |                          |  |  | 2,927        |     |  | 3,671              |  
|Income taxes (benefit)                           |  |   | (266                         | ) |  | 1,444       |  |  |                          |  |  |             |     |  | 1,178              |  
|                                                 |  |   |                              |   |  |             |  |  |                           |  |  |              |     |  |                    |  
|Net earnings                                     |  | $ | 2,493                        |   |  | 2,927       |  |  |                          |  |  | 2,927        |     |  | 2,493              |  



(a)

to eliminate subsidiary earnings





F-31



---

PART III



Item 10.

Directors and Executive Officers of the Company.



The information contained under the caption Election of Directors to appear in the Companys definitive proxy statement relating to the Companys 2003 Annual Meeting of Stockholders, which definitive proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Companys fiscal year covered by this report on Form 10-K (hereinafter referred to as the Annual Meeting Proxy Statement), is incorporated herein by reference. Information concerning the executive officers of the Company is included in Part III of this Report on Form 10-K.



The following table sets forth information concerning the executive officers of the Company and the Bank.



| | Name                |  | Position                                                                                                                       |  | Age
| | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  | ---
| |                     |  |                                                                                                                                |  |    
| | R. Carl Palmer, Jr. |  | Chairman of the Board, President and Chief Executive Officer of the
Company; President and Chief Executive Officer of the Bank |  | 63 
| |                     |  |                                                                                                                                |  |    
| | Jean Murphy-Engler  |  | Executive Vice President and Chief Operating Officer of the Company
and Bank                                                   |  | 41 
| |                     |  |                                                                                                                                |  |    
| | Bradley R. Meredith |  | Senior Vice President and Chief Financial Officer of the Company
and the Bank                                                  |  | 50 
| |                     |  |                                                                                                                                |  |    
| | John P. Dover       |  | Senior Vice President/Business Banking Palm Beach and Broward Counties                                                         |  | 54 
| |                     |  |                                                                                                                                |  |    
| | John W. Lowery, Jr. |  | Senior Vice President/Senior Credit Officer of the Bank                                                                        |  | 53 
| |                     |  |                                                                                                                                |  |    
| | Charles D. Umberger |  | Senior Vice President/Business Banking Miami-Dade County                                                                       |  | 54 



R. Carl Palmer, Jr. Mr. Palmer joined the Company and Bank in 1995 as Chief Executive Officer, President and Director. He was elected to serve as Chairman of the Company in November 2000. He began his banking career at Chemical Bank in New York in 1964. In 1979, he moved to South Florida as an Executive Vice President for Southeast Banking Corporation where he had responsibilities for business development, business banking and community banking. From 1988 to 1991, he was President, Chief Operating Officer and Director of BancFlorida in Naples, Florida. He became a Senior Associate with Martin W. Taplin & Associates, Inc., a real estate investment firm, in 1991. Mr. Palmer received a B.A. from Dartmouth College in 1962, an M.B.A. from Amos Tuck School in 1963 and a J.D. from New York Law School in 1969. Mr. Palmer has served as a director of Integrated Alarm Services Group, Inc. since January 2003. Mr. Palmer resides in Palm Beach County.



Jean Murphy-Engler. Ms. Murphy-Engler joined the Company and the Bank in April 2002. Prior to joining the Company, Ms. Murphy-Engler served as chief executive officer of a Citibank Internet start-up in Eastern Europe. During her 17-year career with Citibank she held various positions in operations, treasury, cash management and trade services, new business development and the launch of small and medium business segments both domestically and overseas. Ms. Murphy-Engler received a B.S. from the State University of New York at Plattsburgh in 1985. Ms. Murphy-Engler resides in Palm Beach County.



Bradley R. Meredith. Mr. Meredith joined the Company and Bank in 1997, after eight years as Executive Vice President and Chief Financial Officer for First Family Financial Corporation in Central Florida. The majority of his twenty-two years of banking experience has been with community banks. Mr. Meredith graduated from DePaul University with a B.S. in Finance in 1982. Mr. Meredith received a diploma from the Graduate School of Banking at the University of Wisconsin in 1989. Mr. Meredith resides in Palm Beach County.



John P. Dover. Mr. Dover joined the Company and Bank in 1995. He currently serves as Senior Vice President of Business Banking in Palm Beach and Broward Counties. Mr. Dover has thirty-one years of banking experience both in community banks and major regional banks. He served as Executive Vice President and Senior Lender for Continental Illinois Bank of Western Springs and held various positions with Northern Trust Corporation both in Chicago and Florida. Mr. Dover graduated from Valparaiso University in 1971 with a B.A. in Economics, and attended Keller Graduate School of Management. Mr. Dover resides in Palm Beach County.

26



---

John W. Lowery, Jr. Mr. Lowery joined the Company and Bank in November 2000, after five years as Head of Credit Risk Management for Dresdner Bank Lateinamerika AG-Miami Agency. He has twenty-seven years banking experience that includes various credit and lending positions at First Union National Bank and Bank of America NT & SA. Mr. Lowery graduated from Southwest Texas State University with a B.B.A. in 1973 and from Barry University with a M.B.A. in 1984. Mr. Lowery resides in Miami-Dade County.



Charles D. Umberger.  Mr. Umberger joined the Company and the Bank in December 2003. He serves as Senior Vice President of Business Banking for Miami-Dade County. Mr. Umberger has 27 years of banking experience, 24 in Florida, including senior management positions at Southeast Bank and Barnett Bank. He spent the past five years as an executive officer and director at Coconut Grove Bank in Miami. Mr. Umberger earned an AB Degree in 1972 from Duke University and an MBA Degree from the University of North Carolina at Chapel Hill in 1977. Mr. Umberger resides in Miami-Dade County.



Item 11.

Executive Compensation.



The information contained under the caption Executive Compensation to appear in the Annual Meeting Proxy Statement is incorporated herein by reference.



Item 12.

Security Ownership of Certain Beneficial Owners and Management.



The information contained under the caption Security Ownership of Certain Beneficial Owners and Management to appear in the Annual Meeting Proxy Statement is incorporated herein by reference.



Existing Stock Compensation Plans



Heretofore, the Company has adopted, and the shareholders of the Company have approved, three equity compensation plans: (i) the 1998 Directors Deferred Compensation Plan (the Directors Plan); (ii) the 1998 Incentive Compensation and Stock Award Plan (the Incentive Stock Plan); and (iii) the 1994 Non-Statutory Stock Option Plan. The Directors Plan, as amended at the 2000 annual meeting to increase the number of shares of common stock that can be authorized for issuance under the plan to 122,500 shares, authorizes the Company to award shares of its common stock to directors of the Company and the Bank, in lieu of cash, as payment for annual retainers for their service as directors of the Company or the Bank. The purpose of the Incentive Stock Plan, amended at the 2001 annual meeting to increase the number of shares of common stock available for grant and issuance under the plan to 400,000 shares, is to attract, motivate, retain and reward high quality executives and other employees, officers, directors and affiliates by enabling such persons to acquire or increase a proprietary interest in the Company in order to strengthen the mutuality of interests between such persons and the Companys shareholders and providing such persons with annual and long-term performance incentives to expend their maximum efforts in the creation of shareholder value. In conjunction with the amendment of the Incentive Stock Plan, the Companys Board has determined that no further options will be granted under the 1994 Non-Statutory Stock Option Plan.



The following table sets forth information regarding our existing compensation plans and individual compensation arrangements pursuant to which our equity securities are authorized for issuance to employees or non-employees (such as directors, consultants, advisors, vendors, customers, suppliers or lenders) in exchange for consideration in the form of goods or services:



|                                                 | (a)                                                                                         | (b)                                                                         | (c)                                                                                                                                        
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------
|Plan category                                    | Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights | Weighted-average exercise
price of outstanding options,
warrants and rights | Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
|                                                 |                                                                                             |                                                                             |                                                                                                                                            
|1998 Directors Deferred
Compensation Plan        | 39,429                                                                                      | $11.23                                                                      | 83,071                                                                                                                                     
|                                                 |                                                                                             |                                                                             |                                                                                                                                            
|1998 Incentive
Compensation and Stock
Award Plan | 310,086*                                                                                    | $12.40                                                                      | 17,524                                                                                                                                     
|                                                 |                                                                                             |                                                                             |                                                                                                                                            
|Total                                            | 349,515                                                                                     | $12.27                                                                      | 100,595                                                                                                                                    



*The 310,086 of securities to be issued upon exercise of outstanding options, warrants and rights associated with the 1998 Incentive Compensation and Stock Award Plan is net of 56,727 options previously exercised and 15,663 of stock grants previously issued.

27



---

Item 13.

Certain Relationships and Related Transactions.



The information contained under the captions Compensation Committee Interlocks and Insider Participation and Certain Relationships and Related Transactions to appear in the Annual Meeting Proxy Statement is incorporated herein by reference.



Item 14.

Controls and Procedures.



The Companys chief executive officer and chief financial officer, based on their evaluation of the Companys disclosure controls and procedures within the past 90 days, have concluded that such disclosure controls and procedures were effective to ensure that material information relating to the Company and required to be disclosed by the Company has been made known to them and has been recorded, processed, summarized and reported in a timely manner. There have not been any significant changes in the Companys internal controls or in other factors that could significantly affect these controls subsequent to the date of evaluation



PART IV



Item 15.

Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



(a) The Following Documents are Filed as Part of this Report:



(1)

Financial Statements.



The following consolidated financial statements of the Company and the report of the independent certified public accountants thereon filed with this report:

Report of Independent Certified Public Accountants (Hacker, Johnson & Smith, P.A.)

Consolidated Statements of Financial Condition as of December 31, 2003 and 2002.

Consolidated Statements of Earnings for the years ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001.

Notes to Consolidated Financial Statements.



(2)

Financial Statement Schedules.



Schedules are omitted because the conditions requiring their filing are not applicable or because the required information is provided in the Consolidated Financial Statements, including the Notes thereto.



(3)

Exhibits.*



2.1

Plan of Merger and Merger Agreement dated February 14, 1997 by and between Pointe Federal Savings Bank and Pointe Bank (Exhibit 2.1 to the Registrants Form SB-2 Registration Statement, File No. 333-49835, as initially filed with the Securities and Exchange Commission on April 9, 1998 [the Registration Statement]).



3.1

Articles of Incorporation of

the Registrant (Exhibit 3.1 to the Registration Statement).



3.2

By-Laws of the Registrant (Exhibit 3.2 to the Registration Statement).



4.1

Specimen Common Stock Certificate (Exhibit 4.1 to the Registration Statement).*



10.1**

1994 Non-Statutory Stock Option Plan (Exhibit 10.1 to the Registration Statement).



10.2**

Deferred Compensation Plan (Exhibit 10.2 to the Registration Statement).



10.3

Office Lease Agreement dated October 8, 1986 by and between Centrum Pembroke, Inc. and Flamingo Bank (Exhibit 10.3 to the Registration Statement).



10.4

Lease dated as of July 15, 1992 between Konrad Ulmer and Pointe Savings Bank (Exhibit 10.4 to the Registration Statement).



10.6

Credit Agreement dated August 18, 1997 between Independent Bankers Bank of Florida and Pointe Bank (Exhibit 10.6 to the Registration Statement).



10.7

Credit Agreement dated October 14, 1997 between SunTrust Bank/Miami, N.A. and Pointe Bank (Exhibit 10.7 to the Registration Statement).



10.8

Agreement for Advances and Security Agreement with Blanket Floating Lien dated November 24, 1997 between Pointe Bank and the Federal Home Loan Bank of Atlanta (Exhibit 10.8 to the Registration Statement).



28



---

10.9

Equipment Sales and Software License Agreements between Information Technology, Inc. and Pointe Financial Corporation (Exhibit 10.9 to the Registration Statement).



10.10

Master Equipment Lease Agreement dated May 7, 1997 between Leasetec Corporation and Pointe Financial Corporation (Exhibit 10.10 to the Registration Statement).



10.11***

Letter Agreement dated March 9, 1995 between Pointe Financial Corporation and R. Carl Palmer, Jr. (Exhibit 10.11 to the Registration Statement).



10.12**

1998 Incentive Compensation and Stock Award Plan (Exhibit 10.12 to the Registration Statement).



10.13***

Employment agreement between the company and R. Carl Palmer, Jr. (Exhibit 10.13 to the 1999 Form 10-K filed February 23, 2000).



10.15***

Employment agreement between the company and Bradley R. Meredith (Exhibit 10.15 to the 1999 Form 10-K filed February 23, 2000).



10.16

Branch Purchase and Deposit Assumption Agreement by and between Pointe Bank and Republic Bank dated January 4, 2001, Amendment included (Exhibit 10.16 to the Form 10-QSB filed May 8, 2001.)



10.17***

Employment agreement between the Company and Jean Muphy-Engler.(Exhibit 10.17 to the Form 10-QSB filed August 9, 2002).



10.18***

Employment agreement between the Company and John P. Dover. (Exhibit 10.18 to the Form 10-QSB filed August 9, 2002).



10.19

Amended and restated lease agreement dated May 13, 2002, by and between 21845 Powerline Road, Ltd. and Pointe Bank.*



10.20

Standard Retail Lease Agreement dated June 25, 2002 between Marquesa, Inc. and Pointe Bank.



11.1

Statement regarding calculation of earnings per common share (included in the Audited Consolidated Financial Statements in the 2001 Form 10-K).



12.1

Statement regarding calculation of ratio of earnings to fixed charges (included in the Audited Consolidated Financial Statements in the 2001 Form 10-K).



21.1

Subsidiaries of the Registrant (included in the Audited Consolidated Financial Statements in the 2001 Form 10-K).



31.1

CEO Certification required under Section 302 of Sarbanes-Oxley Act of 2002.



31.2

CFO Certification required under Section 302 of Sarbanes-Oxley Act of 2002.



32.1

CEO Certifications required under Section 906 of Sarbanes-Oxley Act of 2002.



32.2

CFO Certifications required under Section 906 of Sarbanes-Oxley Act of 2002.



*

Exhibits followed by a parenthetical reference are incorporated herein by reference from the documents described therein.



**

Exhibits 10.1, 10.2, 10.11 and 10.12 are compensatory plans or arrangements.



***

Contracts with Management.



(b) Reports of Form 8-K.



During the fourth quarter, the Company filed a report on Form 8-K dated October 15, 2003 reporting the press release covering the results for third quarter of 2003.



After December 31, 2003, the Company filed the following reports on Form 8-K:



During the first quarter of 2004, the Company filed a report on Form 8-K dated January 15, 2004 reporting the press release covering the results for fourth quarter of 2003.



During the first quarter of 2004, the Company filed a report on Form 8-K dated February 20, 2004 reporting the press release covering the branch sale of the Companys Boca Greens office for fourth quarter of 2003.



Supplemental Information.



As of the date of filing of this report on Form 10-K no annual report or proxy material has been sent to security holders. Such material will be furnished to security holders and the Securities and Exchange Commission subsequent to the filing of this report on Form 10-K.

29



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



POINTE FINANCIAL CORPORATION





Date:

March 4, 2004

By:

/s/ R. CARLPALMER, JR.



R. Carl Palmer, Jr., Chairman of the Board,

President and Chief Executive Officer



Date:

March 4, 2004

By:

/s/ BRADLEYR. MEREDITH



Bradley R. Meredith, Chief Financial Officer

and Senior Vice President



Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Name

Title

Date



/s/ R. CARLPALMER, JR.

Chairman of the Board, President

March 4, 2004

R. Carl Palmer, Jr.

and Chief Executive Officer



/s/ TIMOTHYM. MCGINN

Vice Chairman of the Board

March 4, 2004

Timothy M. McGinn



/s/ BRADLEYR. MEREDITH

Chief Financial Officer,

March 4, 2004

Bradley R. Meredith

Senior Vice President



/s/ CLARITAKASSIN

Director

March 4, 2004

Clarita Kassin



/s/ MORRISMASSRY

Director

March 4, 2004

Morris Massry



/s/ D. RICHARDMEAD, JR.

Director

March 4, 2004

D. Richard Mead, Jr.



/s/ JAMESL. HORAN

Director

March 4, 2004

James L. Horan



30



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EXHIBIT INDEX





31.1

CEO Certification required under Section 302 of Sarbanes-Oxley Act of 2002.



31.2

CFO Certification required under Section 302 of Sarbanes-Oxley Act of 2002.



32.1

CEO Certifications required under Section 906 of Sarbanes-Oxley Act of 2002.



32.2

CFO Certifications required under Section 906 of Sarbanes-Oxley Act of 2002.