UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB



ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

 ̈TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number:0-22911

PANAMERICAN BANCORP

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

65-0325364

(IRS Employer Identification No.)

3400 Coral Way, Miami, Florida

(Address of principal executive offices)

33145

(Zip Code)

Registrants telephone number, including area code (305) 421-6800

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Common Stock, $.01 par value

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý  NO   ̈

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

State issuers revenues for the most recent fiscal year $ 9,817,090

State the aggregate market value of the voting and non voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as a specified date within the past 60 days: - - The last sale of our common equity occurred on March 31, 2005, at a price of $3.95 per share on the American Stock Exchange. The aggregate market value of our issued common equity, all of which is voting, is $26,686,575 as of March 31, 2005. Solely for the purpose of this calculation, all directors, officers and holders of more than 5% of the registrants outstanding common stock have been deemed to be affiliates.

The number of shares outstanding of each of the issuers classes of common equity, as of February 25, 2005 is as follows: Common Stock 8,372,126 shares, and Preferred Stock 315 shares.

DOCUMENTS INCORPORATED BY REFERENCE: None



Transitional Small Business Disclosure Format (check one): Yes   ̈  No  ý







---

PART I



ITEM 1.     DESCRIPTION OF BUSINESS



GENERAL



History

PanAmerican Bancorp (the Corporation or Holding Company) is a single bank holding company headquartered in Miami, Florida and organized under the laws of the state of Delaware. The corporate office is located at 3400 Coral Way in Miami, Florida 33021. Its telephone number is (305) 421-6800. We are a reporting company and file the following reports and other information with the Securities and Exchange Commission: Form 10-KSB, Form 10-QSB, Form 8-K, and Form 14A. Our financial information and reporting history may be accessed through the EDGAR online service.

PanAmerican Bancorp was originally incorporated in 1992 under the name of PCM Acquisition Group, Inc., for the sole purpose of acquiring Florida First International which was renamed Southern Security Bank Corporation. In 2000, while under a cease and desist order from Federal bank regulators, Southern Security Bank was reorganized and infused with new capital by a group of investors. In 2001, Southern Security Bank Corporation acquired the assets and assumed deposits and certain liabilities of PanAmerican Bank (the Bank). As part of the transaction, Southern Security adopted the name PanAmerican Bank and the Holding Company was renamed PanAmerican Bancorp.

The Bank completed the Gulf Bank Asset Purchase Agreement on February 17, 2004 for $3.2 million. This transaction caused the transfer of all of its loans, totaling $42 million to the Bank, along with certain contracts of Gulf Bank and the books and records of Gulf Bank relating to the transferred assets. In addition, the Bank received a cash payment of approximately $28 million and fixed assets valued at approximately $500,000. The Bank assumed all of Gulf Banks deposits totaling $67 million and Federal Home Loan Bank Advances totaling $3 million and entered into an assignment and sublease agreements for the lease of the three Gulf Banks branches in Miami-Dade County, Florida. The transaction received approval by federal and state banking regulators. To facilitate the transaction, we issued 3,100 Series A preferred shares and obtained a $1 million loan from Independent Bankers Bank along with certain other loans, which served as bridge financing pending the completion of a public offering. The preferred shares have been redeemed and the loan has been repaid.

On May 13, 2004, the Corporation completed an SB 2 Registration Statement for the sale of 2,000,000 Units each consisting of one share of Common Stock and two Class D Common Stock Purchase Warrants. This public offering combined with other private offerings contributed $11.2 million of new capital for the Corporation.



Our Bank



PanAmerican Bancorp owns 99.9% of the issued and outstanding common shares of PanAmerican Bank. The Bank is chartered by the State of Florida and is engaged in general commercial banking providing a wide range of loan and deposit services. Its deposit accounts are insured by the Federal Deposit Insurance Corporation and it is a member of the Federal Reserve System and the Federal Home Loan Bank.  The Banks primary market areas are Miami-Dade, Broward, and southern Palm Beach County in Florida, where it currently operates seven branch offices at the following locations: 3400 Coral Way, Miami, Florida (this is also the Holding Corporations corporate office); 3475 Sheridan Street, Hollywood, Florida; 1200 N. Federal Highway, Boca Raton, Florida, 3501 West Boynton Beach Boulevard, Boynton Beach, Florida; 2800 SW 8th Street, Miami, Florida; 2500 NW 97th Avenue, Miami, Florida; and 2770 S.W. 27th Avenue, Miami, Florida. All locations are full-service branches.



Deposit services for personal and business customers include a variety of checking accounts which include interest-earning, low-cost checking, and senior checking. Savings and money market accounts, and certificates of deposit with a wide variety of terms and rates are also offered. Consumers have access to ATMs, safe deposit boxes, direct deposit and on-line banking services. Management does not believe that the deposits or the business of the Bank in general are seasonal in nature. Deposit levels may, however, vary with local and national economic conditions.





---

Mortgage lending activities include commercial, industrial, and residential loans secured by real estate. The Banks customers are predominantly small to medium sized businesses, individual investors and consumers. Commercial lending activities include originating secured and unsecured loans and lines of credit, and providing cash management services to a variety of businesses. The Bank also provides a merchant credit card program. The Banks installment loan department makes direct auto, home equity, home improvement, and personal loans to individuals.



While the Bank has received regulatory approval to operate an International Banking Facility, we have chosen not to utilize this facility at this time.

We are not aware of any environmental liabilities that would have a material adverse effect on the operations or earnings of the Corporation or the Bank.



Financial Highlights

The Corporation has experienced significant growth in recent years through select acquisitions and internal generation of new business. We have focused on growing the loan portfolio by concentrating on origination of high-quality real estate loans, and by competitively pricing deposit products to maintain our interest rate spread. We have also closely monitored operating expenses in an effort to enhance our financial results.  Highlights are noted below:



Our total assets have grown from $94.1 million at December 31, 2003 to $191.5 million at December 31, 2004, a 104 percent increase.



Our total loans have grown from $66.2 million at December 31, 2003 to $153.7 million at December 31, 2004, an increase of 132 percent.



Our total deposits have grown from $80.1 million at December 31, 2003 to $158.2 million at December 31, 2004 an increase of 98 percent.



Our shareholders equity has grown from $9.8 million at December 31, 2003 to $20.7 million at December 31, 2004 an increase of 111 percent.



Growth Strategy

We intend to continue to expand our business through internal growth as well as through the select acquisition of the assets and assumption of deposits of other banks as opportunities are identified. We will also seek to acquire other community banks in South Florida subject to favorable pricing considerations. We will continue to grow internally by opening new branches, adding to our loan portfolio and bringing in new deposits.  We also intend to grow our capital base on a continuing basis as it is part of our business strategy of maintaining a well capitalized position. We will pursue this business strategy while managing asset quality. Our strategy for achieving these objectives includes:





Growth through addition of new loans and deposits.



Growth through opening new branch offices.



Growth through acquisitions of the assets and deposits of financially troubled banks.



Growth through acquiring other small community banks in Southern Florida.

Operating Strategy

Focus on increasing net loans.Our lending activities focus primarily on providing local businesses with commercial business loans and loans secured by real estate.  We are increasing our efforts to develop new business relationships and have increased our marketing efforts. Typically, we seek commercial lending relationships with customers borrowing up to $5 million.  Our legal lending limit was $5.1 million as of December 31, 2004.  New capital growth was generated from a public offering during 2004. We plan to raise additional capital in 2005 as well and have signed an engagement letter with Brean Murray, a New York based investment banking firm, to raise approximately $15 million of new capital in 2005. In addition we share participation in loans with other banks for loans generated that exceed our legal lending limit.

2



---

Attract and retain highly qualified and productive staff across all levels of the organization and focusing on low net overhead.Key to our growth and profitability is our managements experience in providing community banking services and our ability to create a culture committed to both proactive sales and disciplined credit quality. Our practice of employing highly qualified and productive individuals at all levels of the organization is key to meeting business goals and maintaining lower costs.



Enhance and upgrade our business platform to support business growth. We will continue to invest in systems, technology and people to facilitate an administrative infrastructure that is efficient and maintains a satisfactory level of internal control and regulatory compliance.



Increase our level of earning assets as they relate to operating expenses in order to improve profitability.We are pursuing a growth strategy by increasing our level of earning assets, primarily through increases in the loan portfolio, and by increasing the level of capital in support of this growth.  At the same time, we are continually analyzing our operating expenses to find areas where costs can be reduced through greater efficiency.



MARKET AREA



Our primary market areas for loan and deposit growth are Miami-Dade, Broward, and Palm Beach counties in southeast Florida where we operate seven full-service banking offices. This metropolitan area has a large and diverse population. Southeast Florida traditionally has strong tourism and taxable sales. The area experiences high tourism and housing demand both of which benefit from the influx of visitors and residents migrating from the northern states, Canada, other Florida counties, Latin America, the Caribbean, and Europe. We have also experienced a growing demand for commercial loans throughout our market areas.



Our diverse South Florida region includes a large population of retirees. In addition, many of our customers, due to their Hispanic backgrounds, speak Spanish. We have a full service banking branch located in Hollywood, Florida. We have four full service banking offices in Miami, Florida. In Palm Beach County we have a full service branch in Boca Raton and another full service banking office in Boynton Beach which opened early in 2005

COMPETITION



We face substantial competition in all phases of our operations from a variety of different competitors.  Competition for deposits, loans, and other financial services come from numerous Florida-based and out-of-state banks, savings banks, thrifts, credit unions and other financial institutions as well as other entities that provide financial services, many of which are much larger than our Bank.  Most of these competitors, some of which are affiliated with bank holding companies, have substantially greater resources and lending limits, and may offer certain services that the Bank does not currently provide. In addition, many of the Banks non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. We compete by offering high levels of attention to our customers, providing personalized services that our larger competitors can not match. In those instances where we are unable to provide services a customer needs, we arrange for those services to be provided by other banks with which we have correspondent relationships.

We maintain a strong community orientation by, among other things, supporting active participation of our employees in local charitable, civic, school and church activities.

SUPERVISION AND REGULATION

The Holding Company and the Bank are highly regulated entities, which are governed by various federal state governmental authorities. As explained more fully below, Federal and Florida banking laws and regulations govern all areas of the operations of the Holding Company and the Bank, including reserves, loans, capital, payment of dividends, establishment and closing of branches, the granting of credit under equal and fair conditions, and the disclosure of the cost and terms of such credit. As our primary federal regulator, the Board of Governors of the Federal Reserve System has authority to initiate civil and administrative actions and take other measures against the

3



---

Bank and its institution-affiliated parties, which include the Banks officers, directors, employees, 10%-or-greater shareholders and (under certain circumstances) the Banks professionals, for any violation of law or any action that constitutes an unsafe or unsound banking practice. Such enforcement actions include the issuance of cease and desist orders, civil money penalties, and the removal of and prohibition against the Banks institution-affiliated parties from actively participating in the conduct of the Banks affairs.

Bank Holding Company Regulation and Supervision

PanAmerican Bancorp is a one-bank holding company, registered with the Federal Reserve Bank under the Bank Holding Company Act of 1956, as amended. As such, the Holding Company and the Bank are subject to the supervision, examination, and reporting requirements of the Bank Holding Company Act of 1956, and the regulations of the Federal Reserve Bank. The Holding Company is required to file periodic reports with the Federal Reserve Bank and such additional information as the Federal Reserve Bank may require pursuant to the Bank Holding Company Act of 1956. The Federal Reserve Bank may conduct examinations of the Holding Company and the Bank. Under Federal Reserve Bank regulations and other Federal Reserve Bank authority, the Holding Company is required to serve as a source of financial and managerial strength to the Bank and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Banks policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding companys failure to meet its obligations to serve as a source of strength to its subsidiary banks may be considered by the Federal Reserve Bank to be an unsafe and unsound banking practice or a violation of the Federal Reserve Banks regulations or both.

The Bank Holding Company Act of 1956, generally prohibits the Holding Company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those activities determined by the Federal Reserve Bank to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve Bank must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. For example, factoring accounts receivable, acquiring or servicing loans, leasing personal property, conducting discount securities brokerage activities, performing certain data processing services, acting as agent or broker in selling credit life insurance and certain other types of insurance in connection with credit transactions, all have been determined by the Federal Reserve Bank to be permissible activities of bank holding companies. Despite prior approval, the Federal Reserve Bank has the power to order a bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that bank holding company.

Change of Holding Company Control. With regard to bank holding companies, the Bank Holding Company Act of 1956 requires that every bank holding company obtain the prior approval of the Federal Reserve before it may acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. In approving bank acquisitions by bank holding companies, the Federal Reserve Bank is required to consider the financial and managerial resources and future prospects of the bank holding company and the banks concerned, the convenience and needs of the communities to be served and various competitive factors.

The Bank Holding Company Act of 1956 further prohibits a person or group of persons from acquiring control of a bank holding company unless the Federal Reserve Bank has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve Bank, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company. In addition, any person or group of persons must obtain the approval of the Federal Reserve under the Bank Holding Company Act of 1956, before acquiring 25% (5% in the case of an acquirer that is already a bank holding company) or more of the outstanding common stock of a bank holding company, or otherwise obtaining control or a controlling influence over the bank holding company.

4



---

Gramm-Leach-Bliley Act. The Gramm-Leach-Bliley Act of 1999 significantly changed the regulatory structure and oversight of the financial services industry. Effective March 12, 2000, the Act, repealed the provisions of the Depression-era Glass-Steagall Act that restricted banks and securities firms from affiliating with one another. It also revised the Bank Holding Company Act to permit a qualifying bank holding company, called a financial holding company, to engage in a full range of financial activities, including banking, insurance, securities, and merchant banking activities. It also permits qualifying bank holding companies to acquire many types of financial firms without the prior approval of the Federal Reserve Bank.

Management does not believe that the Gramm-Leach-Bliley Act of 1999 has or will have an immediate positive or negative material effect on operations. In addition, the Holding Company has not elected to become a financial holding company for purposes of the Act and, therefore, cannot engage in the expanded range of activities afforded to financial holding companies. However, the Act may have the result of increasing the amount of competition that our Bank faces from larger financial service companies, many of whom have substantially more financial resources than our Bank, which may now offer banking services in addition to insurance and brokerage services.

Bank Regulation and Supervision.

As a Federal Reserve Bank member state Bank, the principal federal regulator of the Bank is the Federal Reserve Bank and, therefore, the Bank is subject to the regulations and administrative practices of the Federal Reserve Bank. In addition, as a state bank chartered by the State of Florida, the Bank is subject to the Florida Banking Code which is administered by the Florida Department of Financial Services as well as the rules and regulations of the Florida Department of Financial Services. The deposit obligations of the Bank are insured by the FDIC in the maximum individual amounts of $100,000 each. The Florida Department of Financial Services supervises and regulates all areas of the Banks operations, including, without limitation, its loans, mortgages, issuance of securities, annual shareholders meetings, capital adequacy requirements, payment of dividends and the establishment or termination of branches. As a state-chartered banking institution in the State of Florida, the Bank is empowered by statute, subject to limitations expressed therein, to take savings and time deposits, to accept checking accounts, to pay interest on such deposits, to make loans on residential and other real estate, to make consumer and commercial loans, to invest, with certain limitations, in equity securities and in debt obligations of companies and to undertake other various banking services on behalf of its customers.

As a state-chartered member of the Federal Reserve System, the Bank is subject to capital requirements imposed by the Federal Reserve Bank. The Federal Reserve Bank requires state-chartered member banks to comply with risk-based capital standards and to maintain a minimum leverage ratio. As of December 31, 2004, the Bank was in compliance with both the risk-based capital guidelines and the minimum leverage capital ratio.

Given the recent growth of the Bank, we have entered into agreements with the federal and state regulators to remain well capitalized and improve our policies and procedures in administrative areas affecting internal audit, asset and liability management and compliance. We have also agreed to periodically report to the regulatory authorities on our progress in these areas.

Change of Bank Control. Florida and federal law restrict the amount of voting stock of a bank that a person may acquire without the prior approval of banking regulators. The overall effect of such laws is to make it more difficult to acquire a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently, shareholders of financial institutions are less likely to benefit from the rapid increases in stock prices that often result from tender offers or similar efforts to acquire control of other companies.

Under Florida law, no person or group of persons may, directly or indirectly or acting by or through one or more persons, purchase or acquire a controlling interest in any bank which would result in the change in control of that bank unless the Department first shall have approved such proposed acquisition. A person or group will be deemed to have acquired control of a bank (i) if the person or group, directly or indirectly or acting by or through one, or more other persons, owns, controls, or has power to vote 25% or more of any class of voting securities of the bank, or controls in any manner the election of a majority of the directors of the bank, or (ii) if the Department determines that such person exercises a controlling influence over the management or policies of the bank. In any case where a proposed purchase of voting securities would give rise to a presumption of control, the person or group who proposes to purchase the securities must first file written notice of the proposal to the Department for its review and approval. Subsections 658.27(2)(c) and 658.28(3), Florida Statutes, refer to a potential change of control of a financial institution at a 10% or more threshold and rebuttable presumption of control. Accordingly, the name of any subscriber acquiring more than 10% of the voting securities of the Bank must be submitted to the Florida Department of Financial Services for prior approval.

5



---

Federal law imposes additional restrictions on acquisitions of stock in banks which are members of the Federal Reserve System. Under the federal Change in Bank Control Act of 1978, as amended, and the regulations thereunder, a person or group must give advance notice to the Federal Reserve Bank before acquiring control of any state member bank. Upon receipt of such notice, the Federal Reserve Bank either may approve or disapprove the acquisition. That statute creates a rebuttable presumption of control if a member or group acquires 10% or more of a banks voting stock and if one or more other control factors as set forth in that statute are present.

Interstate Banking and Branching.

Florida banks are permitted by Florida statute to branch statewide. Such branch banking, however, is subject to prior approval by the Florida Department of Financial Services, and agreement by the Federal Reserve Bank and the Federal Deposit Insurance Corporation. Any approval by the Florida Department of Financial Services, Federal Reserve Bank and the Federal Deposit Insurance Corporation of branching by the Bank would take into consideration several factors, including our level of capital, the prospects and economics of the proposed branch office, and other considerations deemed relevant by the Florida Department of Financial Services, Federal Reserve Bank and the Federal Deposit Insurance Corporation for purposes of determining whether approval should be granted to open a branch office.

Affiliate and Insider Restrictions.



The Banks authority to engage in transactions with affiliates (e.g., any company that controls or is under common control with an institution, including the Company and its non-bank subsidiaries) is limited by federal law. The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the Bank. The aggregate amount of covered transactions with all affiliates is limited to 20% of the Banks capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in federal law. The purchase of low quality assets from affiliates is generally prohibited. The transactions with affiliates must be on terms and under circumstances, that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, we are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies, and we may not purchase the securities of any affiliate other than a subsidiary.



The Banks authority to extend credit to insiders, such as executive officers, directors and 10% shareholders, as well as entities controlled by insiders, is also governed by federal law. Loans to insiders are required to be made on terms substantially the same as those offered to unaffiliated individuals and must not involve more than the normal risk of repayment. An exception exists for loans made to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. The law limits both the individual and aggregate amount of loans we may make to insiders based, in part, on the Banks capital position and requires certain board approval procedures to be followed.

Investment Activities

The Bank is permitted under federal and state law to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, certificates of deposit of other federally insured institutions, certain bankers acceptances and federal funds. Subject to various restrictions, we may also invest a portion of its assets in commercial paper and corporate debt securities. As a Federal Reserve Bank member bank, we are required to maintain an investment in Federal Reserve Bank stock. In August 2004, the Bank became a member of the Federal Home Loan Bank and assumed certain advances from them. We are required to maintain an investment in Federal Home Loan Bank stock. We are required under state and federal regulations to maintain a minimum amount of liquid assets.

A committee consisting of Bank Officers and Directors determines appropriate investments in accordance with the Board of Directors approved investment policies and procedures. Our investment policies generally limit investments to U.S. Government and U.S. Government agency securities, municipal bonds, certificates of deposits, marketable corporate debt obligations, mortgage-backed securities and certain types of mutual funds. Our investment policy does not permit engaging directly in hedging activities or purchasing high risk mortgage derivative products. Investments are made based on certain considerations, which include the interest rate, yield,

6



---

settlement date and maturity of the investment, our liquidity position, and anticipated cash needs and sources (which in turn include outstanding commitments, upcoming maturities, estimated deposits and anticipated loan amortization and repayments). The effect that the proposed investment would have on the Banks credit and interest rate risk, and risk-based capital is also given consideration during the evaluation.

Lending Activities

Community Reinvestment Act; Fair Lending. The Bank is subject to a variety of fair lending laws and reporting obligations involving home mortgage lending operations and Community Reinvestment Act activities. The Community Reinvestment Act generally requires the federal banking agencies to evaluate the record of a bank in meeting the credit needs of its local communities, including low-and moderate-income neighborhoods. Each financial institutions efforts in meeting community credit needs are evaluated as part of the examination process pursuant to twelve assessment factors. A bank can also become subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and Community Reinvestment Act obligations into account when regulating and supervising other activities or assessing whether to approve certain applications such as mergers, acquisitions and applications to open a branch or facility. At the Banks most recent evaluation during 1999, the Federal Reserve Bank rated the Bank Satisfactory in complying with its Community Reinvestment Act obligations.

Under federal law, federally insured banks are subject, with certain exceptions, to certain restrictions on any extension of credit to affiliates, on investment in the stock or other securities of affiliates, and on the taking of such stock or securities as collateral from any borrower. In addition, such banks are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit or the providing of any property or service.

Federal and Florida law further provide loans-to-one borrower limits. A bank may extend credit to any person, including any related interest of that person, up to an amount of 15% of its capital for loans and lines of credit which are unsecured. A bank may extend credit to any person, including any related interest of that person, up to an amount of 25% of its capital for loans and lines of credit, which are amply and entirely secured. When outstanding loans consist of both secured and unsecured portions, the secured and unsecured portions may not exceed 25% of the capital of the lending bank, and the unsecured portion may not exceed 15% of the capital of the lending bank.

Allowance for Loan Losses. We believe we have established our existing allowance for loan losses in accordance with accounting principles generally accepted in the United States of America. However, there can be no assurance that regulators, in reviewing the our loan portfolio, will not request us to increase significantly our allowance for loan losses. Additionally, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that a substantial increase will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Deposit Activities and Other Sources of Funds

Deposit Insurance. The Banks deposit accounts are insured by the FDIC up to a maximum of $100,000 per insured depositor. The FDIC has the authority to terminate insurance of accounts pursuant to procedures established for that purpose.

As a FDIC-insured institution, the Bank is subject to insurance assessments imposed by the FDIC. Under current law the insurance assessment to be paid by insured institutions shall be as specified in a schedule required to be issued by the FDIC that specifies, at semiannual intervals, target reserve ratios designed to increase the FDIC insurance fund reserve ratio as it relates to estimated insured deposits (a ratio as the FDIC may determine in accordance with its statute). Further, the FDIC is authorized to impose one or more special assessments in any amount deemed necessary to enable repayment of amounts borrowed by the FDIC from the United States Department of the Treasury.

7



---

The FDIC Insurance is based on a risk-based assessment schedule based on an institutions average assessment base. The actual assessment to be paid by each FDIC-insured institution is based on the institutions assessment risk classification, which is determined based on whether the institution is considered Well-Capitalized, Adequately Capitalized or Undercapitalized, as such terms have been defined in applicable federal regulations adopted implement the prompt corrective action provisions of the Federal Deposit Insurance Corporation Improvement Act, and whether such institution is considered by its supervisory agency to be financially sound or to have supervisory concerns.

Deposit Accounts. Most of the Banks depositors are residents of the State of Florida. Deposits are attracted from within the Banks market area through the offering of a broad selection of deposit instruments, including NOW accounts, money market deposit accounts, regular checking accounts, regular savings accounts, certificates of deposit and retirement savings plans. Deposit account terms vary, according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of its deposit accounts, the Bank considers current market interest rates, profitability to the Bank, matching deposit and loan products and its customer preferences and concerns. The Bank reviews its deposit mix and pricing weekly.

Liquidity. The Bank is required by Florida law to maintain an average daily balance of specified liquid assets equal to a daily amount of not less than 15% of its total transaction accounts plus 8% of its total time deposits. Liquid assets include cash, items due from Federal Reserve, money market funds, U.S. Government Agency investments, U.S. Treasuries, and federal funds sold. Our liquidity ratio at December 31, 2004 and 2003, exceeded the regulatory requirements. We have never been subject to monetary penalties for failure to meet our liquidity requirements.

Borrowings. The Bank has the ability to borrow from correspondent banks to supplement its supply of lendable funds and to meet deposit withdrawal requirements. Advances are made pursuant to limitations on the amount of advances and are based on the financial condition of the member institution as well as the value and acceptability of collateral pledged. We have established a correspondent relationship with Independent Bankers Bank of Lake Mary, Florida with respect to the foregoing services. As compensation for services provided by a correspondent, we maintain a $60,000 balance with the correspondent in non-interest bearing accounts. Such compensating balances are not considered significant to our operations. At December 31, 2004, we had an outstanding balance on this line-of-credit of $2,500,000.

Equity and Capital Resources. The Bank is subject to various regulatory capital requirements administered by Federal and State banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements and operation. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies.

The Banks capital accounts and classifications are also subject to qualitative judgment by the regulators about components, risk weighting, and other factors. Quantitative and qualitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios, set forth in the table later in this document of total and Tier-1 capital, as defined by regulation, to risk weighted assets, and of Tier-1 capital to average assets. We believe that as of December 31, 2004, we have met the capital adequacy requirements as defined by these definitions, and were well capitalized.

Dividends. There are various limitations under law on the ability of the Bank to pay dividends. The Federal Reserve Bank and the Florida Department of Financial Services also have the general authority to limit the dividends paid by insured banks if such payment may be deemed to constitute an unsafe and unsound practice. Under Florida law applicable to banks and subject to certain limitations, after charging off bad debts, depreciation and other worthless assets, if any, and making provisions for reasonably anticipated future losses on loans and other assets, the board of directors of a bank may declare a dividend of so much of the banks aggregate net profits for the current year combined with its retained earnings (if any) for the preceding two years as the board shall deem to be appropriate and, with the approval of the Florida Department of Financial Services, may declare a dividend from

8



---

retained earnings for prior years. Before declaring a dividend, a bank must carry 20% of its net profits for any preceding period as is covered by the dividend to its surplus fund, until the surplus fund is at least equal to the amount of its common stock then issued and outstanding. No dividends may be paid at any time when a banks net income from the preceding two years is a loss or which would cause the capital accounts of the bank to fall below the minimum amount required by law or any written statement with the Department or a federal regulatory agency.

Anti-Money Laundering and Anti-Terrorism Legislation. On October 26, 2001, the President of the United States signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and know your customer standards in their dealings with foreign financial institutions and domestic and foreign customers. For example, the enhanced due diligence policies, procedures and controls generally require financial institutions to take reasonable steps:



to conduct enhanced scrutiny of certain account relationships to guard against money laundering and report any suspicious transaction;



to ascertain the identity of the nominal and beneficial owners of, and the source of funds deposited into, certain accounts as needed to guard against money laundering and report any suspicious transactions;



to ascertain with respect to any foreign correspondent bank customer, the shares of which are not publicly traded, the identity of the owners of the foreign bank and the nature and extent of the ownership interest of each such owner; and



to ascertain whether any foreign bank provides correspondent accounts to other foreign banks and, if so, the identity of those foreign banks and related due diligence information.

On September 26, 2002, the United States Department of the Treasury adopted final rules pursuant to Section 314(a) and 314(b) of the USA PATRIOT Act designed to increase the cooperation and information sharing between financial institutions, regulators and law enforcement authorities regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Under the new rules, a financial institution is required to:



expeditiously search its records to determine whether it maintains or has maintained accounts, or engaged in transactions with individuals or entities, listed in an information request submitted by the Financial Crimes Enforcement Network;



notify Financial Crimes Enforcement Network if an account or transaction is identified;



designate a contact person to receive information requests;



limit use of information provided by Financial Crimes Enforcement Network to: (1) reporting to Financial Crimes Enforcement Network, (2) determining whether to establish or maintain an account or engage in a transaction, and (3) assisting the financial institution in complying with the Bank Secrecy Act; and



maintain adequate procedures to protect the security and confidentiality of Financial Crimes Enforcement Network requests.



Under the new rules, a financial institution under certain circumstances may also share with other financial institutions, information regarding individuals, entities, organizations and countries for purposes of identifying and, where appropriate, reporting activities that it suspects may involve possible terrorist activity or money laundering.

On September 26, 2002, the United States Department of the Treasury also adopted a new rule under the authority of Sections 313 and 319(b) of the USA PATRIOT Act intended to prevent money laundering and terrorist financing through correspondent accounts maintained by U.S. financial institutions on behalf of foreign banks. Under the new rule, financial institutions:



are prohibited from providing correspondent accounts to foreign shell banks;



are required to obtain a certification from foreign banks for which they maintain a correspondent account stating the foreign bank is not a shell bank and that it will not permit a foreign shell bank to have access to the U.S. account;

9



---





must maintain records identifying the owner of the foreign bank for which they may maintain a correspondent account and its agent in the Unites States designated to accept services of legal process;



must terminate correspondent accounts of foreign banks that fail to comply with or fail to contest a lawful request of the Secretary of the Treasury or the Attorney General of the United States, after being notified by the Secretary or Attorney General.

At December 31, 2004, the Bank did not maintain any correspondent accounts for non-U.S. banking institutions.

On April 30, 2003, the United States Department of the Treasury issued final regulations under Section 326 of the USA PATRIOT Act that require banks to adopt written customer identification programs that will require them to:



verify the identify of any person seeking to open an account;



maintain records of the information used to verify identity; and



consult government known or suspected terrorist lists to determine whether the customer appears on any such list.

The foregoing requirements were included in the Banks anti-money laundering program as of December 31, 2004 as required by this act.

Proposed Legislation and Regulatory Action. New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of the nations financial institutions. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Polices. Our earnings will be affected by the monetary and fiscal policies of the United States government and its agencies, as well as general domestic economic conditions. The Federal Reserve Boards power to implement national monetary policy has had, and is likely to continue to have, an important impact on the operating results of commercial banks. The Federal Reserve Board affects the levels of bank loans, investments and deposits through its control over the issuance of United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member bank deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.

FEDERAL AND STATE TAXATION



We report the income of the Holding Company and the Bank on a fiscal year, consolidated basis and the accrual method of accounting, and are subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Banks reserve for bad debts discussed below.



The following discussion of state tax matters is intended only as a summary and does not purport to be a comprehensive description of the state tax rules applicable to the Bank or the Company. Neither the Holding Corporation nor the Bank has been audited by the IRS in the last five years.



State Taxation Florida. The Bank, as a Florida-based corporation is subject to a state corporation and emergency excise tax which is based on income. Florida also has a tangible tax based on the value of tangible personal property.



State Taxation Delaware. As a Delaware corporation not earning income in Delaware, the Company is exempted from Delaware corporate income tax, but is required to file an annual report with, and pay an annual franchise tax to the State of Delaware.

10



---

EMPLOYEES



Until December 31, 2004, we leased all of our officers and employees through Oasis Outsourcing, Inc., a professional employer organization. Commencing January 1, 2005 all of our employees are leased through ADP Total Source Inc. It is a co-employer arrangement. At December 31, 2004 there are 54 full time employees at the Bank level. A portion of three employees salaries is charged to the Holding Corporation. The employees are provided with group life, health, major medical, dental and vision insurance, and long term disability. None of the leased employees of the Holding Corporation or the Bank are represented by any collective bargaining units. The Company considers its employee relations to be good.



ITEM 2.     DESCRIPTION OF PROPERTY



We own one parcel of real property which is located at 2770 S.W. 27th Avenue, Miami, Florida, which houses a branch of the Bank. As of December 31, 2004, the book value of this property was $907,500 less accumulated depreciation of $39,000 resulting in a net book value of $868,500.

As of December 31, 2004 we leased six facilities and the material terms of these leases are as follows:

a.

Banks main office, full service branch office and Holding Companys corporate office

1.

3400 Coral Way, Miami, Florida

2.

11,464 square feet

3.

3 year term, option to renew lease for one 3 year term.

4

The rent (including CAM and other costs) is approximately $34 per square foot at December 31, 2004, resulting in total annual base rent of approximately $387,400.



b.

Full service branch office

1.

3475 Sheridan Street, Hollywood, Florida

2.

4,800 square feet

3.

10 year term, option to renew lease was exercised at December 31, 2003 to extend term to December 31, 2013.

4

The rent (including CAM and other costs) is approximately $39 per square foot at December 31, 2004, resulting in total annual base rent of approximately $188,000.00.



c.

Full service branch office

1.

1200 N. Federal Highway, Boca Raton, Florida

2.

5,388 square feet

3.

10 year term, expiring September 2012

4.

The base rent (including CAM and other costs) is $23.30 per square foot at December 31, 2004 resulting in total annual rent of approximately $125,700.00.



d.

Full service branch office

1.

2500 N.W. 97th Avenue, Miami, Florida

2.

2,986 square feet

3.

Assumption of 10 year term, expiring August 14, 2009 with 2 options to renew for 2 five year periods.

4.

The base rent (including CAM and other costs) is $23.60 per square foot at December 31, 2004 resulting in total annual rent of approximately $70,500.00.



e.

Full service branch office

1.

2800 S.W. 8th Street, Miami, Florida

2.

2,284 square feet

3.

3 year term, expiring February 16, 2007 with option to renew for one 3 year period.

4.

The base rent (including CAM and other costs) is $43.50 per square foot at December 31, 2004 resulting in total annual rent of approximately $99,500.00.

11



---

f.

Full service branch office

1.

3501 West Boynton Beach Boulevard, Boynton Beach, Florida

2.

1,600 square feet

3.

5 year term, expiring August 31, 2009

4.

The base rent (including CAM and other costs) is $27.70 per square foot at December 31, 2004 resulting in total annual rent of approximately $44,300



Management believes that each of our current facilities is adequate and well suited to our current operations.



ITEM 3.     LEGAL PROCEEDINGS



The Holding Company and the Bank are periodically parties to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans, and other issues incident to our business. Management does not believe that there is any pending proceeding against the Company or the Bank which, if determined adversely, would have a material effect on our business or financial position other than the item described below:



On May 12, 2004 Fausto Marquez commenced an action against PanAmerican Bank, entitled Fausto Marquez, an individual and as Lead Organizer in the Global Bank, a banking organization in the Process of Being Formed and As Assignee of Interests Held By Individual Members of the Marquez Group v. Salvador Bonilla-Mathe, an individual and Gulf Bank, a Florida banking corporation and PanAmerican Bank, a Florida banking corporation, Miami-Dade Circuit Court No. 03-24116 CA 20. This action alleged that PanAmerican Bank, as purchaser of the assets of Gulf Bank, is liable for claims of breach of contract that Mr. Marquez and his group allege against Gulf Bank for its failure to sell the bank charter of Gulf Bank to Mr. Marquez and his group. The plaintiffs have amended their complaint and PanAmerican Bank believes that the claim has no merit and it intends to defend the litigation. PanAmerican Bank has moved to dismiss the amended complaint. This motion is set for a hearing on March 9, 2005.



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



PanAmerican Bancorp held its Annual Meeting of Stockholders at the PanAmerican Bank office at 3400 Coral Way, Miami, Florida, on June 8, 2004 to elect directors, approve amendments to the Directors and Incentive Stock Option Plans, and amend the corporate by-laws. Of the total shares outstanding 52% either voted in person or by proxy.



A total of two Directors were to be elected at the meeting. The Boards nominees for election were as follows:



|Director           |  | For   |  | Against |  | Abstained |  | Reelected | 
|------------------ |  | ----- |  | ------- |  | --------- |  | --------- | 
|Nelson Famadas     |  | 96.3% |  | 0.0%    |  | 3.7%      |  | Yes       | 
|Stephen L. Perrone |  | 96.3% |  | 0.0%    |  | 3.7%      |  | Yes       | 



A motion was made for amendment and restatement of the Companys Incentive Stock Option Plan to increase the shares available for grant under the Plan to 500,000. The motion was passed by 92.9% of the shares voted.



A motion was made for amendment and restatement of the Directors Stock Option Plan to increase the shares available for grant under the Plan to 500,000. The motion was passed by 92.7% of the shares voted.



A motion was made for amendment and restatement of the Companys By-Laws. The motion was passed by 94.2% of the shares voted.

12



---

PART II



ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



At the present, our common stock is traded on the American Stock Exchange under the symbol PNB. During 2004 the high and low trades respectively were $4.85 on June 14, 2004, and $2.50 on August 17, 2004. Our common stock closed trading on December 31, 2004 at a price of $4.03 per share.

The following table shows our quarterly share price range for 2003 and 2004:

|               |  | 2004   |  | 2003 
|-------------- |  | ------ |  | -----
|               |  | High $ |  | Low $
|First quarter  |  | 4.70   |  | 2.50 
|Second quarter |  | 4.85   |  | 3.25 
|Third quarter  |  | 3.38   |  | 2.50 
|Fourth quarter |  | 4.11   |  | 3.04 



Both federal and Florida law limit the frequency and amount of dividends that may be paid to our shareholders. Also, banking regulators may restrict the ability of any bank subject to their jurisdiction to pay dividends if the payments would constitute an unsafe or unsound banking practice. Under applicable banking regulations, we may not pay cash dividends on our common shares until our accumulated deficit, has been eliminated. No common share dividends have ever been paid. The determination of the Board of Directors to declare dividends in the future will depend upon the earnings, capital requirements, and financial position of the Company, and upon other factors they may deem relevant.

The Board of Directors have authorized 20 million shares of common stock for the Company. At February 25, 2005, 8,372,126 million shares had been issued and are outstanding and were held by approximately 541 shareholders.

During January 2004, 3,100 shares of preferred stock totaling $3.1 million were issued. The preferred stock pays a dividend of 8% semi-annually. On August 17, 2004, dividends totaling $123,724 were paid on the shares. In addition 2,785 shares were redeemed in 2004. At year end 315 shares of preferred stock were outstanding with a par value of $315,000. The preferred stock offering was a private placement under Rule 506 of Regulation D of the Securities Act.

During the fiscal year ended December 31, 2004, the Company sold the following securities subject to registration under the Securities Act of 1933.

On May 13, 2004, the Corporation completed an SB 2 Registration Statement for the sale of 2,000,000 Units each consisting of one share of Common Stock and two Class D Common Stock Purchase Warrants.

During the fiscal year ended December 31, 2004, the Company sold the following securities without registration under the Securities Act of 1933.

On June 14, 2004, the Company completed a private placement offering (the Offering) under Rule 506 of Regulation D of the Securities Act of 1933, as amended (the Securities Act). Pursuant to the terms of the Offering, the Company sold to First Bancorp and McAlpine Park Lane, Inc. (collectively, the Investors) 125,000 and 55,000 units, respectively, at a purchase price of $4.75 per unit for aggregate gross proceeds of $855,000. Each Unit consists of: (i) one share of the Companys common stock, $.01 par value (Common Stock), and (ii) two Class D Common Stock purchase warrants (public warrants) (the Warrants). The Units were offered at a price of $4.75 per Unit. The per Unit price of the Offering was determined by the Company, based upon an analysis of certain factors including, without limitation, the Companys potential future earnings, assets and net worth. Following the Offering and as of December 31, 2004, the Company has 8,372,126 shares of Common Stock issued and outstanding and 4,960,000 Class D Warrants.

13



---

ITEM 6.     MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

Statements included in this document, or incorporated herein by reference, that do not relate to present or historical conditions are forward looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21F of the Securities Exchange Act of 1934, as amended. Additional oral or written forward looking statements may be made by the Company from time to time, and such statements may be included in documents that are filed with the Securities and Exchange Commission. Such forward looking statements involve risks and uncertainties that could cause results or outcomes to differ materially from those expressed in the forward looking statements. Forward looking statements may include, without limitation, statements relating to the Companys plans, strategies, objectives, expectations and intentions and are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as believes, forecasts, intends, possible, estimates, anticipates, and plans and similar expressions are intended to identify forward looking statements. Among the important factors on which such statements are based are assumptions concerning the business environment in Broward, Miami-Dade and Palm Beach Counties of Florida where the Bank operates, the availability of additional capital to help the Bank achieve the size necessary to achieve and sustain profitability, changes in interest rates, changes in the banking industry in general and particularly in the competitive environment in which the Bank operates, and changes in inflation.

CRITICAL ACCOUNTING POLICIES

The Companys accounting policies are fundamental to understanding managements discussion and analysis of results of operations and financial condition. The Company has identified four policies as being critical because they require us to make judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Our accounting for the allowance for loan losses is a critical policy that is discussed in detail in this section (see EARNING ASSETS).

We test goodwill and other intangible assets for impairment annually. The test requires us to determine the fair value of our reporting units and compare the reporting units fair value to its carrying value. The fair values of the reporting units are estimated using management valuation models. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. These fair value estimates require a significant amount of judgment. Changes in managements valuation of its reporting units may affect future earnings through the recognition of a goodwill impairment charge. At December 31, 2004, (our goodwill impairment testing date) the fair value of our reporting units was greater than their carrying value; therefore, goodwill was not impaired. If the fair value of our reporting units declines below the carrying amount we would have to perform the second step of the impairment test. This step requires us to fair value all assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation. This allocation will include core deposit intangible assets that are currently not recognized on our financial statements. These unrecognized assets may result in a significant impairment of goodwill.

The Company accounts for its business combinations based on the purchase method of accounting. The purchase method of accounting requires us to fair value the tangible net assets and identifiable intangible assets acquired. The fair values are based on available information and current economic conditions at the date of acquisition. The fair values may be obtained from independent appraisers, discounted cash flow present value techniques, management valuation models, quoted prices on national markets or quoted market prices from brokers.

These fair values estimates will affect future earnings through the disposition or amortization of the underlying assets and liabilities. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. Such different fair value estimates could affect future earnings through different values being utilized for the disposition or amortization of the underlying assets and liabilities acquired.

14



---

We record our securities available for sale in our statement of financial condition at fair value. We use market price quotes for valuation. Equity securities available for sale trade daily on various stock exchanges. The fair value of these securities in our statement of financial condition was based on the closing price quotations at period end. The closing quotation represents inter-dealer quotations without retail markups, markdowns or commissions and do not necessarily represent actual transactions. The number of shares that we own in some of these equity securities may be in excess of the securities average daily trading volume. As a consequence, we may not be able to realize the quoted market price upon sale. We adjust our equity securities available for sale to fair value monthly with a corresponding increase or decrease to other comprehensive income. Declines in the fair value of individual securities available for sale below their cost that are other than temporary result in write-downs of the individual securities to their fair value.



The Company, in consultation with the Audit Committee, has reviewed and approved these critical accounting policies.



SELECTED CONSOLIDATED FINANCIAL DATA



|                                                     |  |  | 2004 |                        |   | 2003 |  
|---------------------------------------------------- |  |  | ---- | ---------------------- | - | ---- | -
|                                                     |  |  |      | (Dollars in Thousands) |  
|                                                     |  |  |      |                        |   |      |  
|Selected Consolidated Balance Sheet Data:            |  |  |      |                        |   |      |  
|Cash and cash equivalents                            |  |  | $    | 6,214                  |   |      | $
|Investments                                          |  |  |      | 22,574                 |   |      |  
|Loans, net                                           |  |  |      | 153,730                |   |      |  
|Total assets                                         |  |  |      | 191,467                |   |      |  
|Total deposits                                       |  |  |      | 158,158                |   |      |  
|Total shareholders equity                           |  |  |      | 20,746                 |   |      |  
|Book value per common share                          |  |  |      | 2.44                   |   |      |  
|                                                     |  |  |      |                        |   |      |  
|Selected Consolidated Statements of Operations Data: |  |  |      |                        |   |      |  
|Net interest income                                  |  |  | $    | 6,519                  |   |      | $
|Provision for loan losses                            |  |  |      | 1,397                  |   |      |  
|Noninterest income                                   |  |  |      | 969                    |   |      |  
|Noninterest expense                                  |  |  |      | 6,319                  |   |      |  
|                                                     |  |  |      |                        |   |      |  
|Net income (loss)                                    |  |  | $    | (228                   | ) |      | $
|                                                     |  |  |      |                        |   |      |  
|Basic and diluted loss per share                     |  |  | $    | (0.05                  | ) |      | $
|                                                     |  |  |      |                        |   |      |  
|Selected Financial Ratios:                           |  |  |      |                        |   |      |  
|Return on average assets                             |  |  |      | (0.14                  | ) |      |  
|Return on average equity                             |  |  |      | (1.33                  | ) |      |  
|Ratio of average equity to average assets            |  |  |      | 10.68                  |   |      |  

GENERAL

Our primary market and service area is Broward, Miami-Dade and Palm Beach counties where we operated six full service banking offices during 2004. (We opened our newest branch office in Boynton Beach, Florida in March 2005). We have grown significantly in 2004. On February 17, 2004, we purchased certain assets and assumed certain liabilities of Gulf Bank of Miami, Florida. We purchased approximately $42 million of loans, and assumed approximately $70 million of liabilities and received $28 million in cash which was reduced by the fixed assets and purchase price of approximately $4 million. Additionally we assumed three Gulf Bank leases in Miami-Dade County, Florida.

Since the transaction, we have pursued a growth strategy, increasing our level of earning assets, primarily through increases in the loan portfolio by concentrating on the origination of high-quality commercial loan products, by competitively pricing deposits products to maintain the interest rate spread, and by increasing the level of capital in support of this growth. The periodic addition of new capital to support business growth is a core component

15



---

required to permit the Company to realize growth plans. In May 2004 the Company completed a public offering of 2 million units at a price of $4.75 per unit. Each unit consisted of one common share and two Class D common stock purchase warrants. This offering was supplemented with completion of smaller private placement offerings in June 2004. Collectively the Company received net proceeds of $11.2 million from these common share offerings. The Company is committed to raising additional capital as required to meet business growth requirements and maintain the Banks status as a well capitalized financial institution. The Banks capital exceeded statutory guidelines at December 31, 2004. There were no dividends declared in the years ended December 31, 2004 and 2003.

During 2005 we intend to continue to expand our business through internal growth as well as through the select acquisition of the assets and assumption of deposits of other banks if and when opportunities are identified. We will also seek to acquire other community banks in South Florida subject to favorable pricing considerations. We will continue to grow internally by opening new branches, adding to our loan portfolio and bringing in new deposits. We also intend to grow our capital base on a continuing basis as it is part of our business strategy of maintaining a well capitalized position. We will pursue this business strategy while managing asset quality.

As of December 31, 2004, the Company had total assets of $191.5 million, loans of $153.7 million, deposits of $158.2 million and shareholders equity of $20.7 million. Average total assets increased in 2004 by $66.7 million from 2003 due to managements efforts to grow the Bank.  Capital growth commensurated with the overall growth of the Bank. The average equity to average assets ratio increased to 10.68% in 2004 from 10.16 % in 2003.



The Holding Corporations results of operations are primarily dependent upon the results of operations of the Bank. The Bank conducts a commercial banking business which consists of, in very general terms, attracting deposits from the general public and applying a majority of these funds (typically 75% to 90%) to the origination of commercial loans to small businesses, consumer loans, and secured real estate loans in its local trade area of South Florida. The balance (approximately 10% to 25%) is generally held in cash and invested in government guaranteed - investment grade securities.



Our profitability depends primarily on generating sufficient net interest income (the difference between interest income received from loans and investments and the interest expense incurred on deposits and borrowings) to offset our operating expenses. Any excess thereof is pre-tax profit earned by the Bank. The careful balance sought between the interest rate earned and frequency of rate changes, as that balance relates to that interest rate paid to the Banks deposit base, determines the nature and extent to which the Bank may be profitable. For example, if the income generated by our net interest income plus non-interest income is in excess of our operating expenses and loan loss reserves, we should be operating profitably. Noninterest income consists primarily of service charges and fees on deposit accounts. Noninterest expenses consist primarily of personnel compensation and benefits, occupancy and related expenses, data processing costs, deposit insurance premiums paid the FDIC, as well as other operating expenses.



One of our strategies to maintain current profits of the Bank is to control our operating expenses. Our goal is to control the growth of operating expenses at a slower rate than the rate at which we grow our revenues. To accomplish this goal, management continues to analyze our operations to find areas where costs can be reduced through greater efficiency or through renegotiated contracts. We have been reducing the net loss since 2001. Our net loss was $228,000 for 2004 as compared to losses of $443,000 and $508,000 for 2003 and 2002. Earnings in 2004 were negatively impacted by the provision for loan losses of $1.4 million. Management believes that as a result of focused efforts to control credit quality and operating expenses, and to maintain our net interest margin, will result in profits in future years.

EARNING ASSETS

A primary strategy of the Company continues to be to increase our level of earning assets as they relate to operating expenses in order to improve our profitability. We are pursuing a growth strategy by increasing our level of earning assets, primarily through increases in loan origination in our communities and by increasing the level of capital in support of this growth. Interest-earning assets, which consist of loans, investments, federal funds sold, and Federal Reserve Bank Stock, totaled $176.3 million at December 31, 2004, a $90.5 million, or 105 % increase from $85.8 million at December 31, 2003.

16



---

Lending Activities

Our principal lending areas have been defined as all census tracts within the tri-county area of Palm Beach, Broward and Miami-Dade Counties, Florida. Our customers are predominantly small to medium-sized businesses, individual investors and consumers. Collateralized loans, the most common of which follow, are extended on similar terms to all of the Banks customers and have an inherent degree of risk:



Cash-secured loans as well as loans guaranteed by agencies of the United States Government represent a nominal level of risk.



Loans secured by marketable securities represent a low degree of risk.



Commercial and residential real estate loans, including construction and land development loans, represent a moderate degree of risk.



Loans secured by automobiles, boats and equipment represent a moderate to medium level of risk to the Bank.



Unsecured loans represent a high level of risk to the Bank.

As a significant part of our growth strategy, we are increasing our efforts to develop new business relationships and are increasing our marketing efforts.  Typically, we seek commercial lending relationships with customers borrowing up to $5.0 million.  Our legal lending limit for secured and unsecured loans was $5.1 million and $2.4 million as of December 31, 2004 and 2003.  New capital growth from a planned share offerings during 2005 should increase our legal lending limit which will allow us to meet the loan needs of larger customers. We also have approximately 23 participating loans with other banks, which total approximately $5.8 million as of December 31, 2004.

Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of a loan is substantially less than its contractual terms because of prepayments. In addition, due-on-sale clauses on mortgage loans generally give us the right to declare loans immediately due and payable in the event, among other things, that the borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of loans tends to increase, however, when current loan market rates are substantially higher than rates on existing loans and, conversely, decrease when rates on existing loans are substantially higher than current loan market rates.

The Bank extends credit with terms, rates and fees commensurate with those in its market place for like types of credit. Loan maturities may positively or negatively impact the Banks GAP position and, ultimately, its profitability.

Loan Solicitation and Processing. Loan applicants come primarily through the efforts of our loan officers who seek out existing customers, referrals by realtors, previous and present customers of the Bank, business acquaintances, and walk-ins. Upon receipt of a loan application from a prospective borrower, a credit report and other data are obtained to verify specific information relating to the loan applicants employment, income and credit standing. On mortgage loans, an appraisal of the real estate offered as collateral generally is undertaken by an independent fee appraiser certified by the State of Florida.

Commercial Real Estate Loans. Our primary lending focus is making commercial mortgage loans to finance the purchase of real property, which generally consists of developed real estate.  Our commercial mortgage loans are generally secured by first liens on real estate, and typically have variable rates and amortize over a 15 to 25 year period, with balloon payments due at the end of five to ten years.  At December 31, 2004 commercial mortgage loans represented 74% of the total loan portfolio compared to 50% at December 31, 2003.  The average balance of commercial mortgage loans was $79.3 million for 2004 and $36.4 million for 2003. Income from these loans totaled $5.6 million and $2.5 million for 2004 and 2003.

Commercial Loans. Another lending focus of the Bank is to small and medium-sized businesses in a variety of industries. We make a broad range of short- and medium-term commercial lending products available to businesses, including working capital lines, purchases of machinery, and business expansion (including acquisition of real estate and improvements). At December 31, 2004, commercial loans represented 18% of the total loan portfolio compared to 31% at December 31, 2003.  The average balance of commercial loans was $25.5 million for 2004 and $21.1 million for 2003. Income from these loans totaled $1.6 million and $1.3 million for 2004 and 2003.

17



---

Consumer Lending. We offer a variety of loan and deposit products and services to retail customers through our branch network.  Loans to retail customers include residential mortgage loans, home equity loans and lines of credit, automobile loans, and other personal loans.  At December 31, 2004, residential mortgage loans represented 6% of the total loan portfolio compared to 12% at December 31, 2003.  The average balance of residential mortgage loans was $8.1 million for 2004 and $2.9 million for 2003.  Income from these loans totaled $484,000 and $207,000 for 2004 and 2003. At December 31, 2004, consumer, home equity and installment loans represented 2% of the total loan portfolio compared to 7% at December 31, 2003.  The average balance of consumer, home equity and installment loans was $3.9 million for 2004 and $4.9 million for 2003. Income from these loans totaled $309,000 for 2004 and $317,000 for 2003.

Loan Maturity Schedule. The following schedule sets forth the time to contractual maturity of our loan portfolio at December 31, 2004. Loans which have adjustable rates and fixed rates are all shown in the period of contractual maturity. Demand loans, loans having no contractual maturity and overdrafts are reported as due in one year or less.



|                                      |  | Total          |         |   | One Year Or Less |   |        | One to Five Years |  |   | Over Five Years | 
|------------------------------------- |  | -------------- | ------- | - | ---------------- | - | ------ | ----------------- |  | - | --------------- | 
|                                      |  | (In Thousands) |        
|Commercial                            |  | $              | 28,447  |   |                  | $ | 16,661 |                   |  | $ | 10,583          | 
|Commercial Real Estate                |  |                | 115,168 |   |                  |   | 21,183 |                   |  |   | 46,503          | 
|Residential Real Estate               |  |                | 8,663   |   |                  |   | 1,120  |                   |  |   | 2,791           | 
|Consumer, Home Equity and Installment |  |                | 3,219   |   |                  |   | 369    |                   |  |   | 1,998           | 
|Other                                 |  |                | 269     |   |                  |   | 269    |                   |  |   |                 | 
|                                      |  |                | 155,766 |   |                  | $ | 39,602 |                   |  | $ | 61,874          | 
|Deferred loan costs                   |  |                | (358    | ) |                  |   |        |                   |  |   |                 | 
|                                      |  | $              | 155,408 |   |                  |   |        |                   |  |   |                 | 



At December 31, 2004 fixed rate loans due after one year are approximately $53.9 million and adjustable rate loans due after one year are approximately $18.6 million.



Asset Quality. Our management seeks to maintain a high quality of assets through conservative underwriting and sound lending practices. The earning asset portfolio (exclusive of investment securities) is generally split into five categories, four of which are types of loans, and the fifth is other which includes overdrafts. Loan concentrations are defined as loans outstanding that are segregated into similar collateral types and/or nature of cash-flow income generation, which may cause a correspondingly similar impact with a particular economic or other condition. We routinely monitor these concentrations in order to make necessary adjustments in its lending practices that most clearly reflect the economic conditions and trends, loan ratios, loan covenants, asset valuations, and industry trends.



Displayed below are the percentages of the gross loan portfolio as of December 31, 2004 and 2003:



|Loan Distribution                                  |  | 2004 |   | 2003
|-------------------------------------------------- |  | ---- | - | ----
|Commercial                                         |  | 18   | % |     
|Commercial real estate                             |  | 74   | % |     
|Residential real estate                            |  | 6    | % |     
|Consumer, home equity, installment loans and other |  | 2    | % |     



In an effort to maintain the quality of the loan portfolio, management seeks to minimize higher risk loans. In view of the relative significance of real estate related loans, a downturn in the value of real estate property could have an adverse impact on profitability. As part of our loan policy and loan management strategy, we typically limit our loan-to-value ratio to a maximum of 50% to 80% depending on the type of real property being secured. The use of qualified third party state certified appraisers for property valuations, and property inspections by knowledgeable bank officials helps mitigate real property loan risks.

The Loan and Discount Committee of the Board of Directors of the Bank concentrates its efforts and resources and that of its senior management and lending officers on loan review and underwriting procedures and standards. Internal controls include ongoing reviews of loans made to monitor documentation and ensure the existence and valuations of collateral, early detection of loan degradation, and regional economic conditions.

18



---

Regulatory Classification of Assets.Generally, interest on loans is accrued and credited to income based on the outstanding balance of the contract obligations of each loan or receivable contract. It is our policy to discontinue the accrual of interest income and classify loans or assets as non-accrual when principal or interest is past due 90 days or more and/or the loan is not properly and/or adequately collateralized, or if in the belief of the Banks management, principal and/or interest is not likely to be paid in accordance with the terms of the obligation and/or documentation. As of December 31, 2004 and 2003, delinquent loans greater than 30 and less than 90 days totaled $544,000 and $672,000; and classified loans totaled $2.1 million and $1.7 million.

Foreclosed Assets. Assets acquired as a result of foreclosure or by deed-in-lieu of foreclosure are classified as other real estate owned, or OREO, if real estate, or in other assets, if other property, until they are sold. When property is acquired, it is initially recorded at fair value at date of acquisition. Subsequent to foreclosure, foreclosed assets are carried at the lower of the carrying amount or fair value, less estimated selling costs. The Bank held no other real estate owned and repossessions at December 31, 2004 and 2003.

Non-performing Assets. Non-performing assets consist of loans that are past due 90 days or more which are still accruing interest, loans on nonaccrual status and other real estate owned and other foreclosed assets. The following table sets forth information with respect to nonperforming assets identified by the Bank at December 31, 2004 and 2003.



|                                          |  | 2004                   |     | 2003 |  
|----------------------------------------- |  | ---------------------- | --- | ---- | -
|                                          |  | (Dollars in Thousands) |    
|Nonaccrual loans                          |  |                        |     |      |  
|Real estate                               |  | $                      | 20  |      | $
|Commercial                                |  |                        | 121 |      |  
|Accrual loans  past due 90 days or more  |  |                        |     |      |  
|Real estate                               |  |                        |    |      |  
|Installment                               |  |                        |    |      |  
|Restructured loans                        |  |                        |    |      |  
|Other real estate owned and repossessions |  |                        |    |      |  
|Total nonperforming assets                |  | $                      | 141 |      | $



Allowance for Loan Losses.Our allowance for loan losses represents managements estimate of probable losses inherent in the loan portfolio at the balance sheet date. Allocation of the allowance is made for analytical purposes only, and the entire allowance is available to absorb probable and estimable credit losses inherent in the portfolio. Additions to the allowance may result from recording provision for loan losses or loan recoveries, while charge-offs are deducted from the allowance.

Process to Determine the Adequacy of the Allowance for Loan Losses.We have an established process to determine the adequacy of the allowance for loan losses that relies on a number of analytical tools and benchmarks to arrive at a range of probable outcomes. No single statistic or measurement, in itself, determines the adequacy of the allowance. For analytical purposes, the allowance consists of two components, allocated and unallocated.

To arrive at the allocated component of the allowance, we combine estimates of the allowances needed for loans analyzed individually and loans analyzed on a pooled basis. The determination of the allocated allowance for portfolios of commercial and real estate loans involves the use of a continuous and standardized loan grading process in combination with a review of larger individual higher-risk transactions. In the case of significant loans without identified credit weaknesses, the loss factors are estimated using a combination of the average loss experience of our own portfolios and external industry data. In addition, we analyze non-performing loans over $100,000 individually for impairment using a cash flow or collateral based methodology. Calculated impairment is included in the allocated allowance unless impairment has been recognized as a loss.

In the case of homogeneous portfolios, such as consumer loans and leases, residential mortgage loans, and some segments of small business loans, the determination of the allocated allowance is conducted at an aggregate, or pooled, level. For such portfolios, the risk assessment process includes comparing the pooled amounts to the average loss experience of our own portfolios and external industry data.

19



---

The determination of the level of the allowance and, correspondingly, the provision for loan losses, rests upon various judgments and assumptions, including: (1) managements evaluation of credit risk related to both individual borrowers and pools of loans, (2) loan portfolio composition (3), prior loan loss experience, (4) general economic conditions, and (5) observations derived from our ongoing internal audit and examination processes and those of our regulators.

The process of determining the allowance requires us to forecast losses on loans in the future which are highly uncertain and require a high degree of judgment; and is impacted by regional, national and global economic trends, and different assumptions regarding reasonably possible future economic conditions could have been used and would have had a material impact on the provision for loan losses and on the consolidated results of operations.

We have a detailed system of procedures to ensure complete analysis of all factors pertinent to the evaluation of the adequacy of our loan loss reserve. The evaluation process includes analyzing general conditions in the local, regional and national economy as well components within the portfolio itself to include: portfolio composition, concentrations, delinquencies and non-accruals, classified assets, non-performing assets and gross and net loan balances. In computing the adequacy of the loan loss reserve, our management employs the following methodology:

General Reserves: The methodology used in establishing general reserves is based on a broad risk analysis of the portfolio. All significant portfolio segments, including concentrations, are analyzed. The amount of the general allocation is based upon a statistical analysis that derives appropriate formulas, which are adjusted by managements subjective assessment of current and future conditions. The determination includes an analysis of loss and recovery experience in the various portfolio segments over at least the most recent four quarters. Results of the historical loss analysis are adjusted to reflect current and anticipated conditions. We currently utilize the following formula in determining our General Reserves:



Total non-classified loans with a risk grade of nominal to low carry no required general reserve.



Total non-classified loans with a risk grade of moderate to high carry a required general reserve of one percent.



Total loans classified as substandard, and not considered to be significant commercial and industrial loans, carry a required general reserve of 15 percent.



Total loans classified as doubtful, and not considered to be significant commercial and industrial loans, carry a required general reserve of 50 percent.



Total loans classified as loss carry a required general reserve of 100 percent.

Specific Reserves: All significant commercial and industrial loans classified as either substandard or doubtful are reviewed at the end of each period to determine if a specific reserve is needed for that credit. The determination of a specific reserve for an impaired asset is evaluated in accordance with Statement of Financial Accounting Standards No. 114, and a specific reserve is very common for significant credits classified as either substandard or doubtful. The establishment of a specific reserve does not necessarily mean that the credit with the specific reserve will definitely incur loss at the reserve level. It is only an estimation of potential loss based upon anticipated events.

20



---

Allowance for Loan Loss Activity. The allowance for loan loss as of December 31, 2004 was $1.7 million as compared to $738,000 at December 31, 2003. Through the normal review of the allowance for loan losses, management determined additional provision was required due to a growth of the loan portfolio during 2004.

Activity in the allowance for loan losses for the years ended December 31, 2004 and 2003 was as follows:

|                                                                                     |  | 2004 |            |    | 2003 |  
|------------------------------------------------------------------------------------ |  | ---- | ---------- | -- | ---- | -
|Balance, beginning                                                                   |  | $    | 738,147    |    |      | $
|Amounts charged off:                                                                 |  |      |            |    |      |  
|Commercial loans                                                                     |  |      | (1,083,848 | )  |      |  
|Consumer loans                                                                       |  |      | (11,908    | )  |      |  
|Real estate loans                                                                    |  |      |           |    |      |  
|Recoveries of amounts charged off:                                                   |  |      |            |    |      |  
|Commercial loans                                                                     |  |      | 159,609    |    |      |  
|Consumer loans                                                                       |  |      | 21,191     |    |      |  
|Real estate loans                                                                    |  |      |           |    |      |  
|Net (charge-offs) recoveries                                                         |  |      | (914,956   | )  |      |  
|Provision for loan losses                                                            |  |      | 1,397,000  |    |      |  
|Acquisition related adjustment (1)                                                   |  |      | 458,000    |    |      |  
|Balance, ending                                                                      |  | $    | 1,678,191  |    |      | $
|Ratio of net (charge-offs) recoveries to average loans
outstanding during the period |  |      |            |    |      |  
|                                                                                     |  |      | (0.06      | )% |      |  



(1) This adjustment is the allowance required on acquisition of loans from the Gulf Bank transaction.

Management has conducted a thorough review of loans in the portfolio in 2004. After careful review of the Business Manager product, Management decided the product did not fit well with our current product mix. Phase out of the product was completed in the first quarter of 2004, and the Company charged off approximately $582,000 of Business Manager loans in 2004. In addition management charged off a further $514,000 of loans for which it was determined that the borrower had insufficient ability to repay. Management believes that the inherent risks in the loan portfolio have been better identified. Impaired loans totaled $2,057,250 at December 31, 2004 compared to $1,719,965 at December 31, 2003. Non-performing assets totaled $141,000 at December 31, 2004 as compared to $818,000 at December 31, 2003. Due to the extensive review and action taken on 2004, Management believes that the asset quality in the loan portfolio is high and that the allowance for loan loss is adequate in relation to the overall loan portfolio.

The following table sets forth the composition of the allowance for loan losses by type of loan at December 31, 2004 and 2003. The allowance is allocated to specific categories of loans for statistical purposes only, and may be applied to loan losses incurred in any loan category.

|                                |  | 2004                |           |                                    | 2003
|------------------------------- |  | ------------------- | --------- | ---------------------------------- | ----
|                                |  | Amount of Allowance |           | Percentage of Loans to
Gross Loans |     
|Commercial and industrial loans |  | $                   | 302,074   |                                    | 18  
|Commercial real estate loans    |  |                     | 1,241,861 |                                    | 74  
|Residential real estate loans   |  |                     | 100,692   |                                    | 6   
|Consumer and installment loans  |  |                     | 33,564    |                                    | 2   
|Total allowance for loan losses |  | $                   | 1,678,191 |                                    | 100 

21



---

Investment Activities



The Bank is permitted under federal and state law to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, deposits at the Federal Home Loan Bank, certificates of deposit of federally insured institutions, certain bankers acceptances and federal funds. Subject to various restrictions, we may also invest a portion of our assets in commercial paper and corporate debt securities. As a Federal Reserve Bank member bank, we are required to maintain an investment in Federal Reserve Bank stock. We are also members of the Federal Home Loan Bank and are required to maintain an investment in Federal Home Loan Bank stock. Under state and federal regulations, a certain amount of our investments must be liquid in nature.



SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires the investments be categorized as held to maturity, trading securities or available for sale, based on managements intent as to the ultimate disposition of each security. SFAS No. 115 allows debt securities to be classified as held to maturity and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to hold those securities to maturity. Securities that might be sold in response to changes in market interest rates, changes in the securitys prepayment risk, increases in loan demand, or other similar factors cannot be classified as held to maturity. Debt and equity securities held for current resale are classified as trading securities. Such securities are reported at fair value, and unrealized gains and losses on such securities would be included in earnings. Debt and equity securities not classified as either held to maturity or trading securities are classified as available for sale. Such securities are reported at fair value, and unrealized gains and losses on such securities are excluded from earnings and reported as a net amount in a separate component of equity.



A committee consisting of Bank officers and Directors determines appropriate investments in accordance with the Board of Directors approved investment policies and procedures. Our investment policies generally limit investments to U.S. Government and agency securities, municipal bonds, certificates of deposits, marketable corporate debt obligations, mortgage-backed securities and certain types of mutual funds. Our investment policy does not permit engaging directly in hedging activities or purchasing high risk mortgage derivative products. Investments are made based on certain considerations, which include the interest rate, yield, settlement date and maturity of the investment, our liquidity position, and anticipated cash needs and sources (which in turn include outstanding commitments, upcoming maturities, estimated deposits and anticipated loan amortization and repayments). The effect that the proposed investment would have on our credit and interest rate risk, and risk-based capital is also given consideration during the evaluation.



Mortgage-backed securities (which also are known as mortgage participation certificates or pass-through certificates) typically represent a participation interest in a pool of single-family or multi-family mortgages. The principal and interest payments on these mortgages are passed from the mortgage originators, through intermediaries (generally U.S. Government agencies and government sponsored enterprises) that pool and resell the participation interests in the form of securities, to investors such as the Company. Such U.S. Government agencies and government sponsored enterprises, which guarantee the payment of principal and interest to investors, primarily include Freddie Mac, Fannie Mae and the Government National Mortgage Association. Mortgage-backed securities typically are issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that fall within a specific range and have varying maturities. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. In addition, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize certain of our liabilities and obligations. These types of securities also permit us to improve our regulatory capital because they have low risk capital weighting.



22



---

Securities Portfolio. Our investment securities portfolio consists of high quality securities. The maturity distribution of the securities portfolio is reflected in the following table (except for mutual funds that have no fixed maturity date).. The average yield for our investment portfolio increased to 3.89% at December 31, 2004 from 3.32% at December 31, 2003 as market interest rates climbed incrementally during the year.



|                                     |                | Maturities of Investment Securities at December 31, 2004 |                       
|------------------------------------ | -------------- | -------------------------------------------------------- | ----------------------
|                                     |                | One Year
Or Less                                         |                       
|                                     | Carrying
Value |                                                          | Weighted
Average
Yield
|                                     |                | (Dollars in Thousands)                                   |                       
|                                     |                |                                                          |                       
|Corporate Bonds, Preferreds & REITs: |                |                                                          |                       
|Held to maturity                     |                | $                                                        |                      
|Available for sale                   |                |                                                          |                      
|Mortgage-backed
Securities:          |                |                                                          |                       
|Held to maturity                     |                |                                                          |                      
|Available for Sale                   |                |                                                          |                      
|U.S. government
agencies:            |                |                                                          |                       
|Held to Maturity                     |                |                                                          |                      
|Available for sale                   |                |                                                          |                      
|Mutual Funds                         |                |                                                          | -                     
|Total                                |                | $                                                        | -                     



Valuation of Securities.We record our securities available for sale in our statement of financial condition at fair value. We use market price quotes for valuation. Equity securities available for sale trade daily on various stock exchanges. The fair value of these securities in our statement of financial condition was based on the closing price quotations at period end. The closing quotation represents inter-dealer quotations without retail markups, markdowns or commissions and do not necessarily represent actual transactions. The number of shares that we own in some of these equity securities may be in excess of the securities average daily trading volume. As a consequence, we may not be able to realize the quoted market price upon sale. We adjust our equity securities available for sale to fair value monthly with a corresponding increase or decrease to other comprehensive income. Declines in the fair value of individual securities available for sale below their cost that are other than temporary result in write-downs of the individual securities to their fair value.

At December 31, 2004, the fair value and net unrealized loss associated with our securities available for sale was $5.6 million and $129,000, respectively.

Liquidity.The Bank is required by Florida law to maintain an average daily balance of specified liquid assets equal to a daily amount of not less than 15% of our total transaction accounts plus 8% of our total time deposits. Liquid assets include cash, items due from Federal Reserve, money market funds, U.S. Government Agency investments, U.S. Treasuries, and federal funds sold. The Banks liquidity ratio at December 31, 2004 and 2003 exceeded the regulatory requirements. We have never been subject to monetary penalties for failure to meet its liquidity requirements.

The principal sources of liquidity and funding are generated by the operations the Bank through our diverse deposit base, loan participations and other asset/liability measures. For banks, liquidity represents the ability to meet loan commitments, withdrawals of deposit funds, and operating expenses. The level and maturity of deposits necessary to support the lending and investment activities is determined through monitoring loan demand and through its asset/liability management process. Considerations in managing the liquidity position include scheduled cash flows from existing assets, contingencies and liabilities, as well as projected liquidity conducive to efficient operations and is continuously evaluated as part of the asset/liability management process. Historically, we have increased our level of deposits to allow for our planned asset growth. The level of deposits is influenced by general interest rates, economic conditions and competition, among other things. South Florida is a fast growing area with intense competition from other financial service providers. Management has found that adjusting pricing, or introducing new products, produces increased deposit growth. Adjusting the rate paid on money market accounts can quickly adjust the level of deposits. Our management believes that the Bank is currently operating in a stable environment. The addition of deposits and cash from Gulf Bank has provided additional liquidity.

23



---

In 2004 we became members of the Federal Home Loan Bank. We have begun to access this vehicle to add a new source of liquidity to our business. At December 31, 2004 we had $8,000,000 of Federal Home Loan Bank advances to assist in funding our loan portfolio growth. Our liquidity at December 31, 2004, consisted of $6.2 million in cash and cash equivalents and $5.6 million in available-for-sale investments, for a total of $11.8 million, compared to a total of $11.1 million at year-end 2003, an increase of approximately $700,000, or 6.3%.

If additional liquidity is needed, the Bank has established a correspondent banking relationship with Independent Bankers Bank of Lake Mary, Florida. This relationship provides the Bank with the ability to borrow from a secured line-of-credit to supplement liquidity up to the amount of $2.5 million. Interest is calculated on any outstanding balance at the prevailing market federal funds rate. There is no monthly fee for this account. We also have the ability to sell investments from our portfolio under a repurchase agreement with this correspondent bank. In addition, we have applied for a $3 million unsecured line-of-credit at Independent Bankers Bank in order to meet unusual liquidity demands.

Other Services

In November, 2003, the Bank and the Holding Company entered into a financial service Networking Arrangement with Franklin National Financial Group, Inc. and Franklin National Financial Group, LLC, a registered securities broker-dealer with the National Association of Securities Dealers (NASD) along with Franklin National Financial Services, LLC. This arrangement allows for us to offer our customers full financial services such as: execution of stock and bond trades, mutual funds, money management, asset allocation, insurance products, fixed and variable annuities, investment banking services, IRA and other financial products that will benefit our customers. The Networking Arrangement has been undertaken in accordance with the rules of the SEC governing arrangements between state-chartered banks and registered securities broker-dealers.

LIABILITIES AND STOCKHOLDERS EQUITY

The liability side of the balance sheet has great significance to the profitable operation of a bank. Deposits are the major source of the Banks funds for lending and other investment activities. Deposits are attracted principally from within our primary market area through the offering of a broad variety of deposit instruments including checking accounts, money market accounts, regular savings accounts and certificates of deposits (known as CDs). Maturity terms, service fees and withdrawal penalties are established by the Bank on a periodic basis. The determination of rates and terms is predicated on funds acquisition and liquidity requirements, rates paid by competitors, growth goals and Federal regulations.



Deposits and loan repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by general interest rates and money market conditions. The Bank may use borrowings through correspondent banks on a short-term basis to compensate for reductions in the availability of funds from other sources. The Bank maintains a membership with the Federal Home Loan Bank which acts as an alternate source for borrowing as needed.  Periodically the Bank may purchase broker deposits to supplement deposits gathered through the branch network in order to fund loans as required.



Deposit Accounts.



Deposits are attracted from within our market area and substantially all of our depositors are residents of the State of Florida. Deposit services for personal and business customers include a variety of checking accounts which include interest-earning, low-cost checking, and senior checking. Savings accounts are also offered. Low cost demand and savings deposits represent an important part of the deposit mix for the Bank which has historically maintained satisfactory levels of this type of deposits, because of our policy of relationship banking. Money market accounts are priced competitively within our market area of Palm Beach, Broward, and Miami-Dade counties. Our management can attract new deposits or reduce deposit levels as needed by adjusting the interest paid on such accounts, which are very liquid. The Bank also offers a wide variety of terms and rates for certificates of deposit as needed to attract funds and match competitors. The primary factors in the competition for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and office hours. Competition for deposits comes primarily from other commercial banks, savings associations, credit unions, money market mutual funds and other investment alternatives. Consumers have access to ATMs, safe deposit boxes, direct deposit and on-line banking services. In addition, businesses can use the Banks merchant credit card program.

24



---

In determining the terms of its deposit accounts, we consider current market interest rates, profitability to the Bank, matching deposit and loan products and our customer preferences and concerns. We currently offer certificates of deposit for terms not exceeding 60 months. As a result, we believe that we are better able to match the repricing of our liabilities to the repricing of our loan portfolio. Our management reviews our deposit mix and pricing weekly. From time to time we supplement our CD levels by purchasing them through a brokerage facility. At December 31, 2004 we had $12.9 million of deposits outstanding that had been facilitated through brokerage relationships.



Deposit Insurance. Our deposit accounts are insured by the FDIC up to a maximum of $100,000 per insured depositor. The FDIC issues regulations, conducts periodic examinations, requires the filing of reports and generally supervises the operation of its insured banks. Any insured bank which is not operated in accordance with or does not conform to FDIC regulations, policies and directives may be sanctioned for non-compliance. Proceedings may be instituted against any insured bank or any director, officer, or employee of such bank engaging in unsafe and unsound practices, including the violation of applicable laws and regulations. The FDIC has the authority to terminate insurance of accounts pursuant to procedures established for that purpose.



As a FDIC-insured institution, we are subject to insurance assessments imposed by the FDIC. Under current law, the insurance assessment to be paid by insured institutions shall be as specified in a schedule required to be issued by the FDIC that specifies, at semiannual intervals, target reserve ratios designed to increase the FDIC insurance funds reserve ratio as it relates to estimated insured deposits (a ratio as the FDIC may determine in accordance with the statute). Further, the FDIC is authorized to impose one or more special assessments in any amount deemed necessary to enable repayment of amounts borrowed by the FDIC from the United States Department of the Treasury.



The FDIC Insurance is based on a risk-based assessment schedule based on an institutions average assessment base. The actual assessment to be paid by each FDIC-insured institution is based on the institutions assessment risk classification, which is determined based on whether the institution is considered Well-Capitalized, Adequately Capitalized or Undercapitalized, as such terms have been defined in applicable federal regulations adopted to implement the prompt corrective action provisions of the Federal Deposit Insurance Corporation Insurance Act (FDICIA), and whether such institution is considered by its supervisory agency to be financially sound or to have supervisory concerns. The Bank is considered Well-Capitalized.



Deposit Balances and Rates.The following table sets forth the average balances of the deposit portfolio of the Bank for the years ending December 31, 2004 and 2003. Our management views the deposit base as a good core deposit base that is stable and improving. Non-interest bearing transaction accounts are on a demand basis, and as such, balances continually fluctuate.



|                             |  | Average Balance for the Year |                        |  | Weighted Average Ratio |       |  | % of Deposits |     | Average Balance for the Year |   |        | Weighted Average Rate |  |       | % of Deposits | 
|---------------------------- |  | ---------------------------- | ---------------------- |  | ---------------------- | ----- |  | ------------- | --- | ---------------------------- | - | ------ | --------------------- |  | ----- | ------------- | 
|                             |  |                              | (Dollars in Thousands) | 
|                             |  |                              |                        |  |                        |       |  |               |     |                              |   |        |                       |  |       |               | 
|Noninterest bearing accounts |  | $                            | 36,006                 |  |                        | 0.00% |  |               | 26% |                              | $ | 17,328 |                       |  | 0.00% |               | 
|Interest bearing accounts:   |  |                              |                        |  |                        |       |  |               |     |                              |   |        |                       |  |       |               | 
|NOW accounts                 |  |                              | 7,877                  |  |                        | 0.60% |  |               | 6%  |                              |   | 5,308  |                       |  | 0.66% |               | 
|Money market deposit         |  |                              | 18,513                 |  |                        | 1.18% |  |               | 14% |                              |   | 28,490 |                       |  | 0.98% |               | 
|Savings accounts             |  |                              | 5,770                  |  |                        | 0.88% |  |               | 4%  |                              |   | 1,747  |                       |  | 0.50% |               | 
|Time deposits                |  |                              | 68,977                 |  |                        | 2.57% |  |               | 50% |                              |   | 28,578 |                       |  | 2.49% |               | 
|Total deposits               |  | $                            | 137,143                |  |                        |       |  |               |     |                              | $ | 81,451 |                       |  |       |               | 

25



---

The time remaining to maturity of certificates of deposit in amounts of $100,000 or more as of December 31, 2004 and 2003, is as follows:

|                               | At December 31,
2004 |        | At December 31,
2003 |  
|------------------------------ | -------------------- | ------ | -------------------- | -
|                               | (In thousands)       |       
|Three months or less           | $                    | 17,023 |                      | $
|Over three through six months  |                      | 7,391  |                      |  
|Over six through twelve months |                      | 11,701 |                      |  
|Over twelve months             |                      | 10,459 |                      |  
|                               | $                    | 46,574 |                      | $



International Banking Facility. The Bank has received regulatory approval to operate an International Banking Facility. An International Banking Facility is not a physical banking presence. Rather, an International Banking Facility is a separate set of books and records of the Bank used to record certain assets and liabilities made outside the United States. International Banking Facilities are entitled to obtain demand and time deposits which are not insured by the FDIC. An International Banking Facility is also authorized to extend credit. Customers of an International Banking Facility are limited to foreign-domiciled customers or customers domiciled in Puerto Rico and U.S. Territories. We have chosen not to engage in international banking at this time.

Correspondent Relationships.Correspondent banking involves one bank providing services to another

bank which cannot provide that service itself for economic or organizational reasons. The Bank purchases correspondent services offered by larger banks, including check collections, purchase of federal funds, security safekeeping, investment service, coin and currency supplies, overline and liquidity loan participations, and sales of loans to or loan participation with correspondent banks. The Bank also sells loan participations to correspondent banks with respect to loans which exceed the Banks lending limit.

The Bank has an established correspondent relationship with Independent Bankers Bank of Lake Mary, Florida with respect to the foregoing services. As compensation for services provided by a correspondent, we maintain certain balances with the correspondent in non-interest bearing accounts. Such compensating balances are not considered significant to our operations.

Borrowings. We have the ability to borrow from our correspondent banks to supplement our supply of lendable funds and to meet deposit withdrawal requirements. Advances are made pursuant to limitations on the amount of advances and are based on the financial condition of the member institution as well as the value and acceptability of collateral pledged.

In addition, we pledge securities to secure repurchase agreements. Additional details regarding securities sold under agreements to repurchase for 2004 and 2003 are as follows:

|                                            |  | 2004                   |       |   | 2003 |  
|------------------------------------------- |  | ---------------------- | ----- | - | ---- | -
|                                            |  | (Dollars in thousands)
|Maximum amount outstanding at any month-end |  | $                      | 2,466 |   |      | $
|Average balance for the year                |  |                        | 2,453 |   |      |  
|Average interest rate                       |  |                        | 0.73  | % |      |  
|Average interest rate paid at year end      |  |                        | 1.68  | % |      |  



In August 2004 the bank was accepted into membership of the Federal Home Loan Bank of Atlanta. At that time we assumed $3.0 million of advances previously issued to Gulf Bank. The Bank had increased the outstanding borrowings from Federal Home Loan Bank to $8.0 million at year end.

Equity and Capital Resources. We are subject to various regulatory capital requirements administered by Federal and State banking authorities. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if not undertaken, could have a direct material effect on our financial statements and operation. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies.



26



---

Our capital accounts and classifications are also subject to qualitative judgment by the regulators about components, risk weighting, and other factors. Quantitative and qualitative measures established by regulation toensure capital adequacy require the Bank to maintain minimum amounts and ratios, set forth in the table as of December 31, 2004 below, of total and Tier-1 capital, as defined by regulation, to risk weighted assets, and of Tier-1 capital to average assets. Our management believes that as of December 31, 2004 it has met the capital adequacy requirements as defined by these definitions.

The column below with the heading Bank presents our capital ratios for the Bank at December 31, 2004. The column below with the heading Corp presents our capital ratios for the consolidated business at December 31, 2004. The column below with the indication Adequately is that regulatory definition for an Adequately Capitalized banking institution. The right column below with the indication Well is that regulatory definition for a Well Capitalized banking institution.

|Regulator Definition for each Capital Tier Category |  | Corp                                  |  | Bank   |  | Adequately |  | Well | 
|--------------------------------------------------- |  | ------------------------------------- |  | ------ |  | ---------- |  | ---- | 
|Tier-2 Capital                                      |  | = Tier-2 Cap/Risk Weighted Assets     |  | 10.09% |  | 10.03%     |  | 8.0% | 
|Tier-1 Risk                                         |  | = Tier-1 Cap/Risk Weighted Assets     |  | 8.87%  |  | 9.00%      |  | 4.0% | 
|Tier-1 Leverage                                     |  | = Tier-1 Cap/Average Quarterly Assets |  | 8.24%  |  | 8.37%      |  | 4.0% | 



Average Balance Sheet. The following table contains for the periods indicated information regarding the total dollar amounts of interest income from interest-earning assets and the resulting average yields, the total dollar amount of interest expense on interest-bearing liabilities and the resulting average costs, net interest income, and the net yield on interest-earning assets.

|                                                                               |  | For the years ended December 31, |        
|------------------------------------------------------------------------------ |  | -------------------------------- | -------
|                                                                               |  | 2004                             |        
|                                                                               |  | Average
Balance                  |        
|                                                                               |  | (Dollars in Thousands)           |        
|Assets:                                                                        |  |                                  |        
|Interest-earning assets:                                                       |  |                                  |        
|Investments (1)                                                                |  | $                                | 19,741 
|Federal funds sold                                                             |  |                                  | 7,917  
|Loans :                                                                        |  |                                  |        
|Commercial loans (2)                                                           |  |                                  | 25,521 
|Commercial mortgage loans (2)                                                  |  |                                  | 79,276 
|Consumer loans (2)                                                             |  |                                  | 2,239  
|Residential real estate loans(2)                                               |  |                                  | 8,062  
|Business Manager loans(2)                                                      |  |                                  |       
|Home equity and other loans(2)                                                 |  |                                  | 1,673  
|Total loans (2)                                                                |  |                                  | 116,771
|Total interest earning assets                                                  |  |                                  | 144,429
|Noninterest-earning assets                                                     |  |                                  | 15,973 
|Total assets                                                                   |  | $                                | 160,402
|Liabilities and Stockholders Equity:                                          |  |                                  |        
|Interest-bearing liabilities:                                                  |  |                                  |        
|Deposits                                                                       |  |                                  |        
|NOW and money market accounts                                                  |  | $                                | 26,390 
|Savings accounts                                                               |  |                                  | 5,770  
|Certificates of deposit                                                        |  |                                  | 68,977 
|Total interest-bearing deposits                                                |  |                                  | 101,137
|Federal funds purchased, securities
sold under repurchase agreements
and other |  |                                  | 6,130  
|Total interest-bearing liabilities                                             |  |                                  | 107,267
|Noninterest bearing liabilities                                                |  |                                  | 36,006 
|Stockholders equity                                                           |  |                                  | 17,129 
|Total liabilities and stockholders equity                                     |  | $                                | 160,402
|Net interest income and net yield on interest-earning assets                   |  |                                  |        



(1)

Includes investment securities and Federal Reserve Bank stock.

(2)

Includes loans for which the accrual of interest has been suspended.

27



---

Rate/Volume Analysis.The impact of the our strategies can be seen Analysis of Changes in Interest Income and Interest Expense table which follows. The table indicates changes in net interest income resulting either from changes in average balances or to changes in average rates for earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) change in volume (change in volume multiplied by prior year rate); (ii) change in rate (change in rate multiplied by prior year volume); (iii) change in rate/volume (change in rate multiplied by change in volume); and (iv) total change in rate and volume.



|                                                             |  | 2004 vs. 2003
Increase (Decrease) Attributable to |       | 2003 vs. 2002
Increase (Decrease) Attributable to |  
|------------------------------------------------------------ |  | ------------------------------------------------- | ----- | ------------------------------------------------- | -
|                                                             |  | Volume                                            |       | Rate                                              |  
|                                                             |  | (Dollars in Thousands)                            |      
|                                                             |  |                                                   |       |                                                   |  
|Interest income on:                                          |  |                                                   |       |                                                   |  
|Investments                                                  |  | $                                                 | 100   |                                                   | $
|Federal funds sold                                           |  |                                                   | 37    |                                                   |  
|Loans receivable                                             |  |                                                   | 3,410 |                                                   |  
|Total interest income from
interest-earning assets           |  |                                                   | 3,547 |                                                   |  
|Interest expense on:                                         |  |                                                   |       |                                                   |  
|NOW and money market accounts                                |  |                                                   | (98   | )                                                 |  
|Savings accounts                                             |  |                                                   | 21    |                                                   |  
|Certificates of deposit                                      |  |                                                   | 1,026 |                                                   |  
|Federal funds purchased under
repurchase agreement and other |  |                                                   | 22    |                                                   |  
|Total interest expense from
interest-bearing liabilities     |  |                                                   | 971   |                                                   |  
|Increase (decrease) in net
interest income                   |  | $                                                 | 2,576 |                                                   | $



Discussion of Changes in Financial Condition from December 31, 2003 to December 31, 2004

General.Total assets increased by $97.4 million, or 104%, from $94.1 million at December 31, 2003, to $191.5 million at December 31, 2004, with the increase invested principally in loans and securities available for sale. Total loans receivable increased by $87.5 million or 132%, to $153.7 million at December 31, 2004, from $66.2 million at December 31, 2003. The increase in these earning assets was the result of additional net loan activity from the branches of $45.5 million and the acquisition of $42.0 million of new loans as part of the Gulf Bank transaction. Securities increased $2.1 million or 10.8% to $21.4 million at December 31, 2004 from $19.3 million at December 31, 2003. The increases in loans and securities were funded by an increase in deposits in 2004 of $78.1 million ($67.0 million of which was assumed in the Gulf Bank transaction) as well as the addition of Federal Home Loan Bank advances of $8.0 million in 2004. This growth was further supplemented by the addition of $11.2 million of new capital, most of which was obtained in a May 2004 public offering.

We are committed to expanding our business through internal growth as well as through purchase opportunities, while maintaining strong asset quality and continuing strong capital growth. Our strategy for achieving these objectives includes continuing our primary focus of increasing originations of high-quality commercial real estate, land acquisition, and construction loans at appropriate yields for enhancing interest income, and improving our efficiency and controlling operating costs. The following is a discussion of the significant fluctuations between the December 31, 2004 and 2003 balance sheets.



Cash and Cash Equivalents.Cash and cash equivalents were $6.2 million at December 31, 2004 compared to $3.2 million at December 31, 2003. The increase of $3.0 million or 94% was primarily due to higher Federal Funds purchase levels at the end of 2004. Management added additional liquidity in 2004 through deposit taking, capital injections and Federal Home Loan Bank borrowing activities to respond to higher loan demand.

28



---

Securities Available for Sale and Held to Maturity.The securities portfolio increased $2.1 million, or 10.8% to $21.4 million at December 31, 2004 from $19.3 million at December 31, 2003. New securities were purchased during 2003 using available excess cash. As part of our new investment strategy in 2004, we attempted to earn more income from our investment portfolio by balancing the assets against the liquidity needed for loan funding. Our 2004 investment strategy was to focus on the acquisition of high quality fixed income investments with terms to maturity that does not exceed five years. We believe that laddered investment purchases within this time frame provided the best opportunities to maximize investment yield while maintaining a defensive position in a rising interest rate environment.



Loans Receivable. Total loans were $153.7 million at December 31, 2004, an increase of $87.5 million or 132% from $66.2 million at December 31, 2003. This increase resulted primarily from net increases in commercial and commercial real estate loan production of $45.5 million through internal growth as well as the acquisition of $42.0 million of new loans as part of the Gulf Bank transaction.



Asset Quality And Non-Performing Assets.In the normal course of business, we have recognized and will continue to recognize losses resulting from the inability of certain borrowers to repay loans and the insufficient realizable value of collateral securing such loans. Accordingly, we have established an allowance for loan losses, which totaled $1.7 million at December 31, 2004. The allowance for loan losses is maintained at a level believed adequate by management to absorb estimated credit losses. Our managements periodic evaluation of the adequacy of the allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimates of material factors including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Our allowance for loan and credit losses was analyzed and deemed to be adequate by our management at December 31, 2004 for incurred losses.

The impaired loans increased from $1.7 million at December 31, 2003, or 2.56% of total loans, to $2.1 million at December 31, 2004, or 1.3% of total loans. Assets which are classified are those deemed by management as inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets which are classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

There was no other real estate owned at December 31, 2004 and 2003.



|                                          |  | At December 31, |                       
|----------------------------------------- |  | --------------- | ----------------------
|                                          |  | 2004            |                       
|                                          |  |                 | (Dollars in Thousands)
|                                          |  |                 |                       
|Classified loans and discount             |  | $               | 2,057                 
|Other real estate owned and repossessions |  |                 |                      
|                                          |  |                 |                       
|Total classified and other                |  | $               | 2,057                 
|                                          |  |                 |                       
|Percent classified and other/total loans  |  |                 | 1.32                  
|Gross loans                               |  | $               | 155,408               



Non-performing assets consist of loans that are past due 90 days or more which are still accruing interest, loans on nonaccrual status and OREO and other foreclosed assets.



Total nonperforming assets have decreased $677,000 to $141,000 at December 31, 2004 from $818,000 at December 31, 2003. Of the total nonperforming loans at December 31, 2004, $121,000 consists of commercial and are secured by equipment and $20,000 consists of loans secured by real estate. Accrual loans over 90 days decreased by $705,000. In managements best judgment, all non-performing assets are either fully collateralized or appropriately reserved based on circumstances known at this time.

29



---

Premises and Equipment.Premises and equipment totaled $1.9 million at December 31, 2004 compared to $1.7 million at December 31, 2003. The increase of 11.7% during 2004 is primarily due to the acquisition of select fixed assets in conjunction with the Gulf Bank transaction. Also, as part of the Gulf Bank transaction, we acquired leases on three new branch locations in the greater Miami area during 2004.



Liabilities

Deposits. Deposits increased $78 million at December 31, 2004 from 2003. In our South Florida market, management is able to attract new deposits or reduce deposit levels as needed by adjusting the interest paid on our deposit accounts, primarily money market accounts. When additional funds are needed to fulfill lending commitments, our management can, by means of marketing efforts and by adjusting the interest paid on deposits accounts, attract new deposits and retain existing accounts. The Bank acquired $67.0 million of new deposit liabilities as part of the Gulf bank transaction. In addition the Bank added $12.9 million of institutional (broker) deposits in 2004.



|                                          |  | Deposits at December 31, |        
|----------------------------------------- |  | ------------------------ | -------
|                                          |  | 2004                     |        
|                                          |  | (Dollars in Thousands)   |        
|                                          |  |                          |        
|Noninterest-bearing accounts              |  | $                        | 36,231 
|Interest-bearing accounts:                |  |                          |        
|NOW accounts                              |  |                          | 9,542  
|Money market accounts                     |  |                          | 21,029 
|Savings accounts                          |  |                          | 4,910  
|Certificates of deposit under $100,000    |  |                          | 40,183 
|Certificates of deposit $100,000 and more |  |                          | 46,263 
|Total interest-bearing deposits           |  |                          | 121,927
|                                          |  |                          |        
|Total deposits                            |  | $                        | 158,158



Debt:On February 23, 2005, the Corporation signed a Commitment Letter with International Bankers Bank of Orlando, Florida to borrow up to $2 million on a revolving credit basis over a two year period. The proceeds have been used primarily to inject additional capital into the Bank to support future growth.

Federal Home Loan Bank Advances. In August 2004 the bank was accepted into membership of the Federal Home Loan Bank of Atlanta. At that time we assumed $3.0 million of advances previously issued to Gulf Bank. The Bank had increased the outstanding borrowings from Federal Home Loan Bank to $8.0 million at year end. No amounts were due to the Federal Home Loan Bank in 2003.

Securities Sold Under Repurchase Agreements. Securities sold under repurchase agreements were $1.3 million at December 31, 2004 compared to $2.4 million at December 31, 2003. The decrease was due to a reduction of client participation in the program in 2004.

Capital

Total stockholders equity was $20.7 million at December 31, 2004, an increase of $10.9 million or 111%, from $9.8 million at December 31, 2003. The increase is due primarily to a capital infusion from a public offering in May 2004. During January 2004, the Holding Company issued 3,100 shares of preferred stock totaling $3.1 million in a private placement which partially funded the purchase of certain of the assets Gulf Bank. At December 31, 2004, 315 preferred shares with a par value of $315,000 remain issued and outstanding.

In accordance with risk-based capital guidelines issued by the Federal Reserve Board, the Bank is required to maintain a minimum ratio of total capital to weighted risk assets as well as maintaining minimum leverage ratios. The Banks risk-weighted, Tier 1 risk-weighted, and Tier 1 leverage capital ratios were 10.03%, 9.00% and 8.37% at December 31, 2004 and 10.67%, 9.71% and 8.01% at December 31, 2003. Based on these ratios, the Bank is considered to be well capitalized. Management expects the Bank to continue to be well capitalized.

On February 15, 2005 the Corporation engaged an investment banking firm, Brean Murray and Co., Inc. to act as the Companys lead placement agent for a private offering of equity securities of the Corporation with a mandate to raise approximately $15 million. The transaction is expected to be completed in the second quarter of 2005.

30



---

On February 21, 2005 the Corporation engaged Franklin National Financial Group LLC to act as Non Exclusive Placement Agent for a private offering of equity securities of the Corporation with a mandate to raise approximately $3 million. The transaction is expected to be completed in the first quarter of 2005.

Discussion of Changes in Financial Condition from December 31, 2002 to December 31, 2003

General.Total assets increased by $3.9 million, or 4.3%, from $90.2 million at December 31, 2002, to $94.1 million at December 31, 2003, with the increase invested principally in loans and securities available for sale. Total loans receivable increased by $6.2 million or 10.3%, to $66.2 million at December 31, 2003, from $60.0 million at December 31, 2002. The increase in these earning assets was the result of additional loan activity from the branches, primarily in the greater Boca Raton area. Securities increased $5.7 million or 41.6% to $19.3 million at December 31, 2003 from $13.6 million at December 31, 2002. The increases in loans and securities were funded in part with a $8.9 million decrease in cash and cash equivalents to $3.2 million at December 31, 2003, from $12.1 million at December 31, 2002. The increase in assets was also funded by increases in federal funds purchased, securities sold under repurchase agreements, and shareholders equity of $1.0 million, $1.0 million and $1.8 million since December 31, 2002.

We are committed to expanding our business through internal growth as well as through purchase opportunities, while maintaining strong asset quality and continuing strong capital growth. Our strategy for achieving these objectives includes continuing our primary focus of increasing originations of high-quality commercial real estate, land acquisition, and construction loans at appropriate yields for enhancing interest income, and improving our efficiency and controlling operating costs. One Miami branch office was closed and the Boca Raton branch office was relocated during 2003. The following is a discussion of the significant fluctuations between the December 31, 2003 and 2002 balance sheets.



Cash and Cash Equivalents.Cash and cash equivalents were $12.1 million at December 31, 2002 compared to $3.2 million at December 31, 2003. The decrease of $8.9 million or 73.5% was primarily used to fund increases in the loan and investment portfolios. In the last quarter of 2003, management allowed a portion of the deposit portfolio to decrease in anticipation of the purchase of Gulf Bank in February 2004.



Securities Available for Sale and Held to Maturity.The securities portfolio increased $5.7 million, or 41.6% to $19.3 million at December 31, 2003 from $13.6 million at December 31, 2002. New securities were purchased during 2003 using available excess cash.



Loans Receivable. Total loans were $66.2 million at December 31, 2003, an increase of $6.2 million or 10.3% from $60.0 million at December 31, 2002. This increase resulted primarily from increases in commercial and commercial real estate loan production. The increased production was offset by an increase in loans being paid in full. This was caused by the numerous reductions in key interest rate drivers by the federal government as borrowers chose to refinance at lower rates, often at other financial institutions.



Asset Quality And Non-Performing Assets.In the normal course of business, we have recognized and will continue to recognize losses resulting from the inability of certain borrowers to repay loans and the insufficient realizable value of collateral securing such loans. Accordingly, we have established an allowance for loan losses, which totaled $738,000 at December 31, 2003. The allowance for loan losses is maintained at a level believed adequate by management to absorb estimated credit losses. Our managements periodic evaluation of the adequacy of the allowance is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions, and other relevant factors. This evaluation is inherently subjective as it requires estimates of material factors including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Our allowance for loan and credit losses was analyzed and deemed to be adequate by our management at December 31, 2003 for incurred losses.

The classified assets increased from $35,032 at December 31, 2002, or 0.06% of total loans, to $1.7 million at December 31, 2003, or 2.6% of total loans. Assets which are classified are those deemed by management as inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets which are classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

31



---

There was no other real estate owned at December 31, 2002 and 2003.



|                                          |  | Deposits at December 31, |       
|----------------------------------------- |  | ------------------------ | ------
|                                          |  | 2003                     |       
|                                          |  | (Dollars in Thousands)   |       
|Classified loans and discount             |  | $                        | 1,720 
|Other real estate owned and repossessions |  |                          |      
|Total classified and other                |  | $                        | 1,720 
|Percent classified and other/total loans  |  |                          | 2.56  
|Gross loans                               |  | $                        | 67,071



Non-performing assets consist of loans that are past due 90 days or more which are still accruing interest, loans on nonaccrual status and OREO and other foreclosed assets.

Total nonperforming assets have increased $783,000 to $818,000 at December 31, 2003 from $35,000 at December 31, 2002. Of the total nonperforming loans at December 31, 2003, $798,000 consists of loans secured by real estate and $20,000 consists of restructured loans. Accrual loans over 90 days decreased by $7,000. In managements best judgment, all non-performing assets are either fully collateralized or appropriately reserved based on circumstances known at this time.

Premises and Equipment.At December 31, 2002, the Bank had branches located on Brickell Avenue in Miami and in Boca Raton. During the first quarter of 2003, the Brickell Avenue office was closed. In addition, the Boca Raton branch was relocated to a newly constructed office building on North Federal Highway in Boca Raton in March 2003.

Liabilities

Deposits. Deposits increased $47,000 at December 31, 2003 from 2002. During 2003, total deposits had increased to $86.8 million at September 30, 2003, but due to the purchase of the additional deposits from Gulf Bank, management decided to allow the deposit portfolio to decrease during the fourth quarter of 2003. As a result of this strategy, money market accounts decreased $6.1 million from September 30, 2003 to December 31, 2003. This decrease was partially offset by a $2.6 million increase in certificates of deposits during the same period.



|                                          |  | Deposits at December 31, |       
|----------------------------------------- |  | ------------------------ | ------
|                                          |  | 2003                     |       
|                                          |  | (Dollars in Thousands)   |       
|                                          |  |                          |       
|Noninterest-bearing accounts              |  | $                        | 17,054
|Interest-bearing accounts:                |  |                          |       
|NOW accounts                              |  |                          | 4,076 
|Money market accounts                     |  |                          | 18,935
|Savings accounts                          |  |                          | 1,605 
|Certificates of deposit under $100,000    |  |                          | 15,007
|Certificates of deposit $100,000 and more |  |                          | 23,456
|Total interest-bearing deposits           |  |                          | 63,079
|Total deposits                            |  | $                        | 80,133



Notes Payable. The note payable which had a $250,000 balance at December 31, 2002 was paid off during 2003. The note was obtained during 2001 to assist in the financing of the merger between PanAmerican and Southern Security Bancorp. Since sufficient other cash was available, management decided to begin repayment of the loan. We made a payment of $250,000 on the note during 2002, and paid off the balance of the loan during 2003.

Securities Sold Under Repurchase Agreements. Securities sold under repurchase agreements were $2.4 million at December 31, 2003 compared to $1.4 million at December 31, 2002. Management increased the level of repurchase agreements in part to fund the outflow of deposits in the fourth quarter of 2003.

32



---

Capital

Total stockholders equity was $9.8 million at December 31, 2003, an increase of $1.9 million or 23.75%, from $8.0 million at December 31, 2002. The increase is due primarily to a capital infusion from a private offering in May 2003.

In accordance with risk-based capital guidelines issued by the Federal Reserve Board, the Bank is required to maintain a minimum ratio of total capital to weighted risk assets as well as maintaining minimum leverage ratios. The Banks risk-weighted, Tier 1 risk-weighted, and Tier 1 leverage capital ratios were 10.7%, 9.7% and 8.0% at December 31, 2003 and 10.9%, 9.7% and 7.1% at December 31, 2002. Based on these ratios, the Bank is considered to be well capitalized.

Discussion of Results of Operations From December 31, 2003 to December 31, 2004

Comparison of results in this section is for the years ended December 31, 2004 and 2003. The net loss recognized for 2004 was $228,000 compared to a loss of $443,000 for 2003. This was a positive change of $215,000. Earnings for 2004 as compared to 2003 were primarily impacted by a $2.8 million increase in net interest income, offset by a $2.5 million increase in operating expenses and a $419,000 increase in the provision for loan losses. The increased size of the business is due to the acquisition of certain assets and liabilities of Gulf Bank in February 2004 and due to internal growth of the loan and deposit portfolio in 2004.

Net Interest Income.Net interest income before provision for loan losses for 2004 was $6.5 million as compared to $3.7 million for 2003, an increase of $2.8 million or 76%. Income from interest earning deposits, securities and mortgage-backed related securities (available-for-sale and held-to-maturity) federal funds sold, Federal Home Loan Bank stock and Federal Reserve Bank stock increased by $258,000 from $588,000 for 2003, due primarily to a $6.5 million, or 31% increase in average volume of investments during the period. Management used funds invested in lower-yielding federal funds at December 31, 2003 to purchase investments with higher yields during 2004. Interest and fees on loans increased by $3.7 million, or 84% in 2004 as compared to 2003. The increase in loan income resulted from an increase in total average loan balances outstanding to $116.7 million for 2004 from $65.4 million for 2003. The largest increases were $7.0 million and $42.9 million in commercial loans and commercial real estate loans.  These increases related to volume were enhanced by modestly higher average interest yields experienced by the Bank on the overall loan portfolio in 2004 of 6.85% compared to 6.64% in 2003. The yield on total interest-earning assets was 6.13% for 2004, a 43 basis point increase from 5.70% for 2003, primarily as a result of improved yields in the loan portfolio.

Total interest expense increased $1.1 million or 92% from $1.2 million for 2003 to $2.3 million for 2004. The increase in interest expense was primarily the result of an increase in average interest bearing deposit account balances to $101.1 million for 2003 from $64.1 million for 2003. The average balance of NOW and money market accounts decreased $7.4 million in 2004. Average balances of certificate of deposits increased $40.4 million during 2004. When additional funds were needed to fulfill lending commitments and securities purchases, management used liquidity of $28 million that was received in the Gulf Bank transaction plus increased deposits by adjusting the interest paid on deposits accounts. In addition funding was obtained through the FHLB. In addition to the increase in the average balance of deposits there was an increase in the yield paid on interest-bearing deposits to 2.17% for 2004 from 1.79% for 2003.

Provision for Loan Losses. Although we use our best judgment in underwriting each loan, industry experience indicates that a portion of our loans will become delinquent. Regardless of the underwriting criteria utilized by financial institutions, they may experience losses as a result of many factors beyond their control including among other things, changes in market conditions affecting the value of security and unrelated problems affecting the credit of the borrower. Due to the concentration of loans in South Florida, adverse economic conditions in this area could result in a decrease in the value of a significant portion of the Banks collateral.

33



---

The allowance for loan loss as of December 31, 2004 was $1.7 million as compared to $738,000 at December 31, 2003. Through the normal review of the allowance for loan losses, management determined additional provision was required due to the increase in loan balances in the year.

Management had further identified its Business Manager relationships as a principle area of concern and to eliminated the product line by taking a write off of $582,000 in the first quarter of 2004.

NonInterest Income.Total noninterest income increased $315,000, or 48% from $654,000 for 2003 to $969,000 for 2004. The increase of total other income was the result of the increased size of the Bank in 2004 due to the Gulf Bank transaction.

Service charges on deposit accounts increased to $1.0 million in 2004 from $601,000 in 2003 an increase of 66%. Fees were higher due to a larger client base and due to efforts by management to improve fee collection processes in 2004. Also included in noninterest income was a $33,000 loss on the sale of a security classified as available for sale during 2004. There were sales of investments classified as held to maturity that resulted in a net gain of $38,000 in 2003. This was an isolated transaction that was required upon discovery that purchase of the investment exceeded investment guidelines at the time of purchase.

NonInterest Expense.Total noninterest expense for the year increased by $2.4 million, or 61.5% from $3.9 million for 2003 to $6.3 million for 2004. The increase in noninterest expenses reflects the impact of the growth of the Bank in 2004 both from the Gulf Bank transaction as well as from internal growth.

Salaries and benefits increased to $2.8 million in 2004 from $1.7 million in 2003. This is an increase of $1.1 million or 65%. The increase was due to the addition of 26 people in 2004 to service a larger banking operation. Occupancy and equipment expense increased to $1.5 million in 2004 from $667,000 in 2003, an increase of $788,000 or 118%. This increase was due to the added space required to house the larger banking operations in our new Coral Way Corporate office. It is also due to the cost of operation of three new branches in the Miami-Dade area acquired as part of the Gulf Bank transaction. Data and item processing costs increased by $155,000, or 42.4% to $520,000 for 2004 from $365,000 for 2003, primarily due to $222,000 of integration costs to combine former Gulf Bank operations into our Bank systems and offset by operational efficiencies.

Other expense increased to $1.5 million in 2004 from $1.1 million in 2003. This is an increase of $400,000 or 36% and reflects the larger size of the Bank subsequent to the Gulf Bank transaction. Professional fees increased by $77,000 and insurance costs (general liability and FDIC) increased by $94,000 due to higher asset values. Communication expenses (telephone and computer) increased by $170,000 in 2004. In the current environment that the Bank operates in there is a continued need to allocate more resources to meet regulatory compliance requirement particularly for the new Bank Secrect and Patriot Acts and the Sarbanes-Oxley Act. Management expects to experience higher expenses in future years to meet compliance requirements.

Provision for Income Taxes.We have recorded a valuation allowance on the deferred tax assets to reduce the total to an amount that management believes is more likely than not to be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry forwards are expected to be available to reduce taxable income. No income tax benefits have been provided for the years ended December 31, 2004 and 2003 because there was not sufficient evidence to support the position that the losses generated would be utilized in the future. As the Corporation becomes profitable (which Management expects to occur in 2005 and beyond) we do expect to realize some substantial benefits from a reduction of Federal income tax expense.

Discussion of Results of Operations from December 31, 2002 to December 31, 2003

Comparison of results in this section is for the years ended December 31, 2003 and 2002. The net loss recognized for 2003 was $443,000 compared to a loss of $508,000 for 2002. This was a positive change of $65,000. Earnings for 2003 as compared to 2002 were primarily impacted by a $725,000 increase in net interest income and a $62,000 decrease in operating expenses and offset by a $745,000 increase in the provision for loan losses.

Net Interest Income.Net interest income before provision for loan losses for 2003 was $3.7 million as compared to $3.0 million for 2002, an increase of $725,000 or 24.1%. Income from interest earning deposits, securities and mortgage-backed related securities (available-for-sale and held-to-maturity) federal funds sold, and Federal Reserve Bank stock increased by $155,000 from $432,000 for 2002, due primarily to a $5.4 million, or 34.1% increase in average volume of investments during the period. Management used funds invested in lower-yielding federal funds at December 31, 2002 to purchase investments with higher yields during 2003. Interest and fees on loans increased by $688,000, or 18.8% in 2003 as compared to 2002. The increase in loan income resulted from an increase in total average loan balances outstanding from $51.2 million for 2002 to $65.4 million for 2003.

34



---

The largest increases were $7.5 million and $9.6 million in commercial loans and commercial real estate loans. These increases related to volume were partially offset by lower interest yields experienced by the Bank in the declining interest rate environment experienced since 2001. The yield on interest-earning assets was 5.70% for 2003, a 40 basis point decrease from 6.10% for 2002, primarily as a result of declining yields in the loan portfolio. The loan portfolio yield decreased to 6.64% for 2003 from 7.14% for the 2002 period.

Total interest expense increased $119,000 or 11.0% from $1.1 million for 2002 to $1.2 million for 2003. The increase in interest expense was primarily the result of an increase in average interest bearing deposit account balances to $64.1 million for 2003 from $46.2 million for 2002. The average balance of NOW and money market accounts, and certificate of deposits increased $9.2 million and $8.6 million during 2003. When additional funds were needed to fulfill lending commitments, management, by means of marketing efforts and by adjusting the interest paid on deposits accounts, attracts new deposits and retain existing accounts. While the average balance of deposits had significantly increased throughout 2003, in anticipation of the February 2004 purchase of certain assets Gulf Bank, management decided to allow the deposit portfolio to decrease during the fourth quarter of 2003. Offsetting the increase in the average balance of deposits was a decrease in the yield paid on interest-bearing deposits to 1.79% for 2003 from 2.14% for 2002.

Provision for Loan Losses. Although we use our best judgment in underwriting each loan, industry experience indicates that a portion of our loans will become delinquent. Regardless of the underwriting criteria utilized by financial institutions, they may experience losses as a result of many factors beyond their control including among other things, changes in market conditions affecting the value of security and unrelated problems affecting the credit of the borrower. Due to the concentration of loans in South Florida, adverse economic conditions in this area could result in a decrease in the value of a significant portion of the Banks collateral.

The allowance for loan loss as of December 31, 2003 was $738,000 as compared to $748,000 at December 31, 2002. Through the normal review of the allowance for loan losses, management determined additional provision was required due to a deterioration of certain credits during 2003. A significant portion of the deteriorated credits were subsequently charged-off or charged-down during 2003.

NonInterest Income. Total noninterest income increased $23,000, or 3.7% from $630,000 for 2002 to $654,000 for 2003. The increase of total other income was the result of a $7,000 increase in service charges on deposit accounts and other customer fees. Based on studies performed by management, the Banks service charges on deposit accounts and customer fees have historically been in the lowest quartile of the Banks peer group. During 2002, management installed a more competitive table of service charges and fees to increase noninterest income. The result of that change, combined with the increased deposit accounts and increased wire transfer activity, increased service charge and fee income during all of 2003. Also included in noninterest income was a $38,000 gain on the sale of a security held to maturity during 2003. The sale occurred immediately after management realized a $1.0 million security had been purchased which was in violation of the Banks investment policy limit of $250,000. Management examined the investment portfolio and determined that this was an isolated event, and all other securities owned by the Bank are within the policy limit. Management has instituted a review policy to ensure compliance with the policy in the future. This gain was partially offset by a $16,000 loss on the sale of a security classified as available for sale during 2003. There were sales of investments classified as available for sale resulted in a net gain of $30,000 in the 2002 period.

NonInterest Expense.Total noninterest expense for the year decreased by $62,000, or 1.6% from $3.9 million for 2002 to $3.9 million for 2003.

The decrease for 2003 as compared to 2002 resulted primarily from a $255,000, or 12.9% decrease in salaries and employee benefits for 2003 as compared to 2002 due primarily to a decrease in staffing. Data and item processing costs decreased $81,000, or 18.2% to $365,000 for 2003 from $446,000 for the 2002 period, primarily due to renegotiated contracts and cost cutting efforts. These decreases were partially offset by a $314,000 or 69.9% increase in other operating expense. Expenses included in operating expense that had significant increases in 2003 as compared to 2002 were loan department expense, other tax expense, and difference and loss expense.

Other expense increased to $762,489 from $448,721. Of this amount, loan department expense increased $90,000, from $28,000 for 2002 to $118,000 for 2003. This increase is primarily attributable to increased professional expenses on repossessed properties. Other tax expense increased $74,000 from $23,000 for 2002 to $97,000 for 2003 as a result of increase in real estate taxes. A $161,000 increase in expenses was caused by a robbery loss and the write-off of a forgery.

35



---

Provision for Income Taxes.We have recorded a valuation allowance on the deferred tax assets to reduce the total to an amount that management believes is more likely than not to be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry forwards are expected to be available to reduce taxable income. No income tax benefits have been provided for the years ended December 31, 2003 and 2002 because there was no expectation at that time that losses generated would be utilized in the future.

ITEM 7.     FINANCIAL STATEMENTS

The Financial Statements are included at page 40 in this document.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. Our primary market risk exposure is interest rate risk. Interest rate risk is the exposure of financial condition to adverse movements in interest rates. Our income is derived primarily from the excess of interest collected on interest-earning assets over the interest paid on interest-bearing liabilities. The rates of interest earned on assets and owed on liabilities generally are established contractually for a period of time. Since market interest rates change over time, the Bank is exposed to lower profitability if it can not adapt to interest rate changes. Accepting interest rate risk can be an important source of profitability and stockholder value; however, excessive levels of interest rate risk could pose a significant threat to the Banks earnings and capital base. Accordingly, effective risk management that maintains interest rate risk at prudent levels is essential to our safety and soundness. The Banks interest rate risk is monitored using its GAP analysis on a monthly basis.

We do not currently engage in trading activities or use derivative instruments to control interest rate risk. Even though such activities may be permitted with the approval of the Board of Directors, we do not intend to engage in such activities in the immediate future.

Asset/Liability Management. A principal objective of our asset/liability management strategy is to minimize the Banks exposure to changes in interest rates by matching the maturity and repricing horizons of interest-earning assets and interest-bearing liabilities. This strategy is overseen in part through the direction of the Asset and Liability Committee of the Bank that establishes policies and monitors results to control interest rate sensitivity.

The Asset and Liability Committee examines the extent to which our assets and liabilities are interest rate sensitive and monitors our interest rate sensitivity GAP. An asset or liability is considered to be interest rate-sensitive if it will be repriced or mature within the time period analyzed, usually one year or less. The interest rate sensitivity GAP is the difference between interest-earning assets and interest-bearing liabilities scheduled to mature or reprice within such time periods. During a period of rising interest rates, a positive GAP would tend to result in an increase in net interest income; and a negative GAP would tend to adversely affect net interest income. Conversely, during a period of falling interest rates, a negative GAP would tend to result in an increase in net interest income, while a positive GAP would tend to adversely affect net interest income.

If the repricing of our assets and liabilities were equally flexible and moved concurrently, the impact of any increases or decreases in interest rates on net interest income would be minimal. However, as commercial banking companies generally have a significant quantity of their earning assets in Rate-Over- Prime, rate-adjusted-day-of- change earning assets, GAP management is critical, as very few, if any, rate-sensitive liabilities (deposit accounts) adjust at such a rapid frequency.

The Asset and Liability Committee evaluates the Banks GAP position, and stratifies these results according to how often the repayment of particular assets and liabilities are impacted by changes in interest rates. Additionally, income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates; thus, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in general market rates. Additionally, certain types of earning assets (variable rate mortgage loans, for example) may have interest caps which may limit the level of rate- increases, even though general market interest rates increase. GAP management is further complicated by asset (loan) prepayment and/or early withdrawal of liabilities (deposits). In volatile interest rate markets, the level of assets and liabilities assumed by bank managers may not have accounted for the deviation that has occurred in the unpredictable interest rate environment.

36



---

Therefore, our managements and the Asset and Liability Committees strategy are to maintain a balanced interest rate risk position to protect our net interest margin from market fluctuations. They review, on at least a monthly basis, the maturity and repricing of assets and liabilities for the various time periods considered.

The following table represents the Banks cumulative GAP position as of December 31, 2004.

|                                                              |  | Within
Three
Months    |           | Zero to
Twelve
Months |   | Zero to
Three
Years |   | Zero to
Five
Years |           | Over
Five
Years |   | Total     | 
|------------------------------------------------------------- |  | ---------------------- | --------- | --------------------- | - | ------------------- | - | ------------------ | --------- | --------------- | - | --------- | 
|                                                              |  | (Dollars in Thousands) |          
|                                                              |  |                        |           |                       |   |                     |   |                    |           |                 |   |           | 
|ASSETS:                                                       |  |                        |           |                       |   |                     |   |                    |           |                 |   |           | 
|Immediately repricing investments                             |  | $                      | 6,214     |                       | $ | 6,214               |   | $                  | 6,214     |                 | $ | 6,214     | 
|Fixed investments                                             |  |                        | 5,356     |                       |   | 5,356               |   |                    | 10,251    |                 |   | 17,745    | 
|Loans                                                         |  |                        | 68,280    |                       |   | 82,143              |   |                    | 101,103   |                 |   | 125,510   | 
|Total repricing assets                                        |  |                        | 79,850    |                       |   | 93,713              |   |                    | 117,568   |                 |   | 149,469   | 
|Nonearning assets                                             |  |                        |          |                       |   |                    |   |                    |          |                 |   |          | 
|Total assets                                                  |  | $                      | 79,850    |                       | $ | 93,713              |   | $                  | 117,568   |                 | $ | 149,469   | 
|LIABILITIES:                                                  |  |                        |           |                       |   |                     |   |                    |           |                 |   |           | 
|NOW accounts                                                  |  | $                      | 9,542     |                       | $ | 9,542               |   | $                  | 9,542     |                 | $ | 9,542     | 
|Money market accounts                                         |  |                        | 21,029    |                       |   | 21,029              |   |                    | 21,029    |                 |   | 21,029    | 
|Savings accounts                                              |  |                        | 4,910     |                       |   | 4,910               |   |                    | 4,910     |                 |   | 4,910     | 
|Total core deposits                                           |  |                        | 35,481    |                       |   | 35,481              |   |                    | 35,481    |                 |   | 35,481    | 
|Certificates of deposit                                       |  |                        | 25,585    |                       |   | 62,531              |   |                    | 84,402    |                 |   | 86,445    | 
|Other borrowed funds                                          |  |                        | 5,757     |                       |   | 5,757               |   |                    | 8,757     |                 |   | 11,757    | 
|Total repricing liabilities                                   |  |                        | 66,823    |                       |   | 103,769             |   |                    | 128,640   |                 |   | 133,683   | 
|Demand deposits                                               |  |                        | 36,231    |                       |   | 36,231              |   |                    | 36,231    |                 |   | 36,231    | 
|Other liabilities                                             |  |                        |          |                       |   |                    |   |                    |          |                 |   |          | 
|Stockholders equity                                          |  |                        |          |                       |   |                    |   |                    |          |                 |   |          | 
|Total liabilities and equity                                  |  | $                      | 103,054   |                       | $ | 140,000             |   | $                  | 164,871   |                 | $ | 169,914   | 
|Asset/liability GAP, static                                   |  |                        | 13,780    |                       |   | (23,083             | ) |                    | (1,016    | )               |   | 26,858    | 
|Rate sensitive assets /rate sensitive liabilities, static     |  |                        | 1.19      |                       |   | 0.38                |   |                    | 0.96      |                 |   | 6.33      | 
|Asset/liability GAP, cumulative                               |  |                        | 13,027    |                       |   | (10,056             | ) |                    | (11,072   | )               |   | 15,786    | 
|Rate sensitive assets /rate sensitive liabilities, cumulative |  |                        | 1.19      |                       |   | 0.90                |   |                    | 0.91      |                 |   | 1.12      | 
|Target                                                        |  |                        | 80 to 120 |                       |   | 80 to 120           |   |                    | 80 to 120 |                 |   | 80 to 120 | 

37



---

EFFECT OF GOVERNMENT POLICY, FUTURE LEGISLATION AND CHANGING FINANCIAL MARKETS



One of the primary determinants of the Companys future success and profitability is the interest rate differentials obtained by its affiliate banking institution. Our earning capacity will be largely controlled by the difference between the interest rate paid on its deposits and other borrowings and the interest rates received on loans to customers and securities held in its investment portfolio. The value and yields of its assets and the rate paid on its liabilities are sensitive to changes in prevailing rates of interest. Consequently, the earnings and growth of the Company will be influenced by general economic conditions, the monetary and fiscal policies of the federal government and policies of regulatory agencies which implement national monetary policy. The nature and impact of any future changes in monetary policies cannot be predicted. The entire regulatory environment which controls the banking industry in the United States is undergoing significant change, both as to the banking industry itself and the permissible competition between banks and non-banking financial institutions. There have been significant regulatory changes in the areas of bank mergers and acquisitions, the products and services offered by banks and the non-banking activities in which bank and financial service holding companies may engage. Partly as a result of such changes, banks are now actively competing with other types of depository institutions and with non-bank financial institutions such as money market funds, brokerage firms, insurance companies and other financial services organizations. It is not possible at this time to assess what impact these changes will ultimately have on the Company and its operations. Certain legislative and regulatory proposals that could affect the Company are pending, or may be introduced, in the United States Congress, the Florida legislature and various other governmental agencies. These proposals could further alter the structure, regulation and competitive relationship of financial institutions and may subject the Company to increased regulation, disclosure and reporting requirements. In addition, the various banking regulatory agencies frequently propose rules and regulations to implement and enforce already existing legislation. It cannot be predicted whether or in what form any future legislation or regulations will be enacted or to the extent to which the business of the Company will be affected by such matters.



IMPACT OF INFLATION AND CHANGING PRICES



The financial statements and accompanying footnotes have been prepared in accordance with generally accepted accounting principles (GAAP), which require the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The assets and liabilities of the Company are primarily monetary in nature and management believes that changes in market interest rates have a greater impact on its performance than do the effects of inflation in the current environment.

38



---

PANAMERICAN BANCORP



Miami, Florida



CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003





CONTENTS













|                                                           |  |   
|---------------------------------------------------------- |  | --
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    |  | 41
|                                                           |  |   
|                                                           |  |   
|CONSOLIDATED FINANCIAL STATEMENTS                          |  |   
|                                                           |  |   
|CONSOLIDATED BALANCE SHEETS                                |  | 42
|                                                           |  |   
|CONSOLIDATED STATEMENTS OF INCOME                          |  | 43
|                                                           |  |   
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY |  | 44
|                                                           |  |   
|CONSOLIDATED STATEMENTS OF CASH FLOWS                      |  | 45
|                                                           |  |   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 |  | 46
|                                                           |  |   



39



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







Board of Directors and Shareholders

PanAmerican Bancorp

Miami, Florida





We have audited the accompanying consolidated balance sheets of PanAmerican Bancorp as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with U. S. generally accepted accounting principles.





CROWE CHIZEKANDCOMPANYLLC



Fort Lauderdale, Florida

March 11, 2005



40



---

PANAMERICAN BANCORP

CONSOLIDATED BALANCE SHEETS

December 31, 2004 and 2003





|                                                                                                                                       |  | 2004 |             | 2003 |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | -
|                                                                                                                                       |  |      |             |      |  
|ASSETS                                                                                                                                 |  |      |             |      |  
|Cash and due from financial institutions                                                                                               |  | $    | 6,213,556   |      | $
|Securities available for sale                                                                                                          |  |      | 5,625,361   |      |  
|Securities held to maturity (fair value 2004 - $15,696,981, 2003 - $ 11,292,508)                                                       |  |      | 15,790,233  |      |  
|Loans, net (of allowance for loan losses of $1,678,191 and $738,147)                                                                   |  |      | 153,729,571 |      |  
|Federal Reserve Bank stock                                                                                                             |  |      | 610,050     |      |  
|Federal Home Loan Bank stock                                                                                                           |  |      | 548,100     |      |  
|Accrued interest receivable                                                                                                            |  |      | 604,053     |      |  
|Premises and equipment, net                                                                                                            |  |      | 1,925,697   |      |  
|Goodwill and other identified intangibles                                                                                              |  |      | 5,892,060   |      |  
|Other assets                                                                                                                           |  |      | 528,335     |      |  
|                                                                                                                                       |  | $    | 191,467,016 |      | $
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                   |  |      |             |      |  
|Deposits                                                                                                                               |  |      |             |      |  
|Non-interest bearing                                                                                                                   |  | $    | 36,231,663  |      | $
|Interest bearing                                                                                                                       |  |      | 121,926,811 |      |  
|Total deposits                                                                                                                         |  |      | 158,158,474 |      |  
|Federal funds purchased                                                                                                                |  |      | 2,500,000   |      |  
|Repurchase agreements                                                                                                                  |  |      | 1,257,119   |      |  
|Federal Home Loan Bank advances                                                                                                        |  |      | 8,000,000   |      |  
|Accrued expense and other liabilities                                                                                                  |  |      | 781,578     |      |  
|Total liabilities                                                                                                                      |  |      | 170,697,171 |      |  
|Minority interest                                                                                                                      |  |      | 23,735      |      |  
|Shareholders equity                                                                                                                   |  |      |             |      |  
|Preferred stock, $1,000 par value; 5,000,000 shares authorized; 
2004 - 315 outstanding; 2003  none outstanding                       |  |      | 315,000     |      |  
|Common stock, $.01 par value; 20,000,000 shares authorized; 
2004 - 8,372,126 shares outstanding, 2003 - 5,892,126 shares 
outstanding |  |      | 311,394     |      |  
|Capital surplus                                                                                                                        |  |      | 29,001,264  |      |  
|Accumulated deficit                                                                                                                    |  |      | (8,800,189  | )    |  
|Accumulated other comprehensive income (loss)                                                                                          |  |      | (81,359     | )    |  
|                                                                                                                                       |  |      | 20,746,110  |      |  
|Subscriptions receivable                                                                                                               |  |      |            |      |  
|Total shareholders equity                                                                                                             |  |      | 20,746,110  |      |  
|                                                                                                                                       |  |      |             |      |  
|                                                                                                                                       |  | $    | 191,467,016 |      | $

See accompanying notes

41



---

PANAMERICAN BANCORP

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2004 and 2003





|                                                          |  | 2004 |           | 2003 |  
|--------------------------------------------------------- |  | ---- | --------- | ---- | -
|                                                          |  |      |           |      |  
|Interest and dividend income                              |  |      |           |      |  
|Loans, including fees                                     |  | $    | 8,002,103 |      | $
|Securities                                                |  |      | 761,455   |      |  
|Federal funds sold and other                              |  |      | 85,032    |      |  
|                                                          |  |      | 8,848,590 |      |  
|Interest expense                                          |  |      |           |      |  
|Deposits                                                  |  |      | 2,088,266 |      |  
|Other                                                     |  |      | 240,887   |      |  
|                                                          |  |      | 2,329,153 |      |  
|Net interest income                                       |  |      | 6,519,437 |      |  
|                                                          |  |      |           |      |  
|Provision for loan losses                                 |  |      | 1,397,000 |      |  
|Net interest income after provision for loan losses       |  |      | 5,122,437 |      |  
|Noninterest income                                        |  |      |           |      |  
|Service charges on deposit accounts                       |  |      | 1,001,164 |      |  
|Net (losses) gains on sales of securities                 |  |      | (32,664   | )    |  
|Other                                                     |  |      |          |      |  
|                                                          |  |      | 968,500   |      |  
|Noninterest expense                                       |  |      |           |      |  
|Salaries and employee benefits                            |  |      | 2,837,972 |      |  
|Occupancy and equipment                                   |  |      | 1,455,371 |      |  
|Data processing                                           |  |      | 520,131   |      |  
|Professional services                                     |  |      | 262,120   |      |  
|Insurance                                                 |  |      | 243,967   |      |  
|Other                                                     |  |      | 999,103   |      |  
|                                                          |  |      | 6,318,664 |      |  
|Loss before taxes and minority interest                   |  |      | (227,727  | )    |  
|Income tax expense                                        |  |      |          |      |  
|Loss before minority interest                             |  |      | (227,727  | )    |  
|Minority interest in net loss (income) loss of subsidiary |  |      | (308      | )    |  
|Net loss                                                  |  | $    | (228,035  | )    | $
|Basic and Diluted earnings (loss) per share:              |  | $    | (0.05     | )    | $



See accompanying notes

42



---

PANAMERICAN BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

Years ended December 31, 2004 and 2003





|                                                                                                               |  |   | Preferred Stock |   |  |  | Common
Stock |         | Capital
Surplus |   | Subscriptions
Receivable |   | Accumulated
Deficit |            | Accumulated
Other
Comprehensive
Income (loss) |   | Total
Shareholders
Equity |  
|-------------------------------------------------------------------------------------------------------------- |  | - | --------------- | - |  |  | ------------ | ------- | --------------- | - | ------------------------ | - | ------------------- | ---------- | --------------------------------------------- | - | -------------------------- | -
|                                                                                                               |  |   |                 |   |  |  |              |         |                 |   |                          |   |                     |            |                                               |   |                            |  
|Balance at January 1, 2003                                                                                     |  | $ |                |   |  |  | $            | 257,922 |                 | $ | 15,774,429               |   | $                   |           |                                               | $ | (8,005,775                 | )
|Comprehensive income (loss):                                                                                   |  |   |                 |   |  |  |              |         |                 |   |                          |   |                     |            |                                               |   |                            |  
|Net loss                                                                                                       |  |   |                |   |  |  |              |        |                 |   |                         |   |                     |           |                                               |   | (442,655                   | )
|Change in net unrealized gain (loss) on securities available for sale, net of reclassification and tax effects |  |   |                |   |  |  |              |        |                 |   |                         |   |                     |           |                                               |   |                           |  
|Total comprehensive income (loss)                                                                              |  |   |                |   |  |  |              |        |                 |   |                         |   |                     |           |                                               |   |                           |  
|Issuance of 733,684 shares of common stock                                                                     |  |   |                |   |  |  |              | 36,671  |                 |   | 3,311,025                |   |                     | (1,000,000 | )                                             |   |                           |  
|Balance at December 31, 2003                                                                                   |  |   |                |   |  |  |              | 294,593 |                 |   | 19,085,454               |   |                     | (1,000,000 | )                                             |   | (8,448,430                 | )
|Issuance of 3,100 shares of preferred share                                                                    |  |   | 3,100,000       |   |  |  |              |        |                 |   | (5,000                   | ) |                     |           |                                               |   |                           |  
|Issuance of 2,480,000 shares of  common stock                                                                  |  |   |                |   |  |  |              | 16,801  |                 |   | 9,920,810                |   |                     | 1,000,000  |                                               |   |                           |  
|Comprehensive income (loss):                                                                                   |  |   |                 |   |  |  |              |         |                 |   |                          |   |                     |            |                                               |   |                            |  
|Net loss                                                                                                       |  |   |                |   |  |  |              |        |                 |   |                         |   |                     |           |                                               |   | (228,035                   | )
|Change in net unrealized gain (loss) on securities available for sale, net of reclassification and tax effects |  |   |                |   |  |  |              |        |                 |   |                         |   |                     |           |                                               |   |                           |  
|Total comprehensive income (loss)                                                                              |  |   |                |   |  |  |              |        |                 |   |                         |   |                     |           |                                               |   |                           |  
|Redemption of 2,785 shares of preferred stock                                                                  |  |   | (2,785,000      | ) |  |  |              |        |                 |   |                         |   |                     |           |                                               |   |                           |  
|Dividends paid on preferred shares                                                                             |  |   |                |   |  |  |              |        |                 |   |                         |   |                     |           |                                               |   | (123,724                   | )
|Balance at December 31, 2004                                                                                   |  | $ | 315,000         |   |  |  | $            | 311,394 |                 | $ | 29,001,264               |   | $                   |           |                                               | $ | (8,800,189                 | )

See accompanying notes

43



---

PANAMERICAN BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2004 and 2003





|                                                                                        |  |   | 2004        |   |  |   | 2003        |  
|--------------------------------------------------------------------------------------- |  | - | ----------- | - |  | - | ----------- | -
|Cash flows from operating activities:                                                   |  |   |             |   |  |   |             |  
|Net loss                                                                                |  | $ | (228,035    | ) |  | $ | (442,655    | )
|Adjustments to reconcile net loss to net cash used in operating activities:             |  |   |             |   |  |   |             |  
|Net amortization on securities                                                          |  |   | 62,882      |   |  |   | 81,471      |  
|Provision for loan and lease losses                                                     |  |   | 1,397,000   |   |  |   | 978,066     |  
|Depreciation and amortization                                                           |  |   | 584,075     |   |  |   | 229,678     |  
|(Gain) loss on sale of securities                                                       |  |   | 32,664      |   |  |   | (21,788     | )
|Minority interest in net income (loss) of subsidiary                                    |  |   | 308         |   |  |   | (345        | )
|(Increase) decrease in other assets                                                     |  |   | 569,390     |   |  |   | (853,119    | )
|Increase in other liabilities                                                           |  |   | 122,204     |   |  |   | 257,042     |  
|Net cash (used in) provided by operating activities                                     |  |   | 2,540,488   |   |  |   | 228,350     |  
|Cash flows from investing activities:                                                   |  |   |             |   |  |   |             |  
|Net decrease in interest-bearing deposits                                               |  |   |            |   |  |   | 96,813      |  
|Purchases of available for sale securities                                              |  |   | (185,346    | ) |  |   | (10,000,000 | )
|Maturities and pay-downs of available for sale securities                               |  |   | 11,609      |   |  |   | 66,464      |  
|Proceeds from sales of available for sale securities                                    |  |   | 2,454,006   |   |  |   | 3,038,325   |  
|Purchases of held to maturity securities                                                |  |   | (5,035,152  | ) |  |   | (8,923,665  | )
|Maturities and pay-downs of held to maturity securities                                 |  |   | 526,125     |   |  |   | 9,976,306   |  
|Purchase of assets and assumption of liabilities of Gulf Bank                           |  |   | 23,583,212  |   |  |   |            |  
|Purchases of Federal Reserve Bank and Federal Home Loan Bank stock                      |  |   | (863,400    | ) |  |   | (21,750     | )
|Loan originations, net                                                                  |  |   | (47,180,037 | ) |  |   | (7,138,157  | )
|Purchases of premises and equipment, net                                                |  |   | (284,867    | ) |  |   | (347,604    | )
|Net cash used in investing activities                                                   |  |   | (26,973,850 | ) |  |   | (13,253,268 | )
|Cash flows from financing activities:                                                   |  |   |             |   |  |   |             |  
|Net increase in federal funds purchased and securities sold under repurchase agreements |  |   | 320,535     |   |  |   | 2,014,932   |  
|Net change in notes payable                                                             |  |   | 5,000,000   |   |  |   | (250,000    | )
|Net increase in deposits                                                                |  |   | 11,012,074  |   |  |   | 47,430      |  
|Proceeds from issuance of common stock                                                  |  |   | 10,937,611  |   |  |   | 2,347,696   |  
|Proceeds from issuance of preferred stock                                               |  |   | 3,095,000   |   |  |   |            |  
|Repayment of preferred shares                                                           |  |   | (2,785,000  | ) |  |   |            |  
|Preferred share dividends                                                               |  |   | (123,724    | ) |  |   |            |  
|Increase in minority interest                                                           |  |   |            |   |  |   | 3,089       |  
|Net cash provided by financing activities                                               |  |   | 27,456,496  |   |  |   | 4,163,147   |  
|Net change in cash and cash equivalents                                                 |  |   | 3,023,134   |   |  |   | (8,861,771  | )
|Cash and cash equivalents at beginning of year                                          |  |   | 3,190,424   |   |  |   | 12,052,195  |  
|Cash and cash equivalents at end of year                                                |  | $ | 6,213,556   |   |  | $ | 3,190,424   |  
|Supplemental cash flow information:                                                     |  |   |             |   |  |   |             |  
|Interest paid                                                                           |  | $ | 2,381,937   |   |  | $ | 1,121,729   |  



See accompanying notes

44



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature of Operations and Principles of Consolidation: The consolidated financial statements include PanAmerican Bancorp and its subsidiary, PanAmerican Bank (the Bank), which is 99.9% owned by PanAmerican Bancorp, together referred to as the Corporation. Intercompany transactions and balances are eliminated in consolidation.

The Corporation provides financial services through its offices in Southeast Florida. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential and commercial mortgages, commercial and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other financial instruments, which potentially represent concentrations of credit risk, include deposit accounts in other financial institutions, federal funds sold, and securities.

On February 17, 2004, the Corporation purchased certain assets and assumed certain liabilities of Gulf Bank of Miami, Florida. See Note 19 for further information.

Preferred stock: The Series A preferred stock provides for an 8% non-cummulative cash dividend. The preferred stock have no voting or conversion rights. The shares are redeemable on approval by the Board of Directors and  Bank regulators.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, determination of purchase accounting adjustments and the resulting amortization thereof, goodwill impairment and fair values of financial instruments are particularly subject to change.

Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions under 90 days, and federal funds sold. Net cash flows are reported for loan and deposit transactions.

Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Other securities such as Federal Reserve Bank stock and Federal Home Loan Bank stock are carried at cost.

Interest income includes amortization of purchase premium or discount. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is not temporary.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses.

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer loans are typically charged off no later than 120 days past due. 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 received for loans placed on nonaccrual is reversed against interest income. Interest received on such 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.

(Continued)

45



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



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



The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers pools of other loans and is based on historical loss experience adjusted for current factors.



A loan is impaired when full payment under the loan terms is not expected. Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loans existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures.



Foreclosed Assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed.



Premises and Equipment: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives ranging from 15 to 39 years.Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 7 years.



Goodwill and Other Intangible Assets: Goodwill results from prior business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified.



Other intangible assets consist of core deposit intangible assets arising from bank and branch acquisitions. They are initially measured at fair value and then are amortized on a straight line or an accelerated method over their estimated useful lives of approximately nine to twelve years.



Long-Term Assets: Premises and equipment, core deposit and other intangible assets, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are adjusted to their fair value.



Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Instruments, such as standby letters of credit, that are considered financial guarantees in accordance with FASB Interpretation No. 45, are recorded at fair value if significant.

(Continued)

46



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Repurchase Agreements: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance.



Stock Compensation: Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net loss and earnings (loss) per share for 2004 and 2003 if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.



| |                                                                           |  |   | 2004     |   |  |   | 2003     |  
| | ------------------------------------------------------------------------- |  | - | -------- | - |  | - | -------- | -
| |                                                                           |  |   |          |   |  |   |          |  
| | Net loss as reported                                                      |  | $ | (228,035 | ) |  | $ | (442,655 | )
| | Deduct:                                                                   |  |   |          |   |  |   |          |  
| | Dividends paid on preferred shares                                        |  |   | (123,724 | ) |  |   | (41,499  | )
| | Stock-based compensation expense
determined under fair value based method |  |   | (61,283  | ) |  |   | (67,283  | )
| |                                                                           |  |   |          |   |  |   |          |  
| | Pro forma net loss                                                        |  | $ | (413,042 | ) |  | $ | (509,938 | )
| |                                                                           |  |   |          |   |  |   |          |  
| | Basic and diluted earnings (loss) per share as reported                   |  | $ | (0.05    | ) |  | $ | (0.08    | )
| | Pro forma basic and diluted earnings (loss) per share                     |  | $ | (0.06    | ) |  | $ | (0.08    | )



The pro forma effects are computed using option pricing models, using the following weighted-average assumptions as of the grant date.

| |                                 |  | 2004     |  | 2003     | 
| | ------------------------------- |  | -------- |  | -------- | 
| |                                 |  |          |  |          | 
| | Risk-free interest rate         |  | 4.50%    |  | 4.25%    | 
| | Expected option life            |  | 10 years |  | 10 years | 
| | Expected stock price volatility |  | 19%      |  | 0%       | 
| | Dividend yield                  |  | 0%       |  | 0%       | 



Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.



Earnings (Loss) Per Common Share: Basic earnings (loss) per common share is net income (loss), less preferred stock dividend, divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options and stock warrants. Earnings and dividends per share are restated for all stock splits and dividends through the date of issue of the financial statements.



Comprehensive Income (Loss): Comprehensive income (loss) consists of net income (loss) and other comprehensive income. Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity.

(Continued)

47



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Adoption of New Accounting Standards: During 2003, the Corporation adopted FASB Statement 143, Accounting for Asset Retirement Obligations,FASB Statement 145, Rescission of FAS Statement 4, 44 and 64, Amendment of FAS Statement 13, and Technical Corrections,FASB Statement 146, Accounting for Costs Associated with Exit or Disposal Activities,FASB Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, FASB Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities, FASB Statement 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, FASB Interpretation 45, Guarantors Accounting and Disclosure Requirements for Guarantees, and FASB Interpretation 46, Consolidation of Variable Interest Entities.



FASB Statement 123 (revised 2004), Share-Based Payment requires all public companies to record compensation cost for stock options provided to employees in return for employee service. The Corporation expects to adopt FASB Statement 123 (revised 2004), in 2006. The effect on results of operations will depend on future option grants and their value at a future date so the Corporation has not determined the import at this time.



Statement of Position 03-03, Accounting for Certain Loans or Debt Securities Acquired in a Transfer requires that a valuation allowance for loans acquired in a transfer reflect only losses incurred after acquisition and should not be recorded at acquisition. This statement is effective for loans acquired in fiscal years beginning January 1, 2005.



Adoption of the new standards did not materially affect the Companys operating results or financial condition.



Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.



Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank of $1,050,000 was required to meet regulatory reserve and clearing requirements at year-end 2004. These balances do not earn interest.



Common Share Dividend Restriction: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to its parent holding company or by the holding company to shareholders. No common share dividends may be paid at this time, as the Bank and its parent holding company have had a net loss from the preceding two years, and deficit retained earnings.



Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.



Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.



Reverse Stock Split: Effective July 15, 2003, the Board ratified a reverse 1:5 split and authorized the reduction of the authorized common stock shares to 20 million. All share information in the consolidated financial statements reflect the split.



Reclassifications: Some items in the prior year financial statements were reclassified to conform to the current presentation.

(Continued)

48



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 2  SECURITIES



The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at year-end were as follows:



| |                           |  | Fair
Value |           | Gross Unrealized
Gains |   | Gross Unrealized
Losses | 
| | ------------------------- |  | ---------- | --------- | ---------------------- | - | ----------------------- | 
| | 2004                      |  |            |           |                        |   |                         | 
| | Mortgage-backed and other |  | $          | 269,164   |                        | $ | 16,264                  | 
| | Mutual funds              |  |            | 5,356,197 |                        |   |                        | 
| |                           |  | $          | 5,625,361 |                        | $ | 16,264                  | 
| | 2003                      |  |            |           |                        |   |                         | 
| | Mortgage-backed           |  | $          | 32,512    |                        | $ | 1,724                   | 
| | Mutual funds              |  |            | 7,850,619 |                        |   |                        | 
| |                           |  | $          | 7,883,131 |                        | $ | 1,724                   | 



The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity at year-end were as follows:



| |                                    |  | Carrying
Amount |            | Gross
Unrecognized
Gains |   | Gross
Unrecognized Loses |  |   | Fair
Value |  
| | ---------------------------------- |  | --------------- | ---------- | ------------------------ | - | ------------------------ |  | - | ---------- | -
| | 2004                               |  |                 |            |                          |   |                          |  |   |            |  
| | U.S. Government and federal agency |  | $               | 13,131,509 |                          | $ | 44,016                   |  | $ | (81,196    | )
| | Corporate                          |  |                 | 257,528    |                          |   |                         |  |   | (3         | )
| | Mortgage-backed                    |  |                 | 2,401,196  |                          |   |                         |  |   | (56,069    | )
| | 2003                               |  |                 |            |                          |   |                          |  |   |            |  
| | U.S. Government and federal agency |  | $               | 8,165,964  |                          | $ | 42,122                   |  |   | (71,336    | )
| | Corporate                          |  |                 | 264,201    |                          |   | 2,049                    |  |   |           |  
| | Mortgage-backed                    |  |                 | 2,963,923  |                          |   |                         |  |   | (74,415    | )
| |                                    |  | $               | 11,394,088 |                          | $ | 44,171                   |  | $ | (145,751   | )



Sales of available for sale securities were as follows:



| |              |  | 2004 |           | 2003 |  
| | ------------ |  | ---- | --------- | ---- | -
| |              |  |      |           |      |  
| | Proceeds     |  | $    | 2,454,006 |      | $
| | Gross gains  |  |      |          |      |  
| | Gross losses |  |      | 32,664    |      |  

(Continued)

49



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 2  SECURITIES (Continued)



The fair value of debt securities and carrying amount, if different, at year-end 2004 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities and mutual funds, are shown separately.



| |                            |  | Held to Maturity |            |  |            |   |           
| | -------------------------- |  | ---------------- | ---------- |  | ---------- | - | ----------
| |                            |  | Carrying Amount  |            |  | Fair
Value |   |           
| | Due in one year or less    |  | $                |           |  |            | $ |          
| | Due from one to five years |  |                  | 11,389,037 |  |            |   | 11,375,955
| | Due from five to ten years |  |                  | 2,000,000  |  |            |   | 1,975,900 
| | Mutual fund                |  |                  |           |  |            |   |          
| | Mortgage-backed            |  |                  | 2,401,196  |  |            |   | 2,345,126 
| |                            |  | $                | 15,790,233 |  |            | $ | 15,696,981



Securities pledged at year-end 2004 and 2003 had a carrying amount of $5,542,931 and $4,169,501. In 2004 $3,499,563 was pledged to secure Federal Home Loan Bank advances of $3,000,000 and $2,043,368 and was pledged to secure repurchase agreements. In 2003 the full amount was pledged to secure repurchase agreements.

Securities with unrealized losses at year-end 2004, aggregated by investment category and the length of time that the securities have been in an unrealized loss position, are as follows:

|                               |  | Less than 12 Months |           |  | More than 12 Months |   |        | Total      
|------------------------------ |  | ------------------- | --------- |  | ------------------- | - | ------ | -----------
|Description of Securities      |  | Fair 
Value         |           |  | Unrealized
Loss     |   |        | Fair 
Value
|                               |  |                     |           |  |                     |   |        |            
|U.S. Government federal agency |  | $                   | 8,062,630 |  |                     | $ | 81,196 |            
|Mutual funds                   |  |                     |          |  |                     |   |       |            
|Mortgage-backed                |  |                     | 2,346,392 |  |                     |   | 56,090 |            
|Corporate                      |  |                     | 305,845   |  |                     |   | 1,683  |            



Securities with unrealized losses at year-end 2003, aggregated by investment category are as follows:

|                               |  | Less than 12 Months |           |  | More than 12 Months |   |         | Total      
|------------------------------ |  | ------------------- | --------- |  | ------------------- | - | ------- | -----------
|                               |  | Fair 
Value         |           |  | Unrealized
Loss     |   |         | Fair 
Value
|                               |  |                     |           |  |                     |   |         |            
|U.S. Government federal agency |  | $                   | 5,428,125 |  |                     | $ | 71,336  |            
|Mutual funds                   |  |                     | 7,850,619 |  |                     |   | 136,260 |            
|Mortgage-backed                |  |                     | 2,832,094 |  |                     |   | 74,455  |            



Unrealized losses on securities have not been recognized into income because the issuers are of high credit quality (government agencies and sponsored entities), management has the intent and ability to hold for the foreseeable future, and the decline in fair value is largely due to changes in market interest rates. The fair value is expected to recover as the securities approach their maturity date or market interest rates change. The investment in mutual funds is a single investment in one short term government securities fund. It represents greater than 10% of equity at December 31, 2004.

(Continued)

50



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 3  LOANS



|Loans at year-end were as follows:                         |  |      |             |   |      |  
|---------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|                                                           |  | 2004 |             |   | 2003 |  
|Commercial                                                 |  | $    | 28,446,545  |   |      | $
|Real estate:                                               |  |      |             |   |      |  
|Residential                                                |  |      | 8,662,869   |   |      |  
|Commercial                                                 |  |      | 115,168,129 |   |      |  
|Consumer                                                   |  |      | 1,633,589   |   |      |  
|Other                                                      |  |      | 1,854,942   |   |      |  
|                                                           |  |      | 155,766,074 |   |      |  
|Less: allowance for loan losses                            |  |      | (1,678,191  | ) |      |  
|Net deferred loan fees                                     |  |      | (358,312    | ) |      |  
|Loans, net                                                 |  | $    | 153,729,571 |   |      | $
|                                                           |  |      |             |   |      |  
|Activity in the allowance for loan losses was as follows.  |  |      |             |   |      |  
|                                                           |  | 2004 |             |   | 2003 |  
|Beginning balance                                          |  | $    | 738,147     |   |      | $
|Provision for loan losses                                  |  |      | 1,397,000   |   |      |  
|Loans charged-off                                          |  |      | (1,095,756  | ) |      |  
|Recoveries                                                 |  |      | 180,800     |   |      |  
|Acquisition related adjustment                             |  |      | 458,000     |   |      |  
|Ending balance                                             |  | $    | 1,678,191   |   |      | $
|                                                           |  |      |             |   |      |  
|Impaired loans were as follows:                            |  |      |             |   |      |  
|                                                           |  | 2004 |             |   | 2003 |  
|Year-end loans with no allocated allowance for loan losses |  | $    |            |   |      | $
|Year-end loans with allocated allowance for loan losses    |  |      | 2,057,250   |   |      |  
|                                                           |  | $    | 2,057,250   |   |      | $
|                                                           |  |      |             |   |      |  
|Amount of the allowance for loan losses allocated          |  | $    | 84,296      |   |      | $
|Average of impaired loans during the year                  |  |      | $1,410,603  |   |      | $
|Interest income recognized during impairment               |  |      | 25,487      |   |      |  
|Cash-basis interest income recognized                      |  |      | 25,487      |   |      |  
|                                                           |  |      |             |   |      |  
|Nonperforming loans were as follows:                       |  |      |             |   |      |  
|                                                           |  | 2004 |             |   | 2003 |  
|Loans past due over 90 days still on accrual               |  | $    |            |   |      | $
|Nonaccrual loans                                           |  |      | 141,208     |   |      |  
|                                                           |  | $    | 141,208     |   |      | $



Nonperforming loans includes both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

(Continued)

51



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 4  PREMISES AND EQUIPMENT



Year-end premises and equipment were as follows.

| |                                   |  |   | 2004      |  |  | 2003 |          
| | --------------------------------- |  | - | --------- |  |  | ---- | ---------
| |                                   |  |   |           |  |  |      |          
| | Land                              |  | $ | 478,375   |  |  | $    | 478,375  
| | Buildings and improvements        |  |   | 429,157   |  |  |      | 420,209  
| | Leasehold improvements            |  |   | 1,344,759 |  |  |      | 1,099,477
| | Furniture, fixtures and equipment |  |   | 1,356,565 |  |  |      | 1,150,637
| |                                   |  |   | 3,608,856 |  |  |      | 3,148,698
| | Less: Accumulated depreciation    |  |   | 1,683,159 |  |  |      | 1,430,860
| |                                   |  |   |           |  |  |      |          
| |                                   |  | $ | 1,925,697 |  |  | $    | 1,717,838



Depreciation expense was $432,123 and $229,678 in 2004 and 2003.



Rent expense was $825,512 and $404,093 in 2004 and 2003. Rent commitments under non-cancelable operating leases were as follows, before considering renewal options that generally are present.



| | 2005       |  | $ | 941,356   | 
| | ---------- |  | - | --------- | 
| | 2006       |  |   | 933,934   | 
| | 2007       |  |   | 502,244   | 
| | 2008       |  |   | 430,280   | 
| | 2009       |  |   | 355,970   | 
| | Thereafter |  |   | 1,494,612 | 
| |            |  | $ | 4,658,396 | 



NOTE 5  GOODWILL AND INTANGIBLE ASSETS



Acquired Identifiable Intangible Assets

Acquired intangible assets were as follows as of year-end:

| |                          |  |  | 2004                  |           |  | 2003                               |  
| | ------------------------ |  |  | --------------------- | --------- |  | ---------------------------------- | -
| |                          |  |  | Gross Carrying
Amount |           |  | Accumulated
Amortization
Accretion |  
| |                          |  |  |                       |           |  |                                    |  
| |                          |  |  |                       |           |  |                                    |  
| | Core deposit intangibles |  |  | $                     | 1,028,587 |  |                                    | $



Aggregate amortization expense was $154,757 and $20,828 for 2004 and 2003.

Goodwill was $5,287,350 and $1,942,945 at December 31, 2004 and 2003 respectively. The $3,344,405 increase in goodwill in 2004 was attributable to the Gulf Bank transaction. There was no impairment of good will at December 31, 2004 or 2003.

(Continued)

52



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 5  GOODWILL AND INTANGIBLE ASSETS (Continued)



Estimated amortization expense for each of the next five years:



| | 2005 |  | $ | 166,942 | 
| | ---- |  | - | ------- | 
| | 2006 |  |   | 148,621 | 
| | 2007 |  |   | 130,207 | 
| | 2008 |  |   | 430,280 | 
| | 2009 |  |   | 93,381  | 
| |      |  | $ | 650,945 | 



NOTE 6  DEPOSITS



NOW, savings, and money market account deposits totaled $35,481,190 and $24,616,623 at December 31, 2004 and 2003.



Time deposits of $100,000 or more were $46,573,652 and $23,455,507 at year-end 2004 and 2003. There were $12,895,000 of broker deposits outstanding at December 31, 2004.



Scheduled maturities of all time deposits for the next five years were as follows.



| | 2005 |  | $ | 62,531,827 | 
| | ---- |  | - | ---------- | 
| | 2006 |  |   | 15,171,967 | 
| | 2007 |  |   | 6,698,396  | 
| | 2008 |  |   | 1,419,706  | 
| | 2009 |  |   | 623,725    | 
| |      |  | $ | 86,445,621 | 



NOTE 7  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE



Securities sold under agreements to repurchase are secured by securities with a carrying amount of $2,043,368 at year-end 2004.



Securities sold under agreements to repurchase are financing arrangements that mature within two years. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. Information concerning securities sold under agreements to repurchase is summarized as follows:



| |                                           |  | 2004 |           |   | 2003 |  
| | ----------------------------------------- |  | ---- | --------- | - | ---- | -
| |                                           |  |      |           |   |      |  
| | Average daily balance during the year     |  | $    | 2,453,000 |   |      | $
| | Average interest rate during the year     |  |      | 0.73      | % |      |  
| | Maximum month-end balance during the year |  | $    | 2,466,000 |   |      | $
| |                                           |  |      | 1.68      | % |      |  

(Continued)

53



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 8  FEDERAL HOME LOAN BANK ADVANCES

In August 2004 the Bank was accepted into membership of the Federal Home Loan Bank of Atlanta. At that time the Bank assumed $3.0 million of advances previously issued to Gulf Bank. The Bank had increased the outstanding borrowings from FHLB to $8.0 million at year end. The Bank has pledged a security interest in its real estate loan portfolio to the FHLB as collateral for borrowings obtained from the FHLB.

The details of FHLB borrowings at December 31, 2004 were as follows

| | Amount |            | Maturity Date |  | Interest Rate     | 
| | ------ | ---------- | ------------- |  | ----------------- | 
| |        | $1,000,000 |               |  | March 26, 2008    | 
| |        | 2,000,000  |               |  | March 7, 2005     | 
| |        | 3,000,000  |               |  | December 10, 2007 | 
| |        | 2,000,000  |               |  | December 8, 2008  | 
| |        | $8,000,000 |               |  |                   | 



Federal funds purchased totaled $2,500,000 and $1,000,000 at December 31, 2004 and 2003.

NOTE 9  INCOME TAXES

The Corporation recorded no current or deferred benefit for income taxes in 2004 and 2003 as a result of recording a valuation allowance in an amount equal to its net deferred tax assets.

Effective tax rates differ from federal statutory rates applied to financial statement income (loss) due to the following.

| |                                                              |  | 2004 |         |   | 2003 |  
| | ------------------------------------------------------------ |  | ---- | ------- | - | ---- | -
| | Federal statutory rate of 34% times financial statement loss |  | $    | (77,532 | ) |      | $
| | Effect of:                                                   |  |      |         |   |      |  
| | State taxes                                                  |  |      |        |   |      |  
| | Deferred tax valuation allowance                             |  |      | 77,532  |   |      |  
| |                                                              |  | $    |        |   |      | $



Year-end deferred tax assets and liabilities were due to the following:

| |                                                  |  | 2004 |            |   | 2003 |  
| | ------------------------------------------------ |  | ---- | ---------- | - | ---- | -
| | Deferred tax assets:                             |  |      |            |   |      |  
| | Net operating loss carryforwards (expires 2023)  |  | $    | 4,084,979  |   |      | $
| | Accrual to cash basis reporting for tax purposes |  |      |           |   |      |  
| | Allowance for loan losses                        |  |      | 331,555    |   |      |  
| | Unrealized loss on securities available for sale |  |      | 47,800     |   |      |  
| | Depreciation                                     |  |      | 119,078    |   |      |  
| | Loan fee income                                  |  |      | 134,833    |   |      |  
| | Other                                            |  |      | 50,287     |   |      |  
| | Deferred tax liabilities:                        |  |      |            |   |      |  
| | Intangibles                                      |  |      | (178,785   | ) |      |  
| | Accrual to cash basis reporting for tax purposes |  |      | (70,923    | ) |      |  
| | Net deferred tax asset                           |  |      | 4,518,824  |   |      |  
| | Valuation allowance for deferred tax assets      |  |      | (4,518,824 | ) |      |  
| | Net deferred tax asset after valuation allowance |  | $    |           |   |      | $

(Continued)

54



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 9  INCOME TAXES (Continued)

The Corporation has recorded a valuation allowance on the deferred tax assets to reduce the total to an amount that management believes is more likely than not to be realized. The valuation allowance increased $77,532 during the year ended December 31, 2004 and increased by $150,503 during the year ended December 31, 2003. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. No income tax benefits have been provided for the years ended December 31, 2004 and 2003, because the results of operations do not provide sufficient evidence that the net operating losses available for carryforward will be utilized in the future.

The Corporation has available federal net operating loss carryforwards approximating the following at December 31, 2004:

| |  | Expiring December 31, |  |   |            | 
| |  | --------------------- |  | - | ---------- | 
| |  | 2004                  |  | $ | 480,000    | 
| |  | 2005                  |  |   | 760,000    | 
| |  | 2006                  |  |   | 526,000    | 
| |  | 2007                  |  |   | 935,000    | 
| |  | 2008                  |  |   | 905,000    | 
| |  | 2009                  |  |   | 872,000    | 
| |  | 2010                  |  |   | 898,000    | 
| |  | 2011                  |  |   | 288,000    | 
| |  | 2012                  |  |   | 844,000    | 
| |  | 2018                  |  |   | 308,000    | 
| |  | 2019                  |  |   | 591,000    | 
| |  | 2020                  |  |   | 1,268,000  | 
| |  | 2021                  |  |   | 1,416,000  | 
| |  | 2022                  |  |   | 322,000    | 
| |  | 2023                  |  |   | 442,000    | 
| |  |                       |  | $ | 10,855,000 | 



As a result of changes in ownership of the Company in excess of 50% in 1993 and 2000, the net operating loss carryforwards expiring in periods prior to 2020 are limited in the amount that may be used in any year.



NOTE 10  RELATED PARTY TRANSACTIONS



Loans to principal officers, directors, and their affiliates in 2004 and 2003 were as follows.



| |                       |  | 2004 |            |   | 2003 |  
| | --------------------- |  | ---- | ---------- | - | ---- | -
| |                       |  |      |            |   |      |  
| | Beginning balance     |  | $    | 2,370,932  |   |      | $
| | New and renewed loans |  |      | 695,000    |   |      |  
| | Payments and renewals |  |      | (2,370,932 | ) |      |  
| | Ending balance        |  | $    | 695,000    |   |      | $



Deposits from principal officers, directors, and their affiliates at year-end 2004 and 2003 were $1,564,900 and $1,101,912.

(Continued)

55



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 11  STOCK OPTIONS



The Corporation has granted stock options for the purchase of shares of common stock of the Corporation to directors, former directors, employees and select consultants of the Corporation under various compensation agreements and actions of the Board of Directors. All options for the purchase of common stock of the Corporation expire 10 years from the date of issue. All options available under the Plans have been issued.



A summary of the options for the purchase of common stock of the Corporation as of December 31, 2004 and 2003, and changes during the years then ended is presented below.



| |                                                             |  | 2004      |   | 2003                           
| | ----------------------------------------------------------- |  | --------- | - | -------------------------------
| |                                                             |  | Shares    |   | Weighted
Average
Exercise
Price
| |                                                             |  |           |   |                                
| | Outstanding at beginning of year                            |  | 297,517   |   | $                              
| | Granted                                                     |  | 921,500   |   |                                
| | Exercised                                                   |  | (27       | ) |                                
| | Forfeited or expired                                        |  | (42,967   | ) |                                
| | Outstanding at end of year                                  |  | 1,176,023 |   | $                              
| | Options exercisable at year-end                             |  | 141,800   |   | $                              
| | Weighted average fair value of  options
granted during year |  |           |   | $                              



Options outstanding at year-end 2004 were as follows.



|                         |  | Outstanding |  | Exercisable                                 | 
|------------------------ |  | ----------- |  | ------------------------------------------- | 
|Range of Exercise Prices |  | Number      |  | Weighted
Average
Remaining
Contractual
Life | 
|                         |  |             |  |                                             | 
|$1.30-$2.00              |  | 57,104      |  | 6.5 years                                   | 
|$2.35                    |  | 175,200     |  | 7.8                                         | 
|$2.63                    |  | 921,500     |  | 9.0                                         | 
|$3.75                    |  | 12,673      |  | 3.5                                         | 
|$6.25                    |  | 9,546       |  | 1.0                                         | 
|Outstanding at year-end  |  | 1,176,023   |  | 8.6                                         | 

(Continued)

56



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 12  STOCK WARRANTS



As of December 31, 2004, the Corporation has issued outstanding warrants to purchase 6,889,050 shares of common stock, including Class A, B, C and D warrants.



Class A Warrants



An aggregate of 942,625 Class A warrants are outstanding as of December 31, 2004. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $4.00, subject to adjustment for stock splits, reverse stock splits and other events of recapitalization. The Corporation may redeem the Class A warrants at any time if the following conditions have been satisfied: (i) the Corporation has registered for resale the common stock issuable upon exercise of the Class A warrants; (ii) the common stock, as publicly traded in the over-the-counter market or on a national securities exchange, has closed at a price of at least $8.50 for 20 continuous trading days; and (iii) the Corporation pays $4.00 per outstanding warrant, subject to adjustment. If not earlier redeemed, the Class A warrants will expire no later than April, 2008.



Class B Warrants



An aggregate of 942,625 Class B warrants are outstanding as of December 31, 2004. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $3.50, subject to adjustment for stock splits, reverse stock splits and other events of recapitalization. The Class B warrants will expire no later than April, 2006.



Class C Warrants



An aggregate of 180,000 Class C warrants are outstanding as of December 31, 2004. Each warrant entitles the holder to purchase 2.3 shares of common stock at an exercise price of $3.75 per share, subject to adjustment for stock splits, reverse stock splits and other events of recapitalization. The Corporation may redeem the Class C warrants at any time if the following conditions have been satisfied: (i) the Corporation has registered for resale the common stock issuable upon exercise of the Class C warrants; (ii) the common stock, as publicly traded in the over-the-counter market or on a national securities exchange, has closed at a price of at least $8.50 for 20 continuous trading days; and (iii) the Corporation pays $8.65 per outstanding warrant, subject to adjustment. If not earlier redeemed, the Class C warrants will expire no later than May 15, 2007.



Class D Warrants



An aggregate of 5,110,000 Class D warrants are outstanding as of December 31, 2004. Each Class D warrant entitles the holder to purchase one share of our common stock at an exercise price per share of $4.00. The exercise price is subject to adjustment upon the occurrence of certain events as provided in the Class D warrant certificate. Our Class D warrants may be exercised at any time until May 13, 2009, at which time they will expire.

The Corporation has the right to redeem the Class D warrants issued in this offering at a redemption price of $0.50 per warrant (subject to adjustment in the event of a stock split, reverse stock split, stock dividend on the common stock or the like) after providing 30 days prior written notice to the Class D warrant holders at any time after the closing price of our common stock equals or exceeds $5.60, for five consecutive trading days. If the Corporation calls the Class D warrants for redemption, they will be exercisable until the close of business on the business day next preceding the specified redemption date.

(Continued)

57



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 12  STOCK WARRANTS(Continued)



Other Warrants



An aggregate of 73,800 warrants have been issued to Franklin National Financial Group, LLC for compensation for certain private offerings of the Corporations common shares.



NOTE 13  CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS



Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. The Corporation has agreed with Bank regulators to keep the Bank well capitalized.



Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of December 31, 2004 and 2003, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.



The Banks actual and required capital amounts and ratios (in thousands of dollars) at year-end are presented below.



|     |                                        |  | Actual |        | For Capital
Adequacy Purposes |       | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |       
|---- | -------------------------------------- |  | ------ | ------ | ----------------------------- | ----- | ---------------------------------------------------------------- | ------
|     |                                        |  | Amount |        |                               | Ratio |                                                                  | Amount
|     |                                        |  |        |        |                               |       |                                                                  |       
|2004 |                                        |  |        |        |                               |       |                                                                  |       
|     | Total Capital to risk weighted assets  |  | $      | 16,377 |                               |       | 10.03                                                            | %     
|     | Tier 1 Capital to risk weighted assets |  |        | 14,699 |                               |       | 9.00                                                             |       
|     | Tier 1  Capital to average assets      |  |        | 14,699 |                               |       | 8.37                                                             |       
|2003 |                                        |  |        |        |                               |       |                                                                  |       
|     | Total Capital to risk weighted assets  |  | $      | 8,200  |                               |       | 10.67                                                            | %     
|     | Tier 1 Capital to risk weighted assets |  |        | 7,462  |                               |       | 9.71                                                             |       
|     | Tier 1 Capital to average assets       |  |        | 7,462  |                               |       | 8.01                                                             |       



The holding companys capital amounts and ratios (in thousands of dollars) at year-end are presented below.



|     |                                        |  | Actual |        |  | For Capital Adequacy Purposes |      
|---- | -------------------------------------- |  | ------ | ------ |  | ----------------------------- | -----
|     |                                        |  | Amount |        |  | Ratio                         |      
|2004 |                                        |  |        |        |  |                               |      
|     | Total Capital to risk weighted assets  |  | $      | 16,474 |  |                               | 10.09
|     | Tier 1 Capital to risk weighted assets |  |        | 14,481 |  |                               | 8.87 
|     | Tier 1 Capital to average assets       |  |        | 14,481 |  |                               | 8.24 

(Continued)

58



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 14  COMMITMENTS AND CONTINGENCIES

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance-sheet risk was as follows at year-end.

| |                                   |  | 2004 |            | 2003 |  
| | --------------------------------- |  | ---- | ---------- | ---- | -
| | Commitments to make loans - fixed |  | $    | 319,891    |      | $
| | - variable                        |  |      | 37,183,015 |      |  
| | Standby Letters of credit         |  |      | 1,779,991  |      |  
| |                                   |  | $    | 39,282,897 |      | $



Commitments to make loans are generally made for periods of 60 days or less. Fixed rate loan commitments have interest rates ranging from 3.5% to 12.0% and maturities ranging from one year to three years.

Employment Agreements: The Corporation has employment agreements with the Chairman and the President of the Bank. Under terms of the agreement, the Corporation agreed to pay a base salary of $130,000 per year, to grant options, and to provide certain other benefits and compensation. The employment agreements also included a provision requiring certain payments upon the occurrence of certain events leading to the termination of employment such as a change in control, death, or disability. The 2003 agreements were automatically renewed and the expirations were extended to December 31, 2004.

NOTE 15  FAIR VALUES OF FINANCIAL INSTRUMENTS

Carrying amount and estimated fair values of financial instruments were as follows at year-end:

|                                         |  |  | 2004         |              |   | 2003 |            
|---------------------------------------- |  |  | ------------ | ------------ | - | ---- | -----------
|                                         |  |  | Carry
Amount |              |   |      | Fair 
Value
|Financial assets                         |  |  |              |              |   |      |            
|Cash and due from financial institutions |  |  | $            | 6,213,556    |   |      |            
|Securities available for sale            |  |  |              | 5,625,361    |   |      |            
|Securities held to maturity              |  |  |              | 15,790,233   |   |      |            
|Loans, net                               |  |  |              | 153,729,571  |   |      |            
|Federal Reserve Bank stock               |  |  |              | 610,050      |   |      |            
|Federal Home Loan Bank stock             |  |  |              | 548,100      |   |      |            
|Accrued interest receivable              |  |  |              | 604,053      |   |      |            
|Financial liabilities                    |  |  |              |              |   |      |            
|Deposits                                 |  |  | $            | (158,158,474 | ) |      |            
|Federal funds purchased                  |  |  |              | (2,500,000   | ) |      |            
|Repurchase agreements                    |  |  |              | (1,257,119   | ) |      |            
|Federal Home Loan Bank advances          |  |  |              | (8,000,000   | ) |      |            
|Accrued interest                         |  |  |              | (293,346     | ) |      |            

(Continued)

59



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 15  FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)



The methods and assumptions used to estimate fair value are described as follows.



Carrying amount is the estimated fair value for cash and cash equivalents, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing. The fair value of off-balance-sheet items is not significant.



NOTE 16  PARENT CORPORATION ONLY CONDENSED FINANCIAL INFORMATION



Condensed financial information of PanAmerican Bancorp follows.



|CONDENSED BALANCE SHEETS
December 31,      
|-------------------------------------------
|                                           
|ASSETS                                     
|Cash and cash equivalents                  
|Investment in Bank subsidiary              
|Other assets                               
|                                           
|Total assets                               
|                                           
|LIABILITIES AND SHAREHOLDERS EQUITY       
|Liabilities                                
|Shareholders equity                       
|                                           
|Total liabilities and shareholders equity 
|                                           
|CONDENSED STATEMENTS OF INCOME
December 31,
|                                           
|                                           
|Equity in net (income) loss of Bank Less:  
|Less:                                      
|Interest expense                           
|Salaries and benefits                      
|Other expense                              
|                                           
|Net loss                                   

(Continued)

60



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 16  PARENT CORPORATION ONLY CONDENSED FINANCIAL INFORMATION(Continued)



CONDENSED STATEMENTS OF CASH FLOWS

Years ended December 31,



|                                              |  |  | 2004 |             |   | 2003 |  
|--------------------------------------------- |  |  | ---- | ----------- | - | ---- | -
|Cash flows from operating activities          |  |  |      |             |   |      |  
|Net loss                                      |  |  | $    | (228,035    | ) |      | $
|Adjustments:                                  |  |  |      |             |   |      |  
|Equity in undistributed (income) loss of Bank |  |  |      | (134,238    | ) |      |  
|Change in other assets and other liabilities  |  |  |      | 115,096     |   |      |  
|Net cash from operating activities            |  |  |      | (247,177    | ) |      |  
|Cash flows from investing activities          |  |  |      |             |   |      |  
|Investment in Bank                            |  |  |      | (10,753,337 | ) |      |  
|Net cash from investing activities            |  |  |      | (10,753,337 | ) |      |  
|Cash flows from financing activities          |  |  |      |             |   |      |  
|Increase in note payable                      |  |  |      | 1,000,000   |   |      |  
|Repayment of note payable                     |  |  |      | (1,000,000  | ) |      |  
|Issuance of preferred shares                  |  |  |      | 3,095,000   |   |      |  
|Repayment of preferred shares                 |  |  |      | (2,785,000  | ) |      |  
|Proceeds from stock issue                     |  |  |      | 10,937,611  |   |      |  
|Dividends paid                                |  |  |      | (123,724    | ) |      |  
|Net cash from financing activities            |  |  |      | 11,123,887  |   |      |  
|Net change in cash and cash equivalents       |  |  |      | 123,373     |   |      |  
|Beginning cash and cash equivalents           |  |  |      | 54,916      |   |      |  
|Ending cash and cash equivalents              |  |  | $    | 178,289     |   |      | $



NOTE 17  EARNINGS (LOSS) PER SHARE



The factors used in the earnings (loss) per share computation follow.



|                                                   |  |  | 2004 |           |   | 2003 |  
|-------------------------------------------------- |  |  | ---- | --------- | - | ---- | -
|Basic and diluted                                  |  |  |      |           |   |      |  
|Net loss                                           |  |  | $    | (228,035  | ) |      | $
|Less: dividends paid on preferred shares           |  |  |      | (123,724  | ) |      |  
|Net loss attributable to common shareholders       |  |  |      | $(351,759 | ) |      | $
|Weighted average common shares outstanding         |  |  |      | 7,402,509 |   |      |  
|Basic and diluted earnings (loss) per common share |  |  | $    | (0.05     | ) |      | $



Stock options and stock warrants for 1,218,290 and 7,249,050 shares of common stock were not considered in computing diluted earnings per common share for 2004, and stock options and stock warrants for 283,417 and 2,373,050 shares of common stock were not considered in computing diluted earnings per common share for 2003, because they were antidilutive.

(Continued)

61



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 18  OTHER COMPREHENSIVE INCOME (LOSS)



Other comprehensive income (loss) components and related taxes were as follows.



| |                                                                                  |  | 2004 |         |   | 2003 |  
| | -------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
| | Unrealized holding gains (losses) on available-for-sale securities               |  | $    | (27,609 | ) |      | $
| | Less: reclassification adjustments for gains (losses) later recognized in income |  |      | 32,664  |   |      |  
| | Net unrealized gains (losses)                                                    |  |      | 5,055   |   |      |  
| | Tax effect                                                                       |  |      | (1,890  | ) |      |  
| | Other comprehensive income (loss) before minority interest                       |  |      | 3,165   |   |      |  
| | Minority interest in other comprehensive (income) loss of subsidiary             |  |      | (3      | ) |      |  
| | Other comprehensive income (loss)                                                |  | $    | 3,162   |   |      | $



NOTE 19  PURCHASE OF ASSETS AND ASSUMPTION OF SELECTED LIABILITIES OF GULF BANK



In order to expand its banking presence in Miami Dade County, the Bank executed the Gulf Bank Asset Purchase Agreement that closed on February 17, 2004 for $3.7 million. This transaction caused the transfer of all of Gulf Banks loans, totaling $42 million, to the Bank along with certain contracts of Gulf Bank and the books and records of Gulf Bank relating to the transferred assets. In addition, the Bank received a cash payment of approximately $28 million and fixed assets valued at approximately $500,000. The Bank assumed all of the deposits totaling $67 million of Gulf Bank and Federal Home Loan Bank Advances totaling $3 million and entered into an assignment and sublease agreements for the lease of the three Gulf Bank branches in Miami-Dade County, Florida.



The Bank accounted for the transaction as a business combination under the purchase accounting method. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands of dollars).



| | Cash                                                |  |  | $ | 27,317 | 
| | --------------------------------------------------- |  |  | - | ------ | 
| | Loans, net of allowance for loan losses of $458,000 |  |  |   | 41,750 | 
| | Fixed Assets                                        |  |  |   | 508    | 
| | Goodwill                                            |  |  |   | 3,344  | 
| | Core deposit intangible                             |  |  |   | 828    | 
| | Total assets acquired                               |  |  |   | 73,747 | 
| | Deposits                                            |  |  |   | 67,013 | 
| | Federal Home Loan Bank borrowings                   |  |  |   | 3,000  | 
| | Total liabilities assumed                           |  |  |   | 70,013 | 
| | Net assets acquired                                 |  |  | $ | 3,734  | 



The following table summarizes selected pro forma financial information but does not include amounts related to acquisition costs that were incurred to complete implementation of the acquisition.



The selected pro forma combined financial information, while helpful in illustrating the financial characteristics of the acquisition under one set of assumptions, does not reflect the impact of possible revenue enhancements, expense efficiencies and other factors that may result as a consequence of the acquisition and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined business would have been had our companies been combined during the period presented.

(Continued)

62



---

PANAMERICAN BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004 and 2003



NOTE 19  PURCHASE OF ASSETS AND LIABILITIES OF GULF BANK (Continued)



PANAMERICAN BANCORP, INC.

SELECT PROFORMA COMBINED FINANCIAL INFORMATION

| |                                             |  | PanAmerican Bancorp the year ended December 31, 2004 |           |   | Gulf for the period ended February 17, 2004 |   |         | Acquisition Proforma Adjustments |  |   | Proforma PanAmerican for the year ended December 31, 2004 |  
| | ------------------------------------------- |  | ---------------------------------------------------- | --------- | - | ------------------------------------------- | - | ------- | -------------------------------- |  | - | --------------------------------------------------------- | -
| | Net interest income                         |  | $                                                    | 6,519,437 |   |                                             | $ | 284,537 |                                  |  | $ | (8                                                        | )
| | Net (loss) income                           |  |                                                      | (228,035  | ) |                                             |   | 158,183 | (1)                              |  |   | (8                                                        | )
| | Basic and diluted earnings (loss) per share |  |                                                      | (0.05     | ) |                                             |   |        |                                  |  |   |                                                          |  



(1)

Includes Gulf Bank net gains on sales of securities of $184,000

| |                                             |  | PanAmerican Bancorp the year ended December 31, 2003 |           |   | Gulf for the period ended February 17, 2003 |   |           | Acquisition Proforma Adjustments |  |   | Proforma PanAmerican for the year ended December 31, 2003 |  
| | ------------------------------------------- |  | ---------------------------------------------------- | --------- | - | ------------------------------------------- | - | --------- | -------------------------------- |  | - | --------------------------------------------------------- | -
| | Net interest income                         |  | $                                                    | 3,735,430 |   |                                             | $ | 2,722,945 |                                  |  | $ | (43,222                                                   | )
| | Net (loss) income                           |  |                                                      | (442,655  | ) |                                             |   | (139,663  | )                                |  |   | (1,131,553                                                | )
| | Basic and diluted earnings (loss) per share |  |                                                      | (0.08     | ) |                                             |   |          |                                  |  |   |                                                          |  



NOTE 20  QUARTERLY FINANCIAL DATA (UNAUDITED)

|               |  |                 |           |  |                     |   |           |                   |  |   | Earnings (loss) 
Per Share |  
|-------------- |  | --------------- | --------- |  | ------------------- | - | --------- | ----------------- |  | - | -------------------------- | -
|               |  | Interest Income |           |  | Net Interest Income |   |           | Net Income (Loss) |  |   | Basic                      |  
|2004           |  |                 |           |  |                     |   |           |                   |  |   |                            |  
|First quarter  |  | $               | 1,565,332 |  |                     | $ | 1,082,459 |                   |  | $ | (566,583                   | )
|Second quarter |  |                 | 2,059,873 |  |                     |   | 1,483,586 |                   |  |   | (55,561)                   |  
|Third quarter  |  |                 | 2,378,823 |  |                     |   | 1,817,218 |                   |  |   | 158,684                    |  
|Fourth quarter |  |                 | 2,844,562 |  |                     |   | 2,136,174 |                   |  |   | 235,425                    |  
|2003           |  |                 |           |  |                     |   |           |                   |  |   |                            |  
|First quarter  |  | $               | 1,207,123 |  |                     | $ | 888,499   |                   |  | $ | 80,505                     | )
|Second quarter |  |                 | 1,182,331 |  |                     |   | 906,148   |                   |  |   | (456,946                   | )
|Third quarter  |  |                 | 1,250,074 |  |                     |   | 940,270   |                   |  |   | 106,714                    |  
|Fourth quarter |  |                 | 1,292,939 |  |                     |   | 1,000,513 |                   |  |   | (172,928                   | )

NOTE 21  SUBSEQUENT EVENTS (UNAUDITED)

On February 15, 2005 the Corporation engaged an investment banking firm, Brean Murray and Co., Inc. to act as the Companys lead placement agent for a private offering of equity securities of the Corporation with a mandate to raise approximately $15 million. The transaction is expected to be completed in the second quarter of 2005.

On February 21, 2005 the Corporation engaged Franklin National Financial Group LLC to act as Non Exclusive Placement Agent for a private offering of equity securities of the Corporation with a mandate to raise approximately $3 million. The transaction is expected to be completed in the first quarter of 2005.

On February 23, 2005, the Corporation signed a Commitment Letter with International Bankers Bank of Orlando, Florida to borrow up to $2 million on a revolving credit basis over a two year period.

63



---

ITEM 8.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 8A.

CONTROLS AND PROCEDURES



EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.



As of December 31, 2004 an evaluation was carried out under the supervision and with the participation of PanAmerican Bancorps management, including our  Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are, to the best of their knowledge, reasonably effective as of December 31, 2004. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in PanAmerican Bancorps internal controls or in other factors that could significantly affect its internal controls.



CHANGES IN INTERNAL CONTROLS.



The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive Officer and Chief Financial Officer; including any corrective actions with regard to significant deficiencies and material weaknesses. Management has plans to apply additional resources to improve our internal control structure in 2005 to meet regulatory requirements (including Sarbanes-Oxley Act requirements).

64



---

PART III



ITEM 9.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT



MANAGEMENT:COMPANY OFFICERS AND DIRECTORS



|Name                 |  | Term Expires |  | Age |  | Position                       |  | Position Since  | 
|-------------------- |  | ------------ |  | --- |  | ------------------------------ |  | --------------- | 
|James F. Partridge   |  | 2005         |  | 73  |  | Chairman, Holding Corp.        |  | April, 2000     | 
|Michael E. Golden    |  | 2005         |  | 60  |  | Director, Chairman of the Bank |  | May, 2002       | 
|Hugo Castro          |  | 2006         |  | 61  |  | Director, Bank President       |  | April, 2000     | 
|Leonard F. Marinello |  | 2006         |  | 63  |  | Director                       |  | June, 2000      | 
|Nelson Famadas       |  | 2007         |  | 55  |  | Director                       |  | May, 2002       | 
|Stephen L. Perrone   |  | 2007         |  | 61  |  | Director                       |  | September, 2001 | 
|Alberto Valle        |  | 2005         |  | 66  |  | Director                       |  | September, 2001 | 

Each director is elected for a period of three years. The term of directorships are staggered as to expiration date, such that for the present board of directors, each year approximately one-third of the directorship is subject to re-election, providing for additional stability and continuity. Vacancies and newly created directorships resulting from any increase in the number of authorized directors may be filled by a majority vote of the directors then remaining in office. Certain information with respect to the background of each director and the executive officers of the Company is set forth below.

James F. Partridge: Mr. Partridge is 73 years old and has been the Chairman of the Board of the Holding Company since April 2000 and is a Director of the Bank. He retired as President of Visa International, Latin America and Caribbean Region, on June 30, 1999 after serving since 1978. At present he serves as a Strategic Director on the Regional Board of Directors of Visa International and is Chairman of its Executive & Planning Committee. He joined the management of Visa International, as Vice President in charge of the Development Division for the Western United States, Latin America and Asia-Pacific in 1978. His term expires on June 17, 2005.

Michael E. Golden: Michael E. Golden is 60 years old and is the President, Chief Executive Officer of the Holding Corporation and has been a Director of the Holding Company and Bank since May 2002. He is also the Chairman of the Bank. Mr. Golden has been in the investment banking /securities business for over 25 years. He was a Senior Vice President in sales and management at Smith Barney from 1979 to 1989. In 1989, he started a securities firm, First Colonial Securities Group, which grew nationwide to 25 offices and 200 retail brokers specializing in asset management and investment banking. The firm was responsible for numerous initial public offerings (IPO) in the commercial banking and industrial business. Golden was the Vice Chairman and Founder of Carnegie Bank of Princeton NJ in 1987 where his firm, First Colonial Securities Group, a member of the NASD, was the main underwriter of the IPO. First Colonial Securities Group served as an investment banker in the sale of Carnegie Bank. He was also on the board of the Boca Raton National Bank of Florida. In 1998, Mr. Golden participated int the purchase of Admiralty Bank of Palm Beach Garden and along with Bruce Mahon; they were the Chair and Vice Chair respectively. Mr. Goldens firm, First Colonial Securities Group raised the initial capital of $8 million through a private placement offering and then did an initial public offering raising $13.3 million in September, 1998. Admiralty Bank grew from $45 million in assets in 1998, to over $500 million in less than four (4) years and was subsequently sold in 2002 to Royal Bank of Canada. Mr. Golden has also been on the board of other banks and industrial companies. Mr. Golden is currently Chairman of the Kid Academy, a child-learning center that he founded in 1997.

Mr. Golden has also been very active in the community in both South Jersey and South Florida where he served on the boards of many philanthropic organizations including the Jewish Federation of South Palm Beach County, Florida, Donna Klein Jewish Academy, President of the South Jersey Heart Association, Trustee of the Cooper Hospital of South Jersey, President of the Ben Gurion University of South Jersey chapter and other organizations. His term expires on June 17, 2005.

65



---

Hugo A. Castro: Mr. Castro is 61 years old and is the President, Chief Executive Officer and Director of the Bank, and is Chairman of the Banks Loan and Discount Committee. He also serves on the Board of Directors of PanAmerican Bancorp where he is a shareholder, and Corporate Secretary. Mr. Castro is a graduate of the School of Banking of the South at Louisiana State University, he holds a degree from Miami-Dade College, and attended La Salle University in Havana, Cuba in 1960 and 1961.

Mr. Castro is a career banker of 40 years. Until 1999, Mr. Castro served as President and Chief Executive Officer of Eastern National Bank in Miami, Florida. He was an Executive Vice President with Totalbank in Miami, Florida from 1996 through 1998. From 1994 to 1996, he was Executive Vice President with Intercontinental Bank, Miami, Florida, having joined Intercontinental upon the acquisition of Commercial Trust Bank, Miami, Florida in 1993. Mr. Castro was the President, Chief Executive Officer, Director, and a founding shareholder of Commercial Trust Bank, Miami, Florida from 1988 to 1993, following 20 years of service at Commercial Bank & Trust Company, where he served as Executive Vice President.

In 1988 Commercial Bank & Trust Company was an affiliate of Florida Commercial Banks Holding Company with $1 Billion in Assets. The company was acquired by First Union [today Wachovia] in its first transaction in South Florida, providing the market share to establish its base over the three counties. Taking advantage of this transaction, and the past twenty years of service to the bank; Mr. Castro organized a group of investors to purchase the Village Bank of Hialeah, a small community bank, under a cease and desist order from the FDIC. The Village Bank was renamed Commercial Trust Bank, and with new capital and management under the direction of Mr. Castro as President and Chief Executive Officer, restored the bank to regulatory standards and turned a profit after the first 12 months of operation of the bank. His term expires on June 17, 2006.

Leonard F. Marinello: Mr. Marinello is 63 years old and has served as a Director of the Bank and a Director of the Holding Company since June 2000. Mr. Marinello has been President and Chief Executive Officer of Allied Plating Supplies, Inc., a company engaged in the metal finishing business, from 1957 to the present, where he has been active in all phases of the business including domestic sales, international sales, manufacturing and finance. Mr. Marinello was a Director of Commercial Trust Bank from 1988 to 1993, when it was sold. During this time, he was an active member of that banks Loan and Audit Committees. Mr. Marinello has also served as a Director of several privately held companies, including Allied Plating Supplies, Inc. (Chairman), Arch Drain Block Co. (Chairman), Brick Oven Pizzaria and Royal Sport, Inc. Mr. Marinello is a graduate of the University of Miami, where he received a Bachelors degree in Finance. His term expires on June 17, 2006.

Nelson Famadas, Ph.D.:Dr. Famadas is 55 years old and been a Director and Vice Chairman of the Holding Company since May 2002 and is also a Director of the Bank. Dr. Famadas is also the Chairman of the Audit Committee of the Board of the Holding Corporation. Dr. Famadas serves on the boards of various civic and charitable organizations both in Puerto Rico and Florida. He is also a member of the board of a community-based home healthcare agency, as well as of two non-profit hospitals. He is presently an Adjunct Professor at Florida International Universitys School of Business Administration, lecturing in Operations Management. Dr. Famadas is Chairman and CEO of Gables Holding Corporation, a real estate development company, with over $116 millions of projects under development. His term expires on June 8, 2007.



Stephen L. Perrone: Mr. Perrone is 61 years old and is a Director of the Bank and has been a Director of the Holding Company since September 2001. Mr. Perrone is also a member of the Audit Committee of the Board of Holding Company. Mr. Perrone is Founder and President of Brickell Bay Capital Group, a private investment firm, which was formed in 1996. Prior to this, Mr. Perrone was a Partner with the Law Offices of Shutts & Bowen in Miami, Florida where be began his law career in 1968. During his time as a Partner at Shutts & Bowen, Mr. Perrone was involved in corporate mergers and acquisitions, formation and structuring of investment vehicles for U.S. and non-U.S. investors and businesses and U.S. income and estate planning matters. Mr. Perrone is also a Certified Public Accountant, licensed in Florida. Mr. Perrone has been active in community affairs, having been past president of the Miami Downtown Lions Club, and the Coral Gables South Miami Khoury Baseball League, where he was active for twelve years. He was a founding member and still is on the Board of the Archdiocese of Miami Education Foundation. He has also served on the Boards of Gulliver Schools and the Miami City Ballet. His term expires on June 8, 2007.

66



---

Alberto Valle:Mr. Valle is 66 years old and is a Director of the Bank and has been a Director of the Holding Company since September 2001. Mr. Valle is also a member of the Audit Committee of the Board of the Holding Company, and is a Member of the Banks Loan & Discount Committee, Asset/Liability & Investment Committee, and the Audit & Examining Committee. Mr. Valle attended the Havana Institute in Havana, Cuba, where he received his Bachelor in Science. He has been employed with BMC Investments, and Athlone of Florida, Inc., since 1987, where he is responsible for the direct supervision of the construction and administration of new developments in Stuart, Florida, real estate holdings in Palm Beach County, and related corporations. Mr. Valle was a Director of Commercial Trust Bank from 1988 to 1993, when it was sold. He also served as Vice President and Lending Officer for Commercial Bank and Trust from 1985 to 1988. His term expires on June 17, 2005.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE



Section 16(a) of the Securities Exchange Act of 1934 requires the Companys directors and executive officers, and persons who own more than 10% of a registered class of the Companys equity securities, to file with the Securities and Exchange Commission reports of ownership and changes in ownership of common stock of the Company. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.



Based solely on review of the copies of Section 16(a) reports furnished to the Company, the Company believes that none of the foregoing persons failed to file during 2004 on a timely basis, as disclosed in those forms, reports required to be filed by Section 16(a) of the Exchange Act.



ITEM 10. EXECUTIVE COMPENSATION



COMPENSATION OF MANAGEMENT



The following Table shows information concerning annual and long-term compensation to certain Executive Officers for services to the Company for the years ended December 31, 2004, 2003, and 2002. The table includes information on the Company Director and the former Bank Regional President Palm Beach County, Philip C. Modder, and the Company Director and Banks President and CEO Hugo A. Castro, (collectively, the Named Executive Officers).



|                                       |  |  | Annual Compensation |  | Long-Term Compensation |        
|-------------------------------------- |  |  | ------------------- |  | ---------------------- | -------
|Name and Principal Position            |  |  | Year                |  | Salary                 |        
|Michael E. Golden                      |  |  | 2004                |  |                        | 130,000
|Director, President and Chief          |  |  | 2003                |  |                        | 125,000
|Executive Officer of the Holding Corp. |  |  | 2002                |  |                        |       
|Hugo A. Castro                         |  |  | 2004                |  | $                      | 130,000
|Director, President and CEO of         |  |  | 2003                |  | $                      | 125,000
|PanAmerican Bank                       |  |  | 2002                |  | $                      | 125,000
|Philip C. Modder, Former               |  |  | 2003                |  | $                      | 125,000
|Director and Regional President, Palm  |  |  | 2002                |  | $                      | 125,000
|Beach County of PanAmerican Bank       |  |  |                     |  |                        |        



(1)

Includes automobile allowances.

(2)

Bonus payment

67



---

The following table shows information concerning options granted to Named Executive Officers during the fiscal year ended December 31, 2004.



Option / SAR Grants in Last Fiscal Year



|Name              |  | Number of Securities Underlying Options/ SARs Granted |  | % of Total Options/SARs Granted
to Employees in Fiscal Year |  | Exercise or
Base Price
($/Share) |  | Expiration
Date
|----------------- |  | ------------------------------------------------------ |  | ------------------------------------------------------------ |  | -------------------------------- |  | ---------------
|Michael E. Golden |  | 150,000                                                |  | 34%                                                          |  | 2.63                             |  | 2014           
|Hugo A. Castro    |  | 25,000                                                 |  | 6%                                                           |  | 2.63                             |  | 2014           



The following table shows information concerning option exercises and year-end option values for options held by the Named Executive Officers.



Aggregated Option/SAR Exercises in Last Fiscal Year

and Fiscal Year-End Option SAR Values (Vested Portion only)



|Name              |  | Shares Acquired on Exercise |  |  | Value Realized |  | Number of Securities Underlying Unexercised Options/SARs at FY-End |  |  | Value of Unexercised In-the-Money Options/SARs at FY-End (1) | 
|----------------- |  | --------------------------- |  |  | -------------- |  | ------------------------------------------------------------------- |  |  | ------------------------------------------------------------- | 
|Michael E. Golden |  |                            |  |  | $             |  | 3,800                                                               |  |  | $   6,384 (2)                                                 | 
|Hugo A. Castro    |  |                            |  |  | $             |  | 23,800                                                              |  |  | $ 51,984 (3)                                                  | 



(1)

Based on the closing market value of the Corporations common stock on December 31, 2004 of $4.03.

(2)

Average option exercise price was $2.35 per share.

(3)

Average option exercise price was $1.82 per share.



EMPLOYMENT AGREEMENTS



Michael E. Golden has an Employment Agreement with the Holding Company dated January 1, 2003 which terms do not expire unless either party notifies the other, sixty days prior to the ending date. Mr. Goldens Employment Agreement provides that he will receive: a minimum base salary of $130,000; health, hospitalization, and disability benefits; an automobile allowance; and participation in an executive incentive bonus plan.



Hugo A. Castros Employment Agreement with the Bank dated January 1, 2003 which terms do not expire unless either party notifies the other, sixty days prior to the ending date. Mr. Castros Employment Agreement provides that he will receive: a minimum base salary of $130,000; health, hospitalization, and disability benefits; an automobile allowance; and participation in an executive incentive bonus plan.



COMPENSATION OF DIRECTORS



In 2004 the Company did not compensate any of its directors for their services to the Company as directors, although it commenced to do so for non-officer directors in 2005. The Company may reimburse its directors for their costs incurred for attending meetings of the Board of Directors. The Board has created a Compensation Committee which will be responsible for negotiating any future Employment Agreements, their amendments, stock option plans, 401-Ks, and other compensation agreements for executive officers.

68



---

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of the Companys Common Stock as of December 31, 2004, by each person known by the Company to be the beneficial owner of more than five percent of all Classes of the Companys voting securities.

|Name and Address of Beneficial Owner                                 |  | Number of Shares |  | % of Outstanding Shares
|-------------------------------------------------------------------- |  | ---------------- |  | -----------------------
|First Bancorp 
1519 Ponce de Leon Ave 
San Juan, PR 00908 (1)        |  | 629,491          |  | 7.5%                   
|Martin & Edith Stein
21331 Greenwood Ct.
Boca Raton FL 33433         |  | 551,449          |  | 6.6%                   
|Pequot Capital Management
500 Nyala Farm Road
Westport, CT 06880 (2) |  | 471,053          |  | 5.6%                   



(1)

First Bancorp holds 131,425 Class A, 131,425 Class B and 250,000 Class D warrants to purchase common shares of the corporation that are exercisable within sixty days but are not included in the above totals.

(2)

Pequot Capital Management holds 800,000 Class D warrants that are exercisable within sixty days but are not included in the above totals

The following table sets forth information concerning the beneficial ownership of the Companys Common Stock beneficially owned by each director of the Company, by each executive officer of the Company named in the compensation table, and by all directors and executive officers of the Company as a group, as of December 31, 2004.

|Name (1)                                                      |  | Shares of Common Stock |  | Percent of Class |      
|------------------------------------------------------------- |  | ---------------------- |  | ---------------- | -----
|Hugo A. Castro                                                |  | 175,015                |  |                  | 2.1% 
|Nelson Famadas (2)                                            |  | 212,088                |  |                  | 2.5% 
|Michael E. Golden (3)                                         |  | 146,000                |  |                  | 1.7% 
|Leonard F. Marinello (4)                                      |  | 172,306                |  |                  | 1.8% 
|James F. Partridge (5)                                        |  | 184,948                |  |                  | 2.2% 
|Stephen L. Perrone (6)                                        |  | 346,292                |  |                  | 4.1% 
|Alberto Valle (7)                                             |  | 374,382                |  |                  | 4.5% 
|All directors & executive officers as a group: 
7 persons (8) |  | 1,611,031              |  |                  | 19.2%



(1)

The business address of each of the persons identified above is at PanAmerican Bancorp, 3400 Coral Way, Miami, Florida 33145.

(2)

Number of shares includes 37,943 shares owned by Mr. Famadass wife and options to purchase 22,670 shares that are exercisable within sixty days.

(3)

Number of shares includes options to purchase 7,600 shares that are exercisable within sixty days.

(4)

Number of shares includes options to purchase 22,170 shares that are exercisable within sixty days.

(5)

Number of shares includes options to purchase 21,940 shares that are exercisable within sixty days.

(6)

Number for shares includes 124,428 shares held by a limited partnership, 76,315 held by a corporation and 63,400 shares held by a limited liability company with respect to which Mr. Perrone has sole voting power and shared investment power, 15,714 shares held in a corporation for which Mr. Perrone has sole ownership and options to purchase 19,150 shares that are exercisable within sixty days.

(7)

Number of shares includes options to purchase 22,740 shares that are exercisable within sixty days.

(8)

Except as otherwise indicated above, the directors and officers own these shares directly.

69



---

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Christine Golden, the past spouse of PanAmerican CEO and President, Michael Golden, is the sole owner of the issued and outstanding shares of Franklin National Financial Holding, LLC, which is the parent company of Franklin National Financial Group, LLC, a registered securities broker-dealer. Franklin National Financial Group, LLC, on August 15, 2003, entered into a Networking Arrangement with the Holding Company and the Bank for Franklin National Financial Group, LLC to provide securities broker-dealer services to Bank customers at the Banks branches, and for the Bank to receive a fee from this arrangement. According to the Networking Arrangement, Franklin National Financial Group, LLC, will pay the Bank a fee for utilizing Bank space at its branches. Franklin National Financial Group, LLC will be permitted to advertise its broker-dealer services at the Banks branches and enter into agreements with customers for brokerage services. The Bank sampled rents from other similar arrangements to determine the rent to be charged Franklin National Financial Group, LLC. Members of our Board were aware of the relationship between Michael Golden, and his wifes broker-dealer, Franklin National

Financial Group, LLC, and consented to the arrangement. The Board took no further steps in this matter. The Bank will not be involved in the brokerage relationship between its customers and Franklin National Financial Group, LLC nor will the Bank receive any compensation or fee for brokerage transactions or services provided by Franklin National Financial Group, LLC. The arrangement between the Bank and Franklin National Financial Group, LLC will be in compliance with the rules of the SEC for such bank-securities brokerage affiliations.



PanAmerican currently extends two credit accommodations to an entity related to a director in the aggregate amount of $695,000. The loan is secured by real estate. The loans are believed to be collectible. All loans to officers and directors are made in accordance with Regulation O, under the same terms available to the general public without preferential treatment.



On January 26, 2004, to facilitate the Gulf Bank transaction, and upon the approval of our Board of Directors, certain directors purchased our Series A preferred shares at $1,000 per share in a private offering totaling $3.1 million. The preferred shares have all been redeemed.

70



---

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K



Exhibits



The following exhibits are filed as part of this report.



2.1

Agreement and Plan of Merger by and between Southern Security Financial Corporation and Southern Security Bank Corporation, dated October 31, 1997 (1)

2.2

Certificate of Merger of Southern Security Bank Corporation into Southern Security Financial Corporation, under Florida law, dated November 10, 1997 (1)

2.3

Articles of Merger of Southern Security Bank Corporation into Southern Security Financial Corporation, under Florida law, dated November 12, 1997 (1)

3.(i)

Articles of Incorporation

(a)

Certificate of Incorporation of Southern Security Bank Corporation, dated October 3, 1996 (2)

(b)

Certificate of Amendment of Certificate of Incorporation of Southern Security Financial Corporation, dated November 12, 1997 (changing name to PanAmerican Bancorp) (1)

(c)

Certificate of Amendment of Certificate of Incorporation of Southern Security Bank Corporation, dated January 17, 1998 (2)

(d)

Certificate of Amendment of Incorporation of Southern Security Bank Corporation dated December 21, 1999 (3)

(e)

Certificate of Amendment of Certificate of Incorporation of Southern Security Bank Corporation, dated November 13, 2001 (10)

3.(ii)

By-laws of the registrant (4)

4.1

Stock Certificate for Common Stock (6)

10.1

Asset Purchase Agreement between PanAmerican Bank and Gulf Bank dated October 9, 2003.

10.2

Executive Employment Agreement dated January 1, 2003 between Hugo Castro and PanAmerican Bank.

11.0

Statement of Computation of Per Share Earnings - N/A

15.0

Letter on Unaudited Interim Financial Information - N/A

18.0

Letter re change in accounting principles - N/A

19.0

Reports furnished to security holders - N/A

21.0

Subsidiaries of the registrant - filed herewith

22.0

Published report re matters submitted to vote - N/A

23.0

Consent of experts and counsel - N/A

24.0

Power of attorney - N/A

31.1

Certification

31.2

Certification

32.1

Certification

32.2

Certification

99.0

Additional Exhibits - N/A



(1)

Filed as an exhibit to Form 8-K of the registrant on November 25, 1997.

(2)

Filed as an exhibit to Form 10-KSB of the registrant filed on July 1997.

(3)

Filed as an exhibit to From 10-KSB of the registrant filed on March 31, 2000.

(4)

Filed as an exhibit to Form 10-KSB of the registrant filed on April 2, 1998.

(5)

Filed as an exhibit to Form 10-QSB of the registrant on November 14, 2001.

(6)

Filed as an exhibit to Form 10-KSB of the registrant on April 3, 2002



*

Management compensation plan or arrangement.

71



---

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES



(1)

Audit Fees



During the last two fiscal years the aggregate professional fees billed by our principal accountant for the audit of our annual financial statements and the review of our financial statements in Form 10-Q and our other statutory or regulatory filings are as follows:



| | a. |  | 2003 |  | $ | 60,500.00
| | -- |  | ---- |  | - | ---------
| | b. |  | 2004 |  | $ | 80,000.00



(2)

Audit-Related Fees



During the last two fiscal years the aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit and review of our financial statements not reported in Section 1 above are as follows:



| | a. |  | 2003 |  | $ | N/A
| | -- |  | ---- |  | - | ---
| | b. |  | 2004 |  | $ | N/A



(3)

Tax Fees



During the last two fiscal years the aggregate fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning are as follows:



| | a. |  | 2003 |  | $ | 12,350
| | -- |  | ---- |  | - | ------
| | b. |  | 2004 |  | $ | 8,500 



The nature of the services comprising the fees are tax planning and tax filing.



(4)

All Other Fees



During the last two fiscal years the aggregate fees for products and services provided by the principal accountant, except those stated in sections 1-3 above, are as follows:



| | a. |  | 2003 |  | $ | 81,430
| | -- |  | ---- |  | - | ------
| | b. |  | 2004 |  | $ | 70,704



(5)

Audit Committee



(i)

Our Audit Committees pre-approval policies and procedures are as follows:



Crowe Chizek, who performed audit services for us in 2003 and 2004, including an examination of the consolidated financial statements and services related to filings with the Securities and Exchange Commission, has served as our accountants since 2002. Crowe Chizek performed all of its services in 2004 at customary rates and terms.

72



---

The Audit Committee approves in advance all services to be performed by the Companys independent auditors. Pre-approval may be granted by action of the full Audit Committee or, in the absence of such Audit Committee action, by the Audit Committee Chair whose action shall be considered to be that of the entire Committee. Under SEC rules, pre-approval shall not be required for the provision of non-audit services if (1) the aggregate amount of all such non-audit services constitute no more than 5% of the total amount of revenues paid by the Company to the auditors during the fiscal year in which the non-audit services are provided, (2) such services were not recognized by the Company at the time of engagement to be non-audit services, and (3) such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit. No services were provided by Crowe Chizek and Company LLC pursuant to these exceptions in the 2004 fiscal year.



(ii)

The following represents the percentage of services described in Sections 2-4 above that were approved by our Audit Committee:



| | 3. | a. |  | 2003 |  | 8%  
| | -- | -- |  | ---- |  | ----
| |    | b. |  | 2004 |  | 100%
| |    |    |  |      |  |     
| | 4. | a. |  | 2003 |  | 53% 
| |    | b. |  | 2004 |  | 100%



73



---

SIGNATURES



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



| |     | PANAMERICAN BANCORP                                     | 
| | --- | ------------------------------------------------------- | 
| |     |                                                         | 
| | By: | s/MICHAELE. GOLDEN                                      | 
| |     | Name: Michael E. Golden
Title:  Chief Executive Officer | 

March 16, 2005



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



|Signature                                      |  |  | Title                    |  | Date            | 
|---------------------------------------------- |  |  | ------------------------ |  | --------------- | 
|                                               |  |  |                          |  |                 | 
|(i) Principal Executive Officer:               |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/MICHAELE. GOLDEN                            |  |  | Chief Executive Officer  |  | March, 16, 2005 | 
|Michael E. Golden                              |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|(ii) Principal Accounting & Financial Officer: |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/ROBERTL. NICHOLS                            |  |  | Chief Financial Officer  |  | March, 16, 2005 | 
|Robert L. Nichols                              |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|(iii) Directors:                               |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/JAMESF. PARTRIDGE                           |  |  | Chairman of the Board    |  | March, 16, 2005 | 
|James F. Partridge                             |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/MICHAELE. GOLDEN                            |  |  | President, CEO, Director |  | March, 16, 2005 | 
|Michael E. Golden                              |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/HUGOA. CASTRO                               |  |  | Director                 |  | March, 16, 2005 | 
|Hugo A. Castro                                 |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/NELSONFAMADAS                               |  |  | Director                 |  | March, 16, 2005 | 
|Nelson Famadas                                 |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/LEONARDF. MARINELLO                         |  |  | Director                 |  | March, 16, 2005 | 
|Leonard F. Marinello                           |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/STEPHENL. PERRONE                           |  |  | Director                 |  | March, 16, 2005 | 
|Stephen L. Perrone                             |  |  |                          |  |                 | 
|                                               |  |  |                          |  |                 | 
|/s/ALBERTOVALLE                                |  |  | Director                 |  | March, 16, 2005 | 
|Alberto Valle                                  |  |  |                          |  |                 | 



74