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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

________________

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2003

OR

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

Commission File Number 0-24433

POINTE FINANCIAL CORPORATION

(Exact name of Registrant as specified in its charter)

21845 Powerline Road, Boca Raton, Florida 33433

(Address of principal executive offices)(Zip Code)

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

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

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

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

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

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

Yes   ¨    No   ý

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

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

INDEX

PART I

Item 1.

Description of Business

Introduction

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

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

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

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

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

(i)

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

(ii)

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

The Modernization Act, among other things:

(i)

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

(ii)

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

(iii)

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

(iv)

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

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

Business

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

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

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

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

Investment Banking Joint Venture

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

Market Area and Competition

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

2

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

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

Employees

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

Forward-Looking Statements

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

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Item 2.

Properties

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

———————

(1)

Leased branch office.

(2)

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

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

4

Item 3.

Legal Proceedings

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

Item 4.

Submission of Matters to a Vote of Security Holders

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

[Balance of page intentionally left blank]

5

PART II

Item 5.

Market For Registrant’s Common Equity And Related Stockholder Matters

Market Price and Dividends

(a)

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

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

Advest, Inc.

Archipelago Exchange (The)

Knight Equity Markets, L.P.

THE BRUT ECN, LLC

Keefe, Bruyette & Woods, Inc.

Alternative Display Facility

Goldman Sachs & Co.

McConnell Budd & Downes

National Stock Exchange

Ryan Beck & Co., Inc.

William R. Hough & Co.

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

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

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

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

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Item 6.

Selected Financial Data

SELECTED FINANCIAL DATA

(Dollars in thousands, except per share amounts)

7

SELECTED FINANCIAL DATA, continued

(Dollars in thousands, except per share amounts)

———————

(1)

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

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

(3)

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

(4)

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

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Item 7.

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

Critical Accounting Policies

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

Management believes the allowance for loan losses policy is a critical accounting policy that required the most significant estimates and assumptions used in the preparation of the consolidated financial statements. The allowance for loan losses is based on management’s evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio. Management believes the allowance for loan losses is a significant estimate and, therefore, regularly evaluates it for adequacy by taking into consideration factors such as prior loan loss experience, the character and size of the loan portfolio, business and economic conditions and management’s estimation of future losses. The use of different estimates or assumptions could produce different provisions for loan losses. The allowance for loan losses is also discussed as part of  7;Credit Risk” and in Note 3 to the consolidated financial statements. The significant accounting policies are discussed in Note 1 to the consolidated financial statements.

General

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

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

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

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Credit Risk

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

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

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

10

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

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

11

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

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

Results of Operations

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

12

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

—————————

(1)

Yield on securities is stated on a tax equivalent basis.

(2)

Includes interest-bearing deposits and federal funds sold.

(3)

Includes nonaccrual loans.

(4)

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

(5)

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

13

Rate/Volume Analysis

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

14

Liquidity and Capital Resources

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

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

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