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Franklin Bancorp Inc Mi · 10-K · For 12/31/03

Filed On 3/30/04 4:38pm ET · SEC File 0-50078 · Accession Number 950124-4-1362

  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 3/30/04  Franklin Bancorp Inc Mi           10-K       12/31/03    8:86                                     Bowne of Detroit...01/FA

Annual Report · Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report for the Fiscal Year Ended 12/31/03      73    391K 
 2: EX-10.11    Employment Agreement of David L. Shelp                 4     31K 
 3: EX-10.18    Amendment to Employment Agreement-Craig L. Johnson     2     11K 
 4: EX-21       Subsidiaries                                           1      5K 
 5: EX-23.1     Consent of Grant Thornton Llp                          1      7K 
 6: EX-31.1     Certification of Chief Executive Officer               2±    10K 
 7: EX-31.2     Certification of Chief Financial Officer               2±    10K 
 8: EX-32.1     Certification Pursuant to Section 906                  1      7K

10-K · Annual Report for the Fiscal Year Ended 12/31/03
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) Business Cash and cash equivalents Certain Relationships and Related Transactions Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Directors and Executive Officers of the Registrant Executive Compensation Exhibits, Financial Statement Schedules and Reports on Form 8-K Financial Statements and Supplementary Data Five Year Summary of Selected Consolidated Financial Data Forward-Looking Statements Franklin Interest Rate Sensitivity Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operation Market for Registrant's Common Equity and Related Stockholder Matters Notes to Consolidated Financial Statements Principal Account Fees and Services Properties Quantitative and Qualitative Disclosure About Market Risk Regulatory Capital Report of Independent Certified Public Accountants Sarbanes-Oxley Act Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Selected Financial Data Signatures Submission of Matters to A Vote of Security Holders USA Patriot Act
1	1st Page
4	Item 1. Business
"	Franklin
10	USA Patriot Act
11	Sarbanes-Oxley Act
12	Item 2. Properties
"	Item 3. Legal Proceedings
"	Item 4. Submission of Matters to A Vote of Security Holders
13	Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
"	Item 6. Selected Financial Data
14	Five Year Summary of Selected Consolidated Financial Data
15	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
28	Regulatory Capital
30	Interest Rate Sensitivity
31	Forward-Looking Statements
32	Item 7a. Quantitative and Qualitative Disclosure About Market Risk
"	Item 8. Financial Statements and Supplementary Data
"	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"	Item 9a. Controls and Procedures
"	Item 10. Directors and Executive Officers of the Registrant
35	Item 11. Executive Compensation
40	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
42	Item 13. Certain Relationships and Related Transactions
"	Item 14. Principal Account Fees and Services
43	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
45	Signatures
47	Report of Independent Certified Public Accountants
53	Notes to Consolidated Financial Statements
68	Cash and cash equivalents

10-K 1st Page of 73 TOC Top Previous Next Bottom Just 1st
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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003          COMMISSION FILE NO. 0-50078

 FRANKLIN BANCORP, INC
(Exact name of bank as specified in its charter)

          MICHIGAN                                        38-2606280
   (State or other jurisdiction                           (I.R.S. Employer
    of incorporation or organization)                     Identification Number)

24725 WEST TWELVE MILE ROAD                                       
 SOUTHFIELD, MICHIGAN                                      48034
(Address of principal executive offices)                        (Zip Code)      

(248) 358-4710
(Registrant's telephone number, including area code)

 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)

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 twelve months (or for such shorter period that the Registrant was 
required to file such reports), and (2) has been subject to such filing         
requirements for the past 90 days.                                              

YES |X| NO ||.

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 the definitive proxy or information      
statements incorporated by reference in Part III of this Form 10-K or any       
amendment to this Form 10-K. |X|                                                

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

 YES || NO |X|

As of March 22, 2004 there were issued and outstanding 3,781,024 shares of the  
Registrant's Common Stock. The aggregate market value of the voting stock held  
by non-affiliates of the Registrant, computed by reference to the price at which
the stock was sold as of June 30, 2003 was $52,176,620.12.                      

DOCUMENTS INCORPORATED BY REFERENCE: None.                                      

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 INDEX

PART I

                                                                · Download Table
                                                                                 
ITEM 1. BUSINESS ..............................................................4 

ITEM 2. PROPERTIES............................................................12 

ITEM 3. LEGAL PROCEEDINGS.....................................................12 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................12 

                                     PART II                                     

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED                           
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.................13 

ITEM 6. SELECTED FINANCIAL DATA...............................................13 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION              
AND RESULTS OF OPERATION......................................................15 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........32 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................32 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING              
AND FINANCIAL DISCLOSURE .....................................................32 

ITEM 9A.  CONTROLS AND PROCEDURES.............................................32 

                                    PART III                                     

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................32 

ITEM 11. EXECUTIVE COMPENSATION...............................................35 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS                         
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ...............................40 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................42 

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................42 

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 PART IV

                                                                · Download Table
                                                                                 
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,                                
AND REPORTS ON FORM 8-K.......................................................43 

SIGNATURES ...................................................................45 

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PART I

ITEM 1. BUSINESS                                                                

GENERAL                                                             

Franklin. Franklin Bancorp, Inc. ("Franklin", the "Company" or the  
"Corporation") was incorporated under the Michigan Business Corporation Act on  
February 14, 2002. Franklin is a bank holding company registered with, and      
subject to, the supervision of the Board of Governors of the Federal Reserve    
System under the Bank Holding Company Act of 1956, as amended. Franklin Bank,   
National Association ("Franklin Bank" or the "Bank"), a wholly-owned subsidiary 
of Franklin, is a national bank, which was incorporated in 1983 as a Michigan   
state-chartered savings and loan association and converted its charter to that  
of a national bank in 1991. In October 2003, Franklin Bank organized Franklin   
Safe Deposit Corporation as its wholly-owned subsidiary, to engage in the safety
deposit box business. Also, in October 2003, Franklin Bank and Franklin Safe    
Deposit Corporation formed Franklin Mortgage Services LLC, a Michigan limited   
liability company, to act as a mortgage company subsidiary. Franklin Safe       
Deposit Corporation is a Michigan corporation which will own and lease          
safety-deposit boxes to customers. Franklin Mortgage Services LLC is owned 99%  
and 1% by Franklin Bank and Franklin Safe Deposit Corporation, respectively.    
Franklin Bank has transferred $146 million of commercial real estate loans to   
Franklin Mortgage Services as part of its capital contribution. Franklin        
Mortgage Services will be originating first mortgage loans on residential       
properties. Franklin became a bank holding company after the close of business  
on October 23, 2002 as a result of the reorganization of Franklin Bank involving
an exchange of all the outstanding common stock of Franklin Bank on a           
one-for-one basis into common stock of Franklin.                                

     Franklin has corporate power to engage in such activities as permitted to
business corporations under the Michigan Business Corporation Act, subject to   
the limitations of the Bank Holding Company Act and regulations of the Federal  
Reserve System. In general, the Bank Holding Company Act and regulations        
restrict Franklin with respect to its own activities and activities of any      
subsidiaries to the business of banking or such other activities, which are     
closely related to the business of banking. The principal role of Franklin is to
supervise the activities of Franklin Bank. Franklin derives substantially all of
its income from dividends from Franklin Bank.                                   

    Since its conversion to a national banking association charter, Franklin
Bank's business strategy has been focused on low cost deposit gathering and     
lending to small and medium-sized businesses, business owners and, to a lesser  
extent, individual customers found in Franklin Bank's primary market areas of   
Southeast Oakland County and parts of Wayne and Macomb counties, Michigan. While
Franklin Bank offers many standard lending and deposit products, Franklin Bank  
promotes its products and services through non-traditional delivery platforms   
which emphasize courier deposit pick-up services, lockbox remittance services,  
web banking and free ATM services; all of which do not require significant      
branch facilities.                                                              

 Franklin's headquarters are located at 24725 West Twelve Mile Road in
Southfield, Michigan. Franklin Bank maintains its principal office at 24725 West
Twelve Mile Road in Southfield, Michigan "and has" three full service regional  
branches located in Southfield, Birmingham and Grosse Pointe Woods, Michigan,   
and two Business Center branches in Southfield and Troy, Michigan.              

    Recent Development. As previously announced, Franklin has entered into a
definitive agreement dated as of November 10, 2003, and as amended on February  
3, 2004 (the "merger agreement") to be acquired by First Place Financial        
Corporation ("First Place"), a unitary savings and loan holding company. First  
Place Bank, a federal savings association and wholly-owned subsidiary of First  
Place, is headquartered in Warren, Ohio. Under the agreement, the holding       
companies will merge with Franklin merging with and into First Place. After the 
holding companies merge, the subsidiaries will merge (the "subsidiary merger"), 
with First Place merging with Franklin Bank, and Franklin Bank changing its name
to "First Place Bank" and its main office to Warren, Ohio. In connection with   
the merger, on February 9, 2004, Franklin Bank filed an application with the    
Office of Thrift Supervision to convert from a national banking association to a
federal savings association. Such conversion is proposed to occur at the same   

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time as the merger of the holding companies. First Place and Franklin may agree,
due to business, tax or other considerations, to revise the structure of the    
subsidiary merger before the subsidiary merger is completed by amending the     
subsidiary merger agreement (e.g., by having Franklin Bank merge with and into  
First Place Bank). Completion of the merger depends on satisfying a number of   
conditions. There is no certainty as to whether or when the conditions to the   
merger will be satisfied, or waived where permissible or that the merger will be
completed.                                                                      

LENDING ACTIVITIES                                                  

   Franklin Bank's lending activities focus on originating commercial real
estate loans, other non-real estate commercial loans, residential construction  
loans and consumer loans.                                                       

     Commercial Real Estate Lending. Franklin Bank has historically originated
permanent loans secured by commercial real estate and, to a significantly lesser
extent, land development loans. Essentially all commercial real estate loans    
originated by Franklin Bank to date have been secured by real property located  
in Michigan.                                                                    

   Franklin Bank's commercial real estate loans generally are for terms of
five to ten years with 25-year amortization periods, generally have             
loan-to-value ratios of up to 80% of the appraised value of the secured         
property, and are typically secured by full or partial personal guarantees of   
the borrowers. At December 31, 2003, approximately 63.2% of Franklin Bank's     
commercial real estate loan portfolio had adjustable rates. Of those, 96% are   
tied to prime interest rate.                                                    

     At December 31, 2003, Franklin Bank's largest commercial real estate loan
was a $4.2 million loan secured by a storage facility located in Southfield,    
Michigan. Franklin Bank had five other commercial real estate loans in excess of
$2.5 million in accordance with their payment terms.                            

Commercial real estate lending entails potential risks that are not 
inherent in other types of lending. These potential risks include the           
concentration of principal in a limited number of loans and borrowers, the      
effects of a decline in commercial real estate values on property               
collateralizing the loan, and the effects of a decline in general economic      
conditions on income producing properties. Furthermore, the repayment of loans  
secured by commercial real estate is typically dependent upon the successful    
operation of the related real estate project. If the cash flow from the project 
is reduced (for example, if leases are not obtained or renewed, or a bankruptcy 
court modifies a lease term, or a major tenant is unable to fulfill its lease   
obligations), the borrower's ability to repay the loan may be impaired.         

 Commercial Lending. To a lesser extent, Franklin Bank originates both
secured and unsecured commercial loans to small and medium-sized businesses     
located in Southeast Michigan and parts of Wayne and Macomb counties, Michigan. 
The loans include term loans, lines of credit, documentary and standby letters  
of credit. Loans originated on a secured basis generally have interest rates    
tied to the prevailing prime interest rate. Collateral consists of accounts     
receivable, inventory, specific equipment and other designated business assets. 
All such loans typically are wholly or partially personally guaranteed by the   
business owner or related party.                                                

   A secured small business line of credit is available to Franklin Bank's
qualified business checking account customers in amounts of up to $50,000. These
loans are structured at higher rates than are charged other types of business   
borrowers. Franklin Bank attempts to provide each customer with a 24-hour loan  
review and decision process.                                                    

   Commercial loans involve significant risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the     
borrower's business. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success of the  
business itself. Further, the collateral securing the loans may depreciate over 
time, may be difficult to appraise and may fluctuate in value based on the      
success of the business.                                                        

    Residential Construction Lending. Franklin Bank makes construction loans
on single-family residences to individuals who will ultimately be the           
owner-occupier of the house. Substantially all of                               

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Franklin Bank's construction loans have been originated with adjustable rates of
interest and have terms of eighteen months or less.                             

    Franklin Bank's risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value upon          
completion of the project and the estimated cost (including interest) of the    
project. If the estimate of construction costs proves to be inaccurate, Franklin
Bank may be required to advance funds beyond the amount originally committed in 
order to permit completion of the project. If the estimate of value proves to be
inaccurate, Franklin Bank may be confronted, at or prior to the maturity of the 
loan, with a project having a value insufficient to provide appropriate         
collateral value.                                                               

   Consumer Lending. Franklin Bank originates directly and through various
dealers a limited number of consumer loans, which are offered at fixed and      
adjustable rates of interest. In late 1999, Franklin Bank entered into an       
agreement with DTE Energy (formerly MichCon), a large Michigan utility company, 
from which Franklin Bank has significantly increased its consumer home          
improvement loan portfolio, however, such agreement terminated on December 31,  
2003. Under such agreement, DTE's dealer network would refer customers needing  
credit for home improvements to Franklin Bank.                                  

    Consumer loans generally entail greater risks than loans secured by real
estate, since many consumer loans are typically unsecured or secured by rapidly 
depreciating assets such as automobiles and home improvement collateral.        
Accordingly, repossessed collateral for defaulted consumer loans may not provide
an adequate source of repayment of the outstanding loan balance. The relatively 
small outstanding balance remaining after repossession of collateral often does 
not warrant further substantial collection efforts against the borrowers beyond 
obtaining a deficiency judgment. In addition, consumer loan collections are     
dependent on the borrower's continuing financial stability, and thus are more   
likely to be adversely affected by job loss, divorce, illness or personal       
bankruptcy. Furthermore, the application of various federal and state laws,     
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.                                           

LOANS TO ONE BORROWER                                               

  Under federal law, the aggregate amount of loans that Franklin Bank is
permitted to make to any one borrower is generally limited to 15% of total risk 
based capital. At December 31, 2003, Franklin Bank's loans-to-one-borrower limit
was approximately $7.2 million at the 15% level. At December 31, 2003, Franklin 
Bank has no loans to one borrower in excess of its lending limit.               

NONPERFORMING ASSETS AND RISK ELEMENTS                              

      When, in the opinion of management, reasonable doubt exists as to the full
and timely collection of interest or principal on Franklin Bank's outstanding   
loans, Franklin Bank will place such loans on non-accrual status. Generally,    
consumer loans are charged off no later than when they reach 120 days past due  
status, or earlier, if deemed uncollectible. Loans, other than consumer loans,  
are generally placed on non-accrual status when management determines that      
principal or interest may not be fully collectible, but no later than when the  
loan is 90 days past due on principal or interest. Interest on loans is         
generally accrued daily based on the principal balance outstanding. However,    
when a loan is placed on non-accrual status, the accrued interest income is     
discontinued and interest previously accrued but not collected on non-accrual   
loans is charged against current income.                                        

ALLOWANCE FOR LOAN LOSSES                                           

 The provision for loan losses reflects management's evaluation of the
adequacy of the allowance for loan losses. The allowance for loan losses        
represents management's assessment of probable losses inherent in Franklin      
Bank's loan portfolio, including all binding commitments to lend. The allowance 
provides for probable losses that have been identified with specific borrowing  
customers and for probable losses believed to be inherent but that have not been
specifically identified. Franklin Bank allocates the allowance for loan losses  
to each loan category based on a defined methodology that has been used for     
several years. Internal risk ratings are assigned to each business loan at the  
time of approval and are                                                        

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subject to subsequent periodic reviews by Franklin Bank management and Franklin 
Bank's loan review consultants. Business loans consist of non-real estate       
commercial loans, commercial real estate loans and Franklin Bank lines of       
credit. A detailed review of the loan portfolio is performed on a quarterly     
basis to assess the credit quality of Franklin Bank's commercial loan portfolio.
A specific portion of the allowance is allocated to such loans based upon this  
review. The portion of the allowance allocated to the remaining loans is        
determined by applying projected loss ratios to each risk rating based on both  
qualitative and quantitative factors. The portion of the allowance allocated to 
consumer and mortgage loans is determined by applying projected loss ratios to  
various segments of the loan portfolio. Projected loss ratios incorporate       
factors such as recent charge-off experience, current economic conditions and   
trends, geographic dispersion of borrowers, and trends with respect to past due 
and non-accrual amounts.                                                        

    See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" below relating to the allowance for loan losses, the 
loan portfolio composition, loan commitments, loan maturity schedule and        
nonperforming assets.                                                           

SOURCE OF FUNDS                                                     

    Franklin Bank's deposits are its primary source of funds for lending and
for other general business purposes. In addition to deposits, Franklin Bank     
derives funds from loan repayments, advances from the FHLB ("FHLB") of          
Indianapolis and other borrowings. From time to time, Franklin Bank may derive  
funds from repurchase agreements and loan and securities sales. Scheduled loan  
repayments are a relatively stable source of funds, while loan prepayments and  
interest-bearing deposit inflows and outflows are significantly influenced by   
general interest rates and money market conditions. Borrowings may be used to   
compensate for reductions in normal sources of funds, such as deposit inflows at
less than projected levels, deposit outflows, or to support expanded activities.
Historically, Franklin Bank has borrowed primarily from the FHLB of Indianapolis
and through repurchase agreements.                                              

  The ability of Franklin Bank to attract and maintain deposits, and its
cost of funds, have been, and will continue to be, significantly affected by    
general economic and business conditions.                                       

    See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" below relating to deposits and other sources of      
funds.                                                                          

INVESTMENT ACTIVITIES                                               

  Franklin Bank invests in various securities, which are acquired in the
capital markets. These investments may consist of mortgage, government, agency, 
municipal and corporate debt securities. See "Item 7. Management's Discussion   
and Analysis of Financial Condition and Results of Operations" below relating to
the securities maturity schedule.                                               

COMPETITION                                                         

     Franklin Bank competes aggressively for its business through a systematic
program of direct calling on both customers and referral sources such as        
attorneys, accountants and business people. Franklin Bank's program is enhanced 
because of its well-established network of existing relationships, which have   
been created over the years in the area's business community and because of the 
years of banking experience and community involvement of its senior management  
and lending officers. Franklin Bank's programs and services are further enhanced
by its distinctive marketing focus, including its radio advertising campaign,   
and by referrals from the growing base of existing business customers.          

      Generally, Franklin Bank's business strategy focuses on competing in areas
in which it can truly develop niche products and services. Large financial      
institutions tend to need very large homogeneous markets in order to support    
high levels of automation and systems development. This leaves smaller product  
markets and heterogeneous product lines under-served. Large financial           
institutions also tend to have rigid structures, which adapt slowly to changing 
market environments and, therefore, provide opportunities for smaller           
institutions that can react more quickly. Finally, competitive pressures and    
other                                                                           

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regulatory agencies in the past decade have caused a rapid increase in the      
merger and acquisition activity among financial institutions. The industry      
consolidation has created marketing opportunities for many smaller institutions,
such as Franklin Bank, to service smaller customers in local markets.           

SUPERVISION AND REGULATION                                                      

  Overview - Franklin. Franklin is a Michigan corporation subject to the
Michigan Business Corporation Act. Franklin is a one-bank holding company within
the meaning of the Bank Holding Company Act and is registered as such with, and 
subject to, the supervision of the Federal Reserve Board. Franklin is required  
to file with the Federal Reserve Board quarterly and annual reports and such    
additional information as the Federal Reserve Board may require pursuant to the 
Bank Holding Company Act. The Federal Reserve Board regularly conducts          
examinations of bank holding companies and their subsidiaries.                  

     As a banking holding company, Franklin is required to obtain the approval
of the Federal Reserve Board:                                                   

          -     before it may acquire all or substantially all of the assets
                of any bank, or ownership or control of the voting shares of
           any bank if, after giving effect to such acquisition of
             shares, Franklin would own or control more than 5% of the
voting shares of such bank; and             

        -     before the merger or consolidation of Franklin and another
bank holding company.                       

  Franklin also is prohibited by the Bank Holding Company Act, except in
certain statutorily prescribed instances, from:                                 

            -     acquiring direct or indirect ownership or control of more than
                  5% of the outstanding voting shares of any company that is not
a bank or bank holding company; and         

        -     from engaging, directly or indirectly, in activities other
           than those of banking, managing or controlling banks or
furnishing services to its subsidiaries.    

However, Franklin may, subject to the prior approval of the Federal 
Reserve Board, engage in any, or acquire shares of companies engaged in,        
activities that are deemed by the Federal Reserve Board to be so closely related
to banking or managing or controlling banks as to be a proper incident thereto. 

Under the Federal Reserve Board's regulations:                      

        -     a bank holding company is required to serve as a source of
                 financial and managerial strength to its subsidiary banks and
           may not conduct its operations in an unsafe and unsound
manner; and                                 

           -     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 will generally be considered by the  
Federal Reserve Board to be an unsafe and unsound banking practice or a         
violation of the Federal Reserve Board's regulations or both.                   

     Overview - Franklin Bank. Franklin Bank is a federally chartered national
banking association. Accordingly, Franklin Bank is subject to broad federal     
regulation and oversight extending to all it operations by the Office of the    
Comptroller of the Currency (the "OCC"). Franklin Bank is a member of the FHLB  
of Indianapolis and is subject to certain limited regulation by the FDIC.       
Franklin Bank is a member                                                       

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of the Savings Association Insurance Fund or SAIF and its deposits are insured  
by the FDIC. As a result, the FDIC has certain regulatory authority over        
Franklin Bank.                                                                  

Insurance of Accounts and Regulation by the FDIC. Franklin Bank is  
currently a member of the SAIF, which is administered by the FDIC. Deposits are 
insured up to applicable limits by the FDIC and such insurance is backed by the 
full faith and credit of the United States Government. As insurer, the FDIC     
imposes deposit insurance premiums and is authorized to conduct examinations of 
and to require reporting by FDIC-insured institutions. It also may prohibit any 
FDIC-insurance institution from engaging in any activity the FDIC determines by 
regulation or order to pose a serious risk to the FDIC.                         

   The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of   
nine categories and assessed insurance premiums based upon their level of       
capital and supervisory evaluation. Under the system, institutions classified as
well-capitalized (i.e. those with a core capital ratio of at least 5%, a ratio  
of Tier 1 or core capital to risk weighted assets ("Tier 1 risk-based capital") 
of at least 6% and a risk-based capital ratio of at least 10%) and considered   
healthy pay the lowest premium while institutions that are less than adequately 
capitalized (i.e. those with core or Tier 1 risk-based capital ratios of less   
than 4% or a risk-based capital ratio of less than 8%) and considered of        
substantial supervisory concern pay the highest premium. Risk classification of 
all insured institutions will be made by the FDIC for each semi-annual          
assessment period.                                                              

Prompt Corrective Action. The OCC is authorized and, under certain  
circumstances required, to take certain actions against national banks that fail
to meet their capital requirements. The OCC is generally required to take action
to restrict the activities of an "undercapitalized association" (generally      
defined to be one with less than either a 4% core capital ratio, a 4% Tier I    
risked-based capital ratio or an 8% risk-based capital ratio). Any such national
bank must submit a capital restoration plan and, until such plan is approved by 
the OCC, may not increase its assets, acquire another institution, establish a  
branch or engage in any new activities, and generally may not make capital      
distributions. The OCC is authorized to impose the additional restrictions that 
are applicable to significantly undercapitalized associations.                  

Any national bank that fails to comply with its capital plan or is  
"significantly undercapitalized" (i.e., Tier I risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made     
subject to one or more of additional specified actions and operating            
restrictions which may cover all aspects of it operations and include a forced  
merger or acquisition of the bank. Any national bank that becomes "critically   
undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to  
further mandatory restrictions on its activities in addition to those applicable
to significantly undercapitalized associations. In addition, the OCC must       
appoint a receiver (or conservator with the concurrence of the FDIC) for a      
national bank, with certain limited exceptions, within 90 days after it becomes 
critically undercapitalized. Any undercapitalized association is also subject to
the general enforcement authority of the OCC, including the appointment of a    
conservator or a receiver.                                                      

    The OCC is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category  
if the institution is engaged in unsafe or unsound practices or is in an unsafe 
or unsound condition.                                                           

  See the discussion under "Regulatory Capital" in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.

Limitations on Dividends and Other Capital Distributions. Most of   
Franklin's revenues are received by it in the form of dividends paid by Franklin
Bank. Under Michigan law, dividends to shareholders cannot be made if, after    
giving them effect, the corporation would not be able to pay its debts as the   
debts become due in the usual course of business, or the corporation's total    
assets would be less than its total liabilities. As a national bank, Franklin   
Bank's ability to pay dividends is governed by the National Bank Act and OCC    
regulations. Under such statute and regulations, all dividends by a national    
bank must be paid out of current or retained net profits, after deducting       
reserves for losses and bad debts. The National Bank Act further restricts the  
payment of dividends out of net profits by prohibiting a national bank from     
declaring a dividend on its shares of common stock until the surplus fund equals
the amount of capital stock or, if the surplus fund does not equal the amount of
capital stock, until one-tenth of the national bank's net profits for (i) the   
preceding four quarters in the case of annual dividends; or (ii) the preceding  
two quarters in the case of quarterly or semi-annual dividends, are transferred 
to the surplus                                                                  

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fund. In addition, the prior approval of the OCC is required for the payment of 
a dividend if the total of all dividends declared by a national bank in any     
calendar year would exceed the total of its net profits for the year combined   
with its net profits for the two preceding years, less any required transfers to
surplus or a fund for the retirement of any preferred stock.                    

The OCC has the authority to prohibit the payment of dividends by a 
national bank when it determines such payment to be an unsafe and unsound       
banking practice. In addition, Franklin Bank would be prohibited by federal     
statute and the OCC's prompt corrective action regulations from making any      
capital distribution if, after giving effect to the distribution, it would be   
classified as "undercapitalized" under the OCC's regulations.                   

     Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"),
every FDIC-insured institution, including national banks, has a continuing and  
affirmative obligation, consistent with safe and sound banking practices, to    
help meet the credit needs of its entire community, including low and moderate  
income neighborhoods. The CRA does not establish specific lending requirements  
or programs for financial institutions nor does it limit an institution's       
discretion to develop the types of products and services that it believes are   
best suited to its particular community, consistent with the CRA. The CRA       
requires the OCC, in connection with the examination of Franklin Bank, to assess
Franklin Bank's record of meeting the credit needs of its community and to take 
such record into account in its evaluation of certain applications, such as a   
merger or the establishment of a branch, by Franklin Bank. An unsatisfactory    
rating may be used as the basis for the denial of an application by the OCC.    

  Due to the heightened attention being given to the CRA in the past few
years, Franklin Bank may be required to devote additional funds for investment  
and lending in its local community. Franklin Bank was examined for CRA          
compliance in 2003 and received a satisfactory rating.                          

    Federal Reserve System. As a national bank, Franklin Bank is required to
become a member of the Federal Reserve System and subscribe for stock in the    
Federal Reserve Bank ("FRB") of Chicago in an amount equal to 6% of its paid in 
capital and surplus (payment for one-half is initially required with the        
remainder subject to call by the FRB).                                          

 The FRB requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction accounts         
(primarily checking, NOW and Super NOW checking accounts).                      

     Federal Home Loan Bank System. Franklin Bank is currently a member of the
FHLB of Indianapolis, which is one of 12 regional FHLB's that administer the    
home financing credit function of savings associations. Each FHLB serves as a   
reserve or central bank for its member within its assigned region. It is funded 
primarily from proceeds derived from the sale of consolidation obligations of   
the FHLB System. It makes loans to members (i.e. advances) in accordance with   
policies and procedures, established by the board of directors of the FHLB,     
which are subject to the oversight of the Federal Housing Finance Board. All    
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all loan advances are required to       
provide funds for residential home financing.                                   

    As a member, Franklin Bank is required to purchase and maintain stock in
the FHLB of Indianapolis. At December 31, 2003, Franklin Bank had $5.9 million  
in FHLB stock, which was in compliance with this requirement. In past years,    
Franklin Bank has received substantial dividends on its FHLB stock although     
there can be no assurance such dividends will continue to be paid in the future.

RECENT LEGISLATION                                                  

     USA Patriot Act. On October 26, 2001, President Bush signed into law, the
Uniting and Strengthening America by Providing Appropriate Tools Required to    
Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act"). The USA   
Patriot Act is intended to allow the federal government to address terrorist    
threats through enhanced domestic security measures, expanded surveillance      
powers, increased information sharing and broadened anti-money laundering       
requirements. Title III of the USA Patriot Act takes measures intended to       
encourage information sharing among bank regulatory agencies and law enforcement
bodies. Certain provisions of Title III impose affirmative obligations on a     
broad range                                                                     

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of financial institutions, including banks, thrifts, brokers, dealers, credit   
unions, money transfer agents and parties registered under the Commodity        
Exchange Act.                                                                   

Among its provisions, the USA Patriot Act requires each financial   
institution: (i) to establish an anti-money laundering program, (ii) to         
establish due diligence policies, procedures and controls with respect to its   
private banking accounts and corresponding banking accounts involving foreign   
individuals and certain foreign banks and (iii) to avoid establishing,          
maintaining, administering, or managing correspondent accounts in the United    
States for, or on behalf of, a foreign bank that does not have a physical       
presence in any country. In addition, the USA Patriot Act contains a provision  
encouraging cooperation among financial institutions, regulatory authorities and
law enforcement authorities with respect to individuals, entities and           
organizations engaged in, or reasonably suspected of engaging in, terrorist     
acts, or money laundering activities. The federal banking agencies have become  
proposing and implementing regulations in interpreting the USA Patriot Act. It  
is not anticipated that the USA Patriot Act will have a significant impact on   
the financial condition or results of operations of Franklin.                   

    Sarbanes-Oxley Act. On July 30, 2002, President Bush signed into law the
Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") which is intended to      
address systemic and structural weaknesses of the capital markets in the United 
States that were perceived to have contributed to recent corporate scandals. The
Sarbanes-Oxley Act creates the Public Company Accounting Oversight Board to     
oversee the conduct of audits of public companies. Such Board will be funded    
from assessments on public companies. In addition, the Sarbanes-Oxley Act       
attempts to strengthen the independence of public company auditors and to       
increase the responsibility of corporate management. Franklin does not expect   
that such compliance will have a material impact on Franklin's financial        
condition or results of operations.                                             

EMPLOYEES                                                           

  At December 31, 2003, the Bank had a total of 163 full-time equivalent
employees, none of whom were employed pursuant to collective bargaining         
agreements. The Bank considers its relations with its employees to be           
satisfactory.                                                                   

SELECTED STATISTICAL AND OTHER INFORMATION                          

     Certain statistical and other information referenced below is included in
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" and in "Notes to Consolidated Financial Statements" below on the 
pages referenced.                                                               

                                                        · Enlarge/Download Table

                                                                                         Page
                                                                                         ----
                                                                                             
I.   Distribution of Assets, Liabilities and Stockholders' Equity;                           
     Interest Rates and Interest Differential                                                
     A.       Average Balance Sheets ...................................................   19
     B.       Net Interest Earnings.....................................................   19
     C.       Net Interest Income Volume/Rate...........................................   18
II.  Investment Portfolio                                                                    
     A.       Book Value of Investments.................................................   25
     B.       Due Date of Investments...................................................   25
III. Loan Portfolio                                                                          
     A.       Types of Loans............................................................   24
     B.       Maturities and Sensitivities of Loans to Changes in Interest Rates........   25
     C.       Risk Elements ............................................................   25
     D.       Other Interest Bearing Assets.............................................   25
IV.  Summary of Loan and Lease Loss Experiences                                              
     A.       Allowance For Loan Losses.................................................   20
     B.       Allocation of Allowance For Loan Losses...................................   21
V.   Deposit Portfolio                                                                       
     A.       Average Deposits..........................................................   19
     B.       Maturity Distribution of Time Deposits....................................   27
VI.  Return on Equity and Assets........................................................   16
VII. Short Term Borrowings..............................................................   27

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ITEM 2. PROPERTIES                                                              

 The Bank leases space for its executive offices located at 24725 West
Twelve Mile Road, Southfield, Michigan 48034. The term of the lease was extended
as of January 1, 2003 and now expires on January 1, 2010. The Bank has an option
to extend the lease for an additional three years.                              

   The Bank also leases its Southfield branch office located at 26336 West
Twelve Mile Road, Southfield, Michigan 48034. This lease expires on March 31,   
2008. The Bank has four options to extend the lease for a period of five years  
each.                                                                           

 The Bank owns the approximately 2,200 square-foot Grosse Pointe Woods
branch office located at 20247 Mack Avenue. This property had a net book value  
of $484,146 at December 31, 2003.                                               

 The Bank leases its Birmingham branch office located at 479 Old South
Woodward Avenue. The building's lease expires May 1, 2007, but carries an option
to renew the lease for an additional 20-year term.                              

      The Bank leases its Troy branch located at 755 West Big Beaver Road, Suite
101, Troy, MI 48084. This lease expires on November 1, 2010. The Bank has two   
options to extend the lease for a period of five years each.                    

ITEM 3. LEGAL PROCEEDINGS                                                       

  From time to time, the Company is a party to routine legal proceedings
arising out of its general lending activities and other operations. However,    
there are no material pending legal proceedings to which the Company or its     
subsidiary are a party, or to which any of their property is subject, which, if 
determined adversely to the Company or its subsidiary, would individually or in 
the aggregate have a material adverse effect on its consolidated financial      
position.                                                                       

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

There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of 2003.                                      

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 PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS   

   Franklin common stock is traded on the Nasdaq National Market under the
symbol "FBCP."                                                                  

      As of March 22, 2004, there were 3,781,024 shares of Franklin common stock
outstanding, which were held by approximately 409 holders of record. Such       
numbers do not reflect the number of individuals or institutional investors     
holding stock in nominee name through brokerage firms and others.               

    The following table sets forth during the periods indicated the high and
low sales prices of the Franklin common stock as reported on the Nasdaq National
Market and the dividends declared per share of Franklin common stock for the    
periods included.                                                               

                                                                · Download Table


CALENDAR PERIOD                    MARKET PRICE       Dividends  
                            -----------------------  Declared Per
                              High           Low     Share       
                            --------       --------  ------------
                                                                 
2003                                                             

Quarter ended December 31    $21.55        $18.30     $0.08      
Quarter ended September 30    18.69         17.30      0.08      
Quarter ended June 30         18.01         16.12      0.08      
Quarter ended March 31        18.59         15.75      0.08      

2002                                                             

Quarter ended December 31    $18.28        $17.58     $0.08      
Quarter ended September 30    19.01         17.75      0.08      
Quarter ended June 30         19.35         17.65      0.08      
Quarter ended March 31        18.35         16.96      0.08      

ITEM 6. SELECTED FINANCIAL DATA                                                 

The information with respect to selected financial data is included in the table
below entitled "Five Year Summary of Selected Consolidated Financial Data."     

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FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA                       
(Dollar amounts in thousands, except for per share data)                        

                                                        · Enlarge/Download Table

                                                                    For the Year Ended December 31,                        
                                             ------------------------------------------------------------------------------
                                                2003             2002             2001             2000             1999   
                                                ----             ----             ----             ----             ----   
                                                                                                                           
Income and Expense Items                                                                                                   
Total interest income                        $   27,433       $   33,557       $   38,809       $   40,789       $   36,651
Total interest expense                            6,046            7,911           10,537           12,697           10,493
Net interest income                              21,387           25,646           28,272           28,093           26,158
Provision for loan losses                         2,903            3,810            1,859            3,693            1,226
Non-interest income                               5,414            7,027            5,714            4,089            4,154
Non-interest expense                             22,525           22,644           20,127           26,715           23,121
Net income before preferred stock dividends       1,078            5,616            8,641            1,918            4,757
Net income applicable to common shares            1,078            3,815            6,840              117            2,956

                                                        · Enlarge/Download Table

                                                              December 31,                                 
                             ------------------------------------------------------------------------------
                                2003             2002             2001             2000             1999   
                                ----             ----             ----             ----             ----   
                                                                                                           
Balance Sheet Items                                                                                        
Total assets                 $  518,963       $  542,478       $  532,559       $  527,971       $  516,646
Total average assets            530,530          553,878          527,830          527,247          512,643
Loans                           355,124          333,346          325,325          316,124          275,621
Deposits                        406,380          429,130          389,358          387,919          400,365
Borrowings                       65,000           65,000           79,606           82,326           62,521
Common shareholders' equity      45,737           45,642           42,179           35,288           33,066
Total shareholders' equity       45,737           45,642           42,179           35,288           33,066
Shares outstanding            3,753,667        3,647,593        3,607,542        3,552,550        3,509,537

                                                        · Enlarge/Download Table

                                                            At or For the Year Ended December 31,                       
                                         ------------------------------------------------------------------------------ 
                                            2003             2002             2001             2000             1999    
                                            ----             ----             ----             ----             ----    
                                                                                                                        
Per Share                                                                                                               
Book value                               $    12.18       $    12.51       $    11.69       $     9.93       $     9.42 
Basic earnings                                 0.29             1.05             1.92             0.03             0.84 
Diluted earnings                               0.28             1.01             1.86             0.03             0.83 
Cash dividends declared - Common Stock         0.32             0.32             0.28             0.28             0.28 
Payout ratio - Common Stock, in percent       109.6%            29.5%            14.6%           842.1%            33.2%
Market price:                                                                                                           
  End of year                            $    21.55       $    18.25       $    17.60       $    11.63       $     9.56 
  52 week high                                21.55            19.50            17.60            11.63            11.50 
  52 week low                                 15.75            16.96            11.03             7.00             7.13 

                                                        · Enlarge/Download Table

                                                                   At or For the Year Ended December 31,                      
                                               ------------------------------------------------------------------------------ 
                                                  2003             2002             2001             2000             1999    
                                                  ----             ----             ----             ----             ----    
                                                                                                                              
Asset Quality                                                                                                                 
Non-performing assets to total assets                0.46%            1.35%            0.68%            0.71%            1.06%
Net charge-offs to average loans                     1.22             0.80             0.29             1.12             0.78 

Key Ratios                                                                                                                    
Net interest margin                                  4.41             5.12%            5.76%            5.62%            5.58%
Net interest spread                                  3.72             4.15             4.31             3.72             3.94 
Operating expenses to average assets                 4.25             4.09             3.81             5.07             4.51 
Return on average assets                             0.20             0.69             1.30             0.02             0.58 
Return on average common shareholders' equity        2.39             8.38            17.36             0.35             8.76 

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
OF OPERATION                                                    

CRITICAL ACCOUNTING POLICIES                                                    

Franklin's consolidated financial statements are prepared in accordance with    
accounting principles generally accepted in the United States of America and    
follow general practices within the industry in which it operates. Application  
of these principles requires management to make estimates, assumptions, and     
judgments that affect the amounts reported in the consolidated financial        
statements and accompanying notes. These estimates, assumptions, and judgments  
are based on information available as of the date of the consolidated financial 
statements; accordingly, as this information changes, the consolidated financial
statements could reflect different estimates, assumptions, and judgments.       
Certain policies inherently have a greater reliance on the use of estimates,    
assumptions, and judgments and as such have a greater possibility of producing  
results that cold be materially different than originally reported. Estimates,  
assumptions, and judgments are primarily necessary when assets and liabilities  
are required to be recorded at fair value, when a decline in the value of an    
asset not carried on the financial statements at fair value warrants an         
impairment write-down or valuation reserve to be established, or when an asset  
or liability needs to be recorded contingent on a future event. Carrying assets 
and liabilities at fair value inherently results in more financial statement    
volatility. The fair values and the information used to record valuation        
adjustments for certain assets and liabilities are based either on quoted market
prices or are provided by third-party sources, when available. When third-party 
information is not available, valuation adjustments are estimated in good faith 
by management primarily through the use of internal cash flow modeling          
techniques. The most significant accounting policies followed by Bancorp are    
presented in Note 1 to the consolidated financial statements. These policies,   
along with disclosures presented in the other financial statement notes and in  
this financial review, provide information on how significant assets and        
liabilities are valued in the consolidated financial statements and how those   
values are determined. Based on the valuation techniques used and the           
sensitivity of financial statements amounts to the methods, assumptions, and    
estimates underlying those amounts, management has identified the determination 
of the allowance for loan losses and the valuation of repossessed assets to be  
the accounting areas that require the most subjective or complex judgments, and 
as such could be most subject to revision as new information becomes available. 
Any material effects on the consolidated financial statements during the twelve 
months at 2003 related to these critical accounting areas are discussed in      
management's discussion and analysis of financial condition and results of      
operations. In addition, the sensitivities of valuations to adverse changes in  
the factors and assumptions used in estimating certain fair values are discussed
in the notes to the consolidated financial statements. The remainder of         
management's discussion and analysis should be read in conjunction with the     
consolidated financial statements and related notes presented in Part II, Item  
8, Financial Statements and Supplementary Data.                                 

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FINANCIAL SUMMARY                                                               

The Corporation reported net income of $1.1 million, or $0.28 per diluted share,
in 2003 compared to $3.8 million, or $1.01 per diluted share, in 2002 and $6.8  
million, or $1.86 per diluted share, in 2001. The return on average assets was  
0.20 % in 2003, down from 0.69 % in 2002 and 1.30 % in 2001. The return on      
average common shareholders' equity was 2.39 % in 2003 compared to 8.38 % in    
2002 and 17.36 % in 2001.                                                       

FINANCIAL HIGHLIGHTS                                                            

(Dollar amounts in thousands; except per share data)                            

                                                                · Download Table

                                                                       Percent 
                                                  2003        2002     Change  
                                                  ----        ----     ------  
                                                                               
For the year ended December 31,                                                
Net income                                     $    1,078  $    3,815   (71.7)%
Net interest income                                21,387      25,646   (16.6) 
Non-interest income                                 5,414       7,027   (23.0) 
Return on average common shareholders' equity        2.39        8.38   (23.2) 
Return on average assets                             0.20        0.69   (71.0) 

Per share                                                                      
Diluted earnings                               $     0.28  $     1.01   (72.3) 
Cash dividend paid - common                          0.32        0.32      --  

At December 31,                                                                
Assets                                         $  518,963  $  542,478    (4.2) 
Loans                                             355,124     333,346     6.5  
Deposits                                          406,380     429,130    (5.3) 
Total shareholders' equity                         45,737      45,642     0.2  
Book value per share                           $    12.18  $    12.51    (2.6) 
Market price per share                              21.55       18.25    18.1  
Total shares outstanding                        3,753,667   3,647,593     2.9  

SIGNIFICANT EVENTS                                                              

On November 10, 2003, the Corporation entered into an agreement as amended on   
February 3, 2004, pursuant to which Franklin will be merged with and into First 
Place Financial Corp. Franklin shareholders will vote on the merger at a special
meeting on April 5, 2004.                                                       

A new management team was formed during 2003.                                   

            -     On November 10, 2003, Craig L. Johnson was appointed President
              and Chief Executive Officer of Franklin and Franklin Bank,
               succeeding David L. Shelp who had announced his retirement.
                  Mr. Johnson joined Franklin Bank on June 16, 2003 as Executive
Vice President and Chief Lending Officer.   

     -     On June 16, 2003, in addition to the appointment of Mr.
                 Johnson, (see above), Leonard B. Carleton was appointed Chief
                  Financial Officer and Treasurer of Franklin and Franklin Bank.

            -     Effective April 14, 2003, Michael A. King was appointed Senior
                Vice President of Retail Banking. In addition, on such date,
            Ronald J. Carr was promoted from Vice President of Human
            Resources to Senior Vice President and Director of Human
Resources.                                  

Market interest rates declined during the first half of 2003 and remained at low
levels during the second half of the year. The cost of variable rate deposits   
and the rates offered on new fixed rate deposits were generally lower during the
second half of the year.                                                        

In the third and fourth quarters of 2003, the Bank purchased whole loan pools of
first lien residential mortgages totaling $53.3 million.                        

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NET INTEREST INCOME                                                             

Net interest income is interest earned on loans and investments less interest   
paid for deposits and other borrowed funds. That net result, plus the impact of 
net non-interest-bearing funds, expressed as a percentage of average            
interest-earning assets, is the Bank's net interest margin.                     

Net interest income and net interest margin are influenced by increases or      
decreases in the volume of earning assets or interest paying liabilities, and   
the change in the average rate of interest earned on earning assets or paid for 
deposits or other borrowed funds.                                               

Net interest income for 2003, 2002 and 2001 was $21.4 million, $25.6 million and
$28.3 million, respectively. This represents a decrease in net interest income  
of 16.61% when comparing 2003 to 2002 and a decrease of 9.29% when comparing    
2002 to 2001. Net interest margin for those same periods was 4.42%, 5.12% and   
5.76%, respectively.                                                            

The decrease in net interest income in 2003 as compared to 2002 was principally 
caused by a decline in average earning assets of $24.6 million, a greater       
decline in the yield on earning assets compared to the reduction in cost of     
interest-bearing sources of funds (93 basis points versus 51 basis points,      
respectively), and a shift in the mix of earning assets to lower yielding,      
short-term investments. Interest earned on loans in 2003 amounted to $22.0      
million compared to $25.1 million in 2002 and $28.7 million in 2001. The yield  
on loans declined to 6.89% in 2003 from 7.77% in 2002 and 8.87% in 2001.        

As management determined that longer term investments were not attractive at the
market rates, funds were invested in interest-bearing deposits with banks until 
other opportunities became available. In the third and fourth quarters, whole   
mortgage loans were purchased in the amount of $53.3 million. These loans have  
yields significantly higher than the interest-bearing deposits and contribute to
improving the quality of the loan portfolio at the same time.                   

Factors that contributed to the Bank's decrease in net interest income during   
the year 2002 include relatively flat average earning balances in the loan      
portfolio coupled with a decline in the average rate earned on earning assets.  
During the same period the average amount invested in other earning assets, such
as U.S. Treasury and mortgage-backed securities and interest-earning deposits,  
increased by $12.3 million with a decrease in the average rate earned on these  
investments of 1.37%.                                                           

The interest-bearing deposit average balance and the average cost of these      
deposits declined in 2003 compared to 2002. As shown in table 2, money market   
and NOW checking average balances increased while the other categories of       
interest-bearing deposits declined. Interest expense on deposits declined by    
$1.9 million in 2003 compared to 2002 and by $2.3 million in 2002 compared to   
2001. In December, 2003 the Bank offered a special 20th anniversary CD with a   
20-month term and a rate of 2.75%. Approximately $10 million of these CD        
accounts were opened.                                                           

The FHLB advances have maturities of $10 million in 2004 and $55 million is     
2011. The FHLB may elect to convert the advances to floating rates and may do so
if the index exceeds the fixed rate. The cost of the FHLB advances remained     
stable because of the fixed rate during the period.                             

Business and personal checking accounts continue to supply funds without        
interest costs. Non-interest bearing sources of funds contributed 0.69 basis    
points to the net interest margin in 2003 compared to 0.97 basis points in 2002 
and 1.45 basis points in 2001.                                                  

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NET INTEREST INCOME VOLUME/RATE ANALYSIS - TABLE 1                              

                                                        · Enlarge/Download Table

(Dollars in Thousands)                               2003/2002                           2002/2001                
                                              INCREASE/(DECREASE)*IN               INCREASE/(DECREASE)*IN         
                                         VOLUME      RATE/YIELD       NET      VOLUME      RATE/YIELD       NET   
                                         ------      ----------       ---      ------      ----------       ---   
                                                                                                                  
INTEREST INCOME                                                                                                   
LOANS                                   $  (568)      $(2,570)      $(3,138)  $    48       $(3,566)      $(3,518)
INVESTMENT SECURITIES:                                                                                            
  U.S. TREASURIES AND MORTGAGE-BACKED                                                                             
    SECURITIES                           (3,552)         (923)       (4,475)     (240)       (1,786)       (2,026)
  INTEREST BEARING DEPOSITS WITH BANKS      251          (547)         (296)      387           (23)          364 
  OTHER                                   2,863        (1,078)        1,785         8           (80)          (72)
                                        -------       -------       -------   -------       -------       ------- 
TOTAL INTEREST INCOME                    (1,006)       (5,118)       (6,124)      203        (5,455)       (5,252)
INTEREST EXPENSE                                                                                                  
DEPOSITS                                   (437)       (1,365)       (1,802)      516        (2,802)       (2,286)
FHLB ADVANCES                                (9)            3            (6)      616          (168)          448 
OTHER BORROWINGS                            (57)         --             (57)     (439)         (349)         (788)
                                        -------       -------       -------   -------       -------       ------- 
TOTAL INTEREST EXPENSE                     (503)       (1,362)       (1,865)      693        (3,319)       (2,626)
                                        -------       -------       -------   -------       -------       ------- 
NET INTEREST INCOME                        (503)       (3,756)       (4,259)     (490)       (2,136)       (2,626)
                                        =======       =======       =======   =======       =======       ======= 

* THE CHANGE IN INTEREST DUE TO BOTH VOLUME AND RATE HAS BEEN ALLOCATED BETWEEN 
THE FACTORS IN PROPORTION TO THE RELATIONSHIP OF THE ABSOLUTE DOLLAR AMOUNTS OF 
THE CHANGE IN EACH.                                                             

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NET INTEREST INCOME ANALYSIS - TABLE 2                                          

                                                        · Enlarge/Download Table

(Dollars in Thousands)                                                YEARS ENDED DECEMBER 31,                                     
                               --------------------------------------------------------------------------------------------------- 
                                 2003                               2002                               2001                        
                               -------------------------------    -------------------------------    ----------------------------- 
                                AVERAGE                 YIELD/     AVERAGE                 YIELD/     AVERAGE               YIELD/ 
                                BALANCE     INTEREST    RATE       BALANCE     INTEREST     RATE      BALANCE     INTEREST   RATE  
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
                                                                                                                                   
Assets                                                                                                                             
Loans:                                                                                                                             
Commercial                     $ 253,896   $  18,069      7.12%   $ 250,424   $  18,763      7.49%   $ 236,086   $  20,527    8.69%
Residential                       44,660       1,999      4.48%      48,178       3,253      6.75%      61,977       5,083    8.20 
Consumer                          20,826       1,908      9.16%      24,799       3,022     12.19%      22,520       2,747   12.20 
Lease Financing                        7          34    485.71%         305         109     35.86%       2,581         307   11.94 
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Total Loans                      319,389      22,010      6.89%     323,706      25,147      7.77%     323,164      28,664    8.87%
U.S. Treasuries and                                                                                                                
Mortgage-Backed                                                                                                                    
Securities                        68,733       2,476      3.60%     140,568       6,951      4.94%     149,049       9,227    6.19 
Tax-Exempt Municipal                                                                                                               
Securities (1)                    11,202         623      8.43%       8,767         365      6.31%       2,502         115    6.96 
Interest-Bearing Deposits                                                                                                          
With Banks                        33,426         350      1.05%      24,077         646      2.68%       9,715         282    2.90 
Other                             47,147       2,185      4.63%       7,401         448      6.05%       7,283         520    7.14 
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Total Earning Assets/Interest                                                                                                      
Income                           479,897      27,644      5.76%     504,519      33,557      6.69%     491,713      38,809    7.90%
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Cash and Due from Banks           21,813                             21,564                             22,353                     
All Other Assets                  34,041                             32,487                             18,324                     
Allowance for Possible                                                                                                             
Credit Losses                     (5,221)                            (4,692)                            (4,560)                    
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Total Assets                   $ 530,530                          $ 553,878                          $ 527,830                     
                               =========   =========   =======    =========   =========   =======    =========   =========  ====== 
Liabilities:                                                                                                                       
Money Markets                    163,985       1,657      1.01%     159,786       2,762      1.73%     150,566       4,335    2.88%
Savings Accounts                     151           1      0.57%         281           3      1.00%         276           5    1.73 
NOW Checking                      21,476          72      0.33%      19,437         131      0.67%      16,667          95    0.57 
Certificates                      29,997       1,021      3.40%      35,877       1,303      3.63%      25,870       1,303    5.04 
Jumbo Certificates                16,146         399      2.47%      27,354         753      2.75%      32,179       1,500    4.66 
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Total Interest-Bearing                                                                                                             
Deposits                         231,755       3,150      1.36%     242,735       4,952      2.04%     225,558       7,238    3.21 
FHLB Advances                     65,316       2,896      4.43%      65,528       2,902      4.43%      51,806       2,454    4.74 
Other                                                                 3,133          57      1.82%      16,492         845    5.13 
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Total Interest-Bearing                                                                                                             
Liabilities/Expense              297,071       6,046      2.04%     311,396       7,911      2.54%     293,856      10,537    3.59%
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Business/Personal Checking       186,258                            177,448                            172,621                     
Preferred Stock                        0                             17,875                             19,500                     
Other Liabilities                  2,168                              1,605                              2,443                     
Shareholders' Equity              45,033                             45,554                             39,410                     
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Total Liabilities and                                                                                                              
Shareholders' Equity           $ 530,530                          $ 553,878                          $ 527,830                     
                               =========   =========   =======    =========   =========   =======    =========   =========  ====== 
Net Interest Income (FTE)                  $  21,598                          $  25,646                          $  28,272         
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Net Interest Spread                                       3.72%                              4.15%                            4.31%
                               ---------   ---------   -------    ---------   ---------   -------    ---------   ---------  ------ 
Impact of Net Non-Interest                                                                                                         
Bearing Source of Funds                                                                                                            
And Equity                                                0.69%                              0.97%                            1.45%
                               =========   =========   =======    =========   =========   =======    =========   =========  ====== 
Net Interest Margin                                       4.41%                              5.12%                            5.76%
                               =========   =========   =======    =========   =========   =======    =========   =========  ====== 

(1) Interest rates are calculated on a federal tax equivalent basis.            

Interest and principal balances pertaining to non-accrual loans are not included
for this analysis                                                               

ALLOWANCE FOR LOAN AND LEASE LOSSES ("ALLL")                                    

The provision for loan and lease losses reflects management's evaluation of the 
adequacy of the allowance for loan and lease losses. The allowance for loan and 
lease losses represents management's assessment of probable losses inherent in  
the Bank's loan portfolio, including all binding commitments to lend. The       
allowance provides for probable losses that have been identified with specific  
borrowing customers and for probable losses believed to be inherent but that    
have not been specifically identified. Internal risk ratings are assigned to    
each business loan at the time of approval and are subject to subsequent        
periodic reviews by Bank management and the Bank's loan review consultants.     
Business loans consist of non-real estate commercial loans, commercial mortgages
and Franklin lines of credit. A detailed review of the loan portfolio is        
performed on a quarterly basis to assess the credit quality of the Bank's       
commercial loan portfolio. A specific portion of the allowance is allocated to  
such loans based upon this review. The portion of the allowance allocated to the
remaining business loans is determined by applying projected loss ratios to each
risk rating based on both qualitative and quantitative factors. The portion of  
the allowance allocated to consumer and mortgage loans is determined by applying
projected loss ratios to various segments of the loan portfolio. Projected loss 
ratios incorporate factors such as recent charge-off experience, current        
economic conditions and trends, geographic dispersion of borrowers, and trends  
with respect to past due and non-accrual amounts.                               

At year-end 2003 the allowance for loan losses was $4.9 million compared to $5.9
million at year-end 2002. In 2003, provisions for loan losses decreased by $0.9 
million compared to 2002, which were $1.9 million higher than the provision in  
2001. Recoveries were $2.8 million, $1.6 million, and $1.4 million for 2003,    
2002, and 2001, respectively. Net charge offs increased by                      

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42.2 % in 2003 compared to 2002 and 190 % when comparing year ended 2002 to     
2001. During calendar year 2003, management of the Bank continued its aggressive
approach towards reducing troubled assets. The effects of the economic slowdown 
resulted in the increase in charge-offs for the Bank's consumer and small       
business lines of credit portfolio in 2002. In both 2003 and 2002, the          
continuing weak economy resulted in a deterioration of certain Bank loan        
relationships and prompted the Bank to take credit actions designed to promptly 
charge off troubled loans and increase its loan loss provision. The majority of 
the non-performing asset balance at December 31, 2003 consists of ten loans     
totaling $2.1 million including four commercial loans, five commercial real     
estate loans and one residential property in redemption.                        

ALLOWANCE FOR LOAN LOSSES - TABLE 3                                             

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                                                  Year Ended December 31,                     
                                ------------------------------------------------------------- 
                                   2003            2,002             2001             2000    
                                ----------       ----------       ----------       ---------- 
                                                                                              
Balance at Beginning of Period  $5,926,813       $4,863,948       $3,951,552       $3,584,301 
Provision for Losses             2,902,612        3,809,760        1,858,500        3,693,371 
Charge-offs                                                                                   
  Commercial                     1,904,545        2,210,026        1,143,857        2,327,440 
  Commercial Mortgage            2,687,166                0                0                0 
  Construction                           0                0                0                0 
  Residential                      432,971          268,794           51,815          265,868 
  Overdraft                         74,911          104,424          124,043          142,506 
  Consumer                       1,633,984        1,650,631          847,638          667,646 
  Lease Financing                        0           68,334          175,917        1,055,030 
                                ----------       ----------       ----------       ---------- 
Total Charge-Offs                6,733,577        4,302,209        2,343,270        4,458,490 
Recoveries                                                                                    
  Commercial                       923,859          225,928          303,232           99,587 
  Commercial Mortgage              537,038                0                0                0 
  Construction                           0                0                0                0 
  Residential                       13,500                0              148           39,980 
  Overdraft                         55,071           35,259          118,548           42,570 
  Consumer                       1,214,172        1,053,712          558,100          114,464 
  Lease Financing                   83,981          240,415          417,138          835,769 
                                ----------       ----------       ----------       ---------- 
Total Recoveries                 2,827,621        1,555,314        1,397,166        1,132,370 
                                ----------       ----------       ----------       ---------- 
Net Charge-offs                  3,905,956        2,746,895          946,104        3,326,120 
                                ----------       ----------       ----------       ---------- 
Balance at End of Period        $4,923,469       $5,926,813       $4,863,948       $3,951,552 
                                ==========       ==========       ==========       ========== 
Allowance as a Percentage of :                                                                
  Loans                               1.39%            1.78%            1.50%            1.25%
  Non-performing assets             205.16            80.93           134.06           106.14 
  Net Charge-offs                   126.05           215.76           514.10           118.80 
  Net Charge-offs to:                                                                         
  Average Loans Outstanding           1.22             0.85             0.29             1.12 

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ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES - TABLE 4                     
(Dollar amounts in thousands)                                                   

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                                                                       December 31,                                 
                                  --------------------------------------------------------------------------------- 
                                                2003                                        2002                    
                                  -----------------------------------------     ----------------------------------- 
                                             Percentage                                  Percentage                 
                                              Allocated                                  Allocated                  
                                             Reserve to        Percent of                Reserve to     Percent of  
                                                Total           Allocated                   Total        Allocated  
                                                Loans           Reserve to                  Loans       Reserve to  
                                  Amount     Outstanding      Total Reserve     Amount   Outstanding   Total Reserve
                                  ------     -----------      -------------     ------   -----------   -------------
                                                                                                                    
Commercial Real Estate Loans      $1,009         0.55%            20.50%        $2,758       0.83%         46.53%   
Commercial Non-Real Estate Loans   2,574         3.19             52.28%         1,599       0.48          26.98    
Residential Loans                    331         0.47              6.72%           129       0.04           2.18    
Consumer Loans                       427         2.15              8.67%           747       0.22          12.60    
Unallocated                          582         0.16             11.83%           694       0.21          11.71    
                                  ------                                        ------                              
Total                             $4,923         1.39%              100%        $5,927       1.78%           100%   

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                                                                       December 31,                                 
                                  ----------------------------------------------------------------------------------
                                                    2001                                        2000                
                                  -----------------------------------------     ------------------------------------
                                  Amount     Outstanding      Total Reserve     Amount   Outstanding   Total Reserve
                                  ------     -----------      -------------     ------   -----------   -------------
                                                                                                                    
Commercial Real Estate Loans      $1,423         0.44%            29.26%        $2,481       0.78%         62.78%   
Commercial Non-Real Estate Loans   1,878         0.58             38.61            257       0.08            6.5    
Residential Loans                    403         0.12              8.28            250       0.08           6.33    
Consumer Loans                       542         0.17             11.15            278       0.09           7.03    
Unallocated                          618         0.19              12.7            686       0.22          17.36    
                                  ------                                        ------                              
Total                             $4,864          1.5%              100%        $3,952       1.25%           100%   

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                                            December 31,                   
                                  -----------------------------------------
                                                    1999                   
                                  -----------------------------------------
                                  Amount     Outstanding      Total Reserve
                                  ------     -----------      -------------
                                                                           
Commercial Real Estate Loans      $2,796         1.02%            78.01%   
Commercial Non-Real Estate Loans      29         0.01              0.81    
Residential Loans                     69         0.02              1.93    
Consumer Loans                       114         0.01              3.18    
Unallocated                          576         0.21             16.07    
                                  ------                                   
Total                             $3,584         1.27%              100%   

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NON-INTEREST INCOME                                                             

Total non-interest income in 2003 amounted to $5.4 million compared to $7.0     
million in 2002 and $5.7 million in 2001. Deposit service charges are the       
largest recurring component of non-interest income and amounted to $3.1 million 
in 2003 down $136 thousand or 4.2 % from 2002. In 2003, non-sufficient funds    
("NSF") fees were down by $293 thousand and statement charges were up $186      
thousand compared to 2002, in addition miscellaneous fees and returned item     
charges were down $27 thousand in 2003. The changes in deposit service charges  
in 2002 compared to 2001 were a result of a $175 thousand decrease in NSF fees  
and a $165 thousand decrease in statement fees. The gains on sales of other     
assets were $270 thousand in 2003 versus a loss of $192 thousand in 2003 for an 
increase in non-interest income of $462 thousand when comparing year-to-year    
changes.                                                                        

In 2002 the proceeds from life insurance were $2.3 million, primarily as a      
result of the untimely death of an insured officer. In 2003 the increase in the 
cash surrender value of life insurance was $515 thousand. This accounts for $1.8
million in the reduction of non-interest income in 2003 compared to 2002.       

Net gain on sale of securities was $412 thousand in 2003 compared to $648       
thousand in 2002 and $1.1 million in 2002.                                      

NON-INTEREST INCOME ANALYSIS - TABLE 5                                          

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(Dollars in Thousands)                    Year Ended December 31,            Percent Change    
                                     ----------------------------------   -------------------- 
                                       2003         2002          2001    2003-02      2002-01 
                                     -------      -------       -------   -------      ------- 
                                                                                               
Deposit Service Charges              $ 3,086      $ 3,222       $ 3,595     -4.22%      -10.38%
Loan Fees                                661          537           325     23.09%       65.23%
Gain on Sale of Securities               412          648         1,144    -36.42%      -43.36%
Gain/(Loss) on Sale of Other Assets      270         (192)          (59)       NM       225.42%
Increase in Cash Value and Proceeds                                                            
from Life Insurance                      515        2,332            18    -77.92%         NM1 
Other                                    470          480           691     -2.08%      -30.54%
                                     -------      -------       -------   -------     -------- 
Total Non-Interest Income            $ 5,414      $ 7,027       $ 5,714    -22.95%       22.98%
                                     =======      =======       =======   =======     ======== 

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NON-INTEREST EXPENSE                                                            

Total non-interest expenses were $22.3 million in 2003 compared to $22.6 million
in 2002 and $20.1 million in 2001. Included in non-interest expenses were       
severance compensation of $3.1 million in 2003, $2.5 million in 2002 and $708   
thousand in 2001. Officers with higher value severance packages exercised their 
agreements in 2003, including the retirement payment to David Shelp. Merger     
related expenses were $304 thousand in 2003, zero in 2002 and $67 thousand in   
2001. 2002 expenses included non-recurring expenses relating to a previously    
reported investigation conducted by a special committee of independent directors
and the expenses incurred in the creation of the bank holding company of $665   
thousand and $181 thousand, respectively.                                       

Compensation, excluding severance compensation, declined for the second year in 
a row to $9.4 million in 2003 from $9.6 million in 2002 and $9.8 million in     
2001. The full time equivalent staff at December 31, 2003 was 163 compared to   
189.5 and 195.5 at December 31, 2002 and 2001, respectively.                    

The Troy office was opened in January, 2003.                                    

NON-INTEREST EXPENSE ANALYSIS - TABLE 6                                         

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(Dollars in Thousands)                         YEAR ENDED DECEMBER 31,           PERCENT CHANGE    
                                          ---------------------------------  ----------------------
                                           2003         2002         2001     2003-02     2002-01  
                                          -------      -------      -------  ---------   ----------
                                                                                                   
Salaries                                  $ 7,118      $ 7,460      $ 7,883     -4.6%       -5.4%  
Employee Benefits                           2,257        2,124        1,891      6.3        12.3%  
                                          -------      -------      -------  -------     -------   
Total Compensation Expense                  9,375        9,584        9,774     (2.2)       -1.9%  
Occupancy and Equipment                     3,250        3,217        3,332      1.0        -3.5%  
Advertising                                   551          610          799     (9.7)      -23.7%  
Outside Services                            2,651        2,913        2,199     (9.0)       32.5%  
Federal Insurance                              65           69          186      4.3       -62.9%  
Communication Expense                         565          594          585     (4.9)        1.5%  
Defaulted Loan Expense                        791          778          401     11.8        94.0%  
Other                                       1,896        2,389        2,076    (20.6)       15.0%  
                                          -------      -------      -------  -------     -------   
Total Non-Interest Expense Before Merger                                                           
and Severance Expenses                     19,144       20,154       19,352     (5.8%)       4.1%  
Severance Compensation                      3,077        2,490          708     23.6%      251.7%  
Merger Expenses                               304            0           67               -100.0%  
                                          -------      -------      -------  -------     -------   
Total Non-Interest Expense                $22,525      $22,644      $20,127     (1.2%)      12.5%  

INCOME TAXES                                                                    

The provision for federal income taxes for 2003, 2002 and 2001 were $296        
thousand, $603 thousand and $3.4 million, respectively. The differences reflect 
the fluctuations in pre-tax earnings along with the effect of tax-exempt        
interest income, non-taxable life insurance gains and low income housing        
credits, which reduced the effective tax rate to 21.5 %, 13.65 % and 32.94 % in 
2003, 2002 and 2001, respectively.                                              

EARNING ASSETS                                                                  

At year-end 2003, total earning assets totaled $454.4 million compared to $503.2
million at December 31, 2002. Average earning assets amounted to $479.9 million 
in 2003, $504.5 million in 2002 and $491.7 million in 2001.                     

Loans are the largest component of earning assets with an average balance of    
$319.4 million in 2003 compared to average balances of $323.7 million and $323.2
million in 2002 and 2001, respectively. Commercial loans, including commercial  
real estate, grew $3.5 million in 2003 compared to 2002 and $14.3 million in    
2002 compared to 2001. Both residential and consumer loans had lower average    

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balances in 2003 than in 2002, while consumer loans averaged $2.3 million higher
in 2002 than in 2001. The consumer loans were primarily related to the four-year
lending program in conjunction with DTE Energy that ended at the end of 2003.   
Residential loans reduced during 2003 through principal reduction and           
refinancing with other lenders. In the third and fourth quarters of 2003, the   
Bank acquired whole loan mortgage pools to replenish the portfolio.             

Asset or liability sensitivity along with interest rate risk arises in the      
normal course of the Bank's business due to differences in the re-pricing and   
maturity characteristics of interest rate sensitive assets and liabilities.     
Sensitivity of earnings to interest rate changes arises when yields on assets   
change differently from the interest costs on liabilities. Asset or liability   
sensitivity is determined by the difference between interest-earning assets and 
interest-bearing liabilities re-pricing within a specific time period and the   
magnitude by which interest rates change on the various types of earning assets 
and interest-bearing liabilities. The management of interest rate sensitivity   
includes monitoring the maturities and re-pricing opportunities of              
interest-earning assets and interest-bearing liabilities.                       

At year-end 2003, the Bank's investment portfolio had a balance of $91.6 million
compared to $149.8 million at year-end 2002. Compared to the broad array of     
investment opportunities generally accepted as suitable bank investments, the   
Bank's investment portfolio remained conservative and consisted primarily of    
mortgage-backed securities and U.S. government agency securities. At December   
31, 2003, the Bank's investment securities portfolio had a weighted average     
maturity of 11.2 years and a weighted average yield of 3.12 %.                  

There were no investments in securities of any one issuer, which exceeded 10% of
stockholders' equity except for holdings of U.S. Government Agency Securities   
($59.0 million), CIT Group Inc. Corporate Bonds ($5.0 million), and Goldman     
Sachs Group Inc. Corporate bonds ($5.2 million) at December 31, 2003. The       
majority of the U.S. Government Agency Securities are pledged to secure         
borrowing arrangements for Federal Home Loan Bank borrowings and securities sold
under agreements to repurchase or for other purposes as required or permitted by
law.                                                                            

LOAN AND LEASE FINANCING PORTFOLIO ANALYSIS - TABLE 7                           
(Dollars in Thousands)                                                          

                                                        · Enlarge/Download Table

                                                                     At December 31,                                   
                                      -------------------------------------------------------------------------------- 
                                               2003                        2002                           2001         
                                      ----------------------       ----------------------       ---------------------- 
                                       Amount            %          Amount            %          Amount           %    
                                      --------        ------       --------        ------       --------        ------ 
                                                                                                                       
Commercial                            $ 74,440          22.7%      $ 77,856          23.4%      $ 70,613          21.7%
Commercial Mortgage                    185,132          52.1        188,121          56.4        169,865          52.2 
Residential Mortgage and Home Equity    64,034          19.6         16,753             5         24,627           7.6 
Real Estate Construction                10,677           0.0         26,071           7.8         31,858           9.8 
Consumer                                20,843           5.6         24,512           7.4         27,378           8.4 
Lease Financing                             --           0.0             33           0.0            984           0.3 
                                      --------        ------       --------        ------       --------        ------ 
Loans                                 $355,124           100%      $333,346           100%      $325,325           100%
                                      ========        ======       ========        ======       ========        ====== 

The Bank has no foreign loans and there were no concentrations greater than 10% 
of total loans that are not disclosed as a separate category.                   

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LOAN COMMITMENTS - TABLE 8                                                      

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(Dollars in Thousands)                                  At December 31,            
                                              -------------------------------------
                                               2003           2002            2001 
                                              ------         ------          ------
                                                                                   
Outstanding Loan Commitments                  10,278         21,000          21,500
Unused Commercial Line of Credit Commitments  54,740         70,400          53,500
Unused Home Equity Commitments                 6,276          4,600           5,200
Undisbursed Construction Loans                 7,940          5,900           7,900

LOAN MATURITY ANALYSIS - TABLE 9                                                

                                                        · Enlarge/Download Table

(Dollars in Thousands)                                        At December 31,                         
                                      ----------------------------------------------------------------
                                          With            One To            After                     
                                        One Year        Five Years        Five Years         Total    
                                      -----------      ------------      -----------      ------------
                                                                                                      
Commercial                            $39,957,729      $ 24,246,011      $10,236,269      $ 74,440,009
Commercial Mortgage                    13,099,704       153,271,048       18,760,873       185,131,625
Residential Mortgage and Home Equity    2,362,263         4,871,788       56,801,052        64,035,103
Real Estate Construction                7,133,313         3,543,856                         10,677,169
Consumer                                1,704,191        19,128,965            7,177        20,840,333
Lease Financing                                                                                       
Lease Financing - Held for Sale                                                                       
                                      -----------      ------------      -----------      ------------
Loans                                  64,257,200      $205,061,668      $85,805,371       355,124,239
                                      -----------      ------------      -----------      ------------

Total Loans Above                                                                                     
                                      ===========      ============      ===========      ============
Fixed Rates                           $10,870,303      $131,026,853      $47,006,343      $188,903,499
Floating Rates                         53,386,897        74,034,815       38,799,028       166,220,740
                                      -----------      ------------      -----------      ------------
Loans                                 $64,257,200      $205,061,668      $85,805,371      $355,124,239
                                      ===========      ============      ===========      ============

SECURITIES MATURITY ANALYSIS - TABLE 10                                         
(Dollar amounts in thousands)                                                   

                                                        · Enlarge/Download Table

                                                                        At December 31, 2003                                   
                                         ------------------------------------------------------------------------------------- 
                                            Within 1 Year         1 - 5 Years           5 - 10 Years           Over 10 Years   
                                         -----------------     ----------------      -------------------      ---------------- 
                                          Cost       Yield       Cost     Yield       Cost        Yield        Cost      Yield 
                                         -------     -----     -------    -----      -------     -------      -------   ------ 
                                                                                                                               
  Mortgage-backed securities             $    --               $    --               $ 2,561        5.33%     $26,315     4.07%
  U.S. Government and agency securities    8,526      4.18%     20,040     2.22%         954        6.63%                      
  Tax-exempt municipal securities                                2,592     3.44%         762        4.30%       6,594     4.61%
  Taxable municipal securities                                   1,356     1.19%                                               
  Corporate bonds                          6,496      6.51%      4,999     6.50%       5,165        6.29%       3,000     4.82%
                                         -------               -------               -------                  -------          
Total                                    $15,022               $28,987               $ 9,442                  $35,909          

                                                                · Download Table

                                                   At December 31, 2003         
                                             -----------------------------------
                                                          Maturing              
                                             -----------------------------------
                                                                        Weighted
                                                                        Average 
                                             Amortized      Fair        Maturity
                                                Cost        Value       (Years) 
                                             ---------     -------      --------
                                                                                
  Mortgage-backed securities                  $28,876      $29,250         24.3 
  U.S. Government and agency securities        29,520       29,750          2.4 
  Tax-exempt municipal securities               9,949       10,461          9.7 
  Taxable municipal securities                  1,356        1,356          1.4 
  Corporate bonds                              19,659       20,754          6.6 
                                              -------      -------              
Total                                         $89,360      $91,571         11.2 

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OTHER EARNING ASSETS                                                            

The Bank's other earning assets are comprised of Federal Home Loan Bank ("FHLB")
stock, Federal Reserve Bank ("FRB") stock, interest-bearing deposits with other 
banks and bank owned life insurance. Total other earning assets at year-end     
totaled $18.9 million and $29.8 million at December 31, 2003 and 2002.          

Interest-bearing deposits with banks averaged $33.4 million in 2003 compared to 
$24.1 million in 2002 and $9.7 million in 2001. Liquid funds were temporarily   
maintained in these interest-bearing deposits while seeking higher yielding,    
high quality alternative investments. Management viewed the available investment
securities as an unattractive alternative during this period of the interest    
rate cycle.                                                                     

As a member of both the FHLB and the FRB, stock ownership is required. At       
year-end 2003 and 2002, the Bank's FHLB stock position remained at $5.9 million.
FRB stock held at year-end 2003 was $0.9 million compared to $1.5 million at    
December 31, 2002. These investments carried a weighted average yield of 5.26%  
during 2003 and 6.05% during 2002.                                              

During December of 2001, the Bank invested $10 million in cash value life       
insurance, commonly known as "BOLI". "BOLI" is a tax-free investment vehicle    
that provides a stable return which is typically at or above market rates. The  
"BOLI" investment is held indefinitely by the Bank. In the event of death of a  
member of the insured group, the proceeds from the life insurance claim are     
included in the Bank's other income. During 2002, the Bank recognized $2.3      
million in proceeds from this product, of which $1.7 million was recognized     
during the fourth quarter of 2002 due to the untimely death of the Bank's Senior
Vice President and Chief Credit Officer. The Bank invested $830 thousand in     
additional "BOLI" during 2003.                                                  

DEPOSITS AND OTHER BORROWED FUNDS                                               

Providing a stable source of low-cost funding, core deposits include            
non-interest-bearing business checking deposits, money market savings, personal 
checking and savings and retail certificates. Average core deposits were $401.9 
million in 2003 compared to $392.3 million in 2002. Average business- and       
personal-checking balances were $186.3 million in 2003 compared to $177.4       
million in 2002. Average money market savings were $164.0 million in 2003       
compared to $159.8 million in 2002 and $150.6 million in 2001. Average retail   
certificate of deposits were $30.0 million in 2003 compared to $35.9 million in 
2002 and $25.9 million for 2001. The Bank's largest core deposit source         
continues to be business and personal checking account balances. The average    
balance of those accounts increased during 2003 by $8.8 million.                

At December 31, 2003, total deposits were $406.4 million compared to $429.1     
million at the end of 2002. Total deposits for any given day can fluctuate      
primarily as business checking customer's balances changes as collections and   
payments cause their balances to change. There is an indication that business   
checking balances tend to be lower around the year end and rise to a higher     
level around the middle of each year.                                           

Comparing year end 2002 to 2001, total deposits increased $39.8 million or      
10.2%. This significant increase is deposits has not only contributed to funding
loans, but has also allowed the Bank to decrease its other borrowed funds $14.6 
million and to redeem the $20.7 million of preferred stock of the Bank's        
subsidiary Franklin Finance Corporation which was paying a dividend of 8.70%.   

Borrowed funds in the form of advances from the FHLB and repurchase agreements  
provided a limited amount of the funding to support loan growth in the year 2002
while providing a source of liquidity which mirrors the estimated duration of   
the Bank's deposit portfolio. The average balance in these forms of borrowed    
funds was $65.0 million for FHLB advances and $0.3 million for repurchase       
agreements in 2003, as compared to $65.3 million for FHLB advances and $3.1     
million in repurchase agreements in 2002 and $51.8 million for FHLB advances and
$16.5 million in repurchase agreements, in 2001. In 2004, $10 million of the    
FHLB advances mature.                                                           

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SOURCE OF FUNDS - TABLE 11                                                      
(Dollars in thousands)                                                          

                                                        · Enlarge/Download Table

                                                                  December 31,                                   
                               ----------------------------------------------------------------------------------
                                         2003                          2002                        2001          
                                         ----                          ----                        ----          
                                                                                                                 
Business checking              $185,159         39.28%%      $180,011         36.43%      $159,450         34.00%
Money market savings            147,697         31.33%        165,365         33.47        147,231         31.40 
Personal checking and savings    25,076          5.32%         25,567          5.17         23,661          5.05 
Jumbo certificates               19,736          4.19%         20,967          4.24         33,460          7.13 
Retail certificates              28,712          6.09%         37,220          7.53         25,556          5.45 
                               --------      --------        --------      --------       --------      -------- 
Total deposits                  406,380         86.21%        429,130         86.85        389,358         83.03 
Borrowings                       65,000         13.79%          65000         13.15         79,606         16.97 
                               --------      --------        --------      --------       --------      -------- 
Total source of funds           471,380           100%       $494,130           100%      $468,964           100%

MATURITY DISTRIBUTION OF TIME DEPOSITS ANALYSIS - TABLE 12                      
(In thousands of dollars)                                                       

                                                                · Download Table

                                                December 31, 2003               
                                                -----------------               
                                                                                
                                  (less than) $100,000   (greater than) $100,000
                                              --------                  --------
Three months or less                          $  4,404                  $  5,001
Over three months to six months                  6,023                     4,462
Over six months to twelve months                15,943                     8,905
Over twelve months                               2,342                     1,368
                                              --------                  --------
Total                                         $ 28,712                  $ 19,736
                                              ========                  ========

CONTRACTUAL OBLIGATIONS                                                         

The Company has various financial obligations, including contractual obligations
and commercial commitments, which require future cash payments. The following   
table presents the aggregated annual maturities of contractual obligations      
(based on final maturity dates) at December 31, 2003 (in thousands).            

                                                                · Download Table

                                              Less than    1-3     3-5    More than
Contractual Obligations               Total     1 year    years   years    5 years 
(In thousands of dollars)             -----     ------    -----   -----    ------- 
                                                                                   
Deposits without stated maturities  $357,932   $    --   $    --  $   --   $357,932
Certificates of deposit               48,448    19,890    24,848   3,447        263
Long-term debt obligations            65,000    10,000        --      --     55,000
Capital lease obligations                 --        --        --      --         --
Operating lease obligations            6,614     1,097     2,282   2,065      1,170
Purchase obligations                      --        --        --      --         --
Other long-term liabilities               --        --        --      --         --
                                    --------   -------   -------  ------   --------
Total                               $477,994   $30,987   $27,130  $5,512   $414,365

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REGULATORY CAPITAL                                                              

The adequacy of the Corporation's capital is reviewed regularly to ensure that  
sufficient capital is available to meet current and future funding needs and    
comply with regulatory requirements.                                            

Shareholders' equity, excluding the net unrealized gain on securities available 
for sale, increased by $1.1 million at year end 2003, or 2.46 %, compared to    
December 31, 2002 and represents 8.52 % of total assets. At December 31, 2002,  
the similar ratio of shareholders' equity to assets was 7.97%. The increase was 
primarily the result of net income of $1.1 million and exercise of common stock 
options of $1.2 million, offset by $1.2 million of cash dividends. Dividends    
declared per common share remained $0.32 per share in 2003 as in 2002.          
Management believes the Corporation has an adequate capital position to meet its
needs in 2004.                                                                  

The Corporation is subject to risk-based capital adequacy guidelines that       
measure capital relative to risk-weighted assets and off-balance sheet financial
instruments. Capital adequacy guidelines issued by the Federal Reserve Board    
require bank holding companies to have a minimum total risk-based capital ratio 
of 8.00%, with at least half of total capital in the form of Tier 1, or core    
capital. The Corporation's total risk-based capital ratio was 13.15% at December
31, 2003. For further information regarding regulatory capital requirements, see
Note 6 to the consolidated financial statements.                                

The Bank has consistently exceeded the capital levels established by The Office 
of the Comptroller of the Currency ("OCC"). During 2003, the Bank's capital     
levels remained above the "well capitalized" OCC classification. It is the      
Corporation's objective to maintain this highest classification level, which    
both ensures compliance with regulatory requirements and allows for greater     
potential growth.                                                               

The OCC measures regulatory capital three ways: 1) Tier 1 capital to average    
assets (the "Tier 1 leverage" ratio), 2) Tier 2 capital to risk weighted assets 
and 3) Total capital to risk weighted assets. Minimum accepted ratios for these 
three levels are 4.00%, 4.00% and 8.00%, respectively. "Well capitalized"       
institutions must meet OCC established minimums of 5.00%, 6.00% and 10.00% for  
the three tiers, respectively.                                                  

CAPITAL ANALYSIS - TABLE 13                                                     
(In thousands)                                                                  

                                                        · Enlarge/Download Table

                                                            Tier 1       Tier 1       Total    
                                                           Leverage    Risk-based   Risk-based 
                                                          ----------   ----------   ---------- 
                                                                                               
Regulatory capital balances at December 31, 2003          $   44,279   $   44,279   $   49,202 
Required regulatory capital (well capitalized)                26,594       25,444       42,090 
                                                          ----------   ----------   ---------- 
Capital in excess of well capitalized                     $   17,685   $   18,325   $    7,112 
                                                          ==========   ==========   ========== 
Capital ratios at December 31, 2003                             8.32%       10.24%       11.37%
Capital ratios at December 31, 2002                             7.55        10.63        11.89 
Regulatory capital ratios--"well capitalized" definition        5.00         6.00        10.00 

NON-PERFORMING ASSETS                                                           

The Bank's policies regarding non-accrual and impaired loans reflect the        
importance of early identification of troubled loans. Consumer loans are charged
off no later than 120 days past due, or earlier if deemed uncollectible. Loans  
other than consumer loans are generally placed on non-accrual status when       
management determines that principal or interest may not be fully collectible,  
but generally no later than when the loan is 90 days past due on principal or   
interest. Loan amounts in excess of probable future cash collections are charged
off at the time the loan is placed on non-accrual status, to an amount that     
represents management's assessment of the ultimate collectibility of the loan.  
Interest previously accrued but not collected on non-accrual loans is charged   
against current income. Income on such loans is then recognized only to the     
extent that cash is received and where the future collection of principal is    
probable. When the future collection of principal is not probable, cash received
is applied to the carrying value of the loan.                                   

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Total non-performing assets at year-end 2003 were $2.4 million compared to $7.3 
million and $3.6 million at year-end 2002 and 2001, respectively. The $4.9      
million decrease in 2003 reflects sales of other real estate owned and          
collection on previously non-performing loans. Non-accrual loans totaled $1.7   
million at the end of 2003 compared to $4.8 million at year end 2002, which was 
a decrease of $3.1 million; there were no accruing loans past due 90 days at    
year-end 2003, 2002 or 2001. Real estate owned or in redemption decreased from  
$2.5 million at December 31, 2002 to $0.7 million at December 31, 2003. As a    
percentage of total assets, non-performing assets were 0.46 %, 1.35 % and 0.68 %
at year-end 2003, 2002 and 2001, respectively. At December 31, 2003, loans 30 or
more days past due was 0.81 % of total loans outstanding compared to 0.66 % at  
December 31, 2002. At December 31, 2001 total non-performing assets were $3.6   
million of which $564 thousand was real estate owned or in redemption. At year  
end 2001 loans 30 days or more past due were 0.72 percent of total loans.       

At December 31, 2003, management was not aware of any potential problem loans   
that would have a material effect on loan delinquency or loan charge-offs.      
Management continues to actively manage the loan portfolio, seeking to identify 
and resolve problem assets at an early stage. Management believes that the Bank 
is adequately reserved.                                                         

NON-PERFORMING ASSETS - TABLE 14                                                

                                                        · Enlarge/Download Table

                                                                                  December 31,                                  
                                                 ------------------------------------------------------------------------------ 
                                                    2003             2002             2001             2000             1999    
                                                    ----             ----             ----             ----             ----    
                                                                                                                                
Non-accrual loans                                                                                                               
Commercial                                       $  344,963       $  338,547       $  284,955       $  640,936       $   63,393 
Commercial mortgage                               1,231,987        3,104,793        2,188,869        1,542,632          807,713 
Residential mortgage                                     --        1,313,654          376,969          216,000               -- 
Consumer                                            126,430           75,993          201,745               --               -- 
Lease financing                                          --               --           11,360               --               -- 
                                                 ----------       ----------       ----------       ----------       ---------- 
Total non-accrual loans                           1,703,380        4,832,987        3,063,898        2,399,568          871,106 

Accruing loans past due 90 days or more                                                                                         
Commercial                                               --               --               --               --          141,029 
Commercial mortgage                                      --               --               --               --               -- 
Residential mortgage                                     --               --               --           18,867          469,080 
Consumer                                                 --               --               --           81,299          257,868 
Lease financing                                          --               --               --          104,617          357,639 
                                                 ----------       ----------       ----------       ----------       ---------- 
Total                                                    --               --               --          204,783        1,225,616 
                                                 ----------       ----------       ----------       ----------       ---------- 
Total non-performing loans                        1,703,380        4,832,987        3,063,898        2,604,351        2,096,722 

Real estate owned                                                                                                               
Commercial mortgage                                  57,250          540,326           77,500          542,182          891,000 
Residential mortgage                                 89,894        1,464,123          486,735          576,384        2,458,516 
                                                 ----------       ----------       ----------       ----------       ---------- 
Total real estate owned                             147,144        2,004,449          564,235        1,118,566        3,349,516 
Real estate in redemption                           549,345          485,534               --               --           14,580 
                                                 ----------       ----------       ----------       ----------       ---------- 
Total non-performing assets                      $2,399,869       $7,322,970       $3,628,133       $3,722,917       $5,460,818 
                                                 ==========       ==========       ==========       ==========       ========== 

Total non-accrual loans and real estate owned                                                                                   
as a percentage of:                                                                                                             
Total assets                                           0.36%            1.26%            0.68%            0.71%            1.05%
Loans and real estate owned                            0.52%            2.04%            1.11%            1.11%            1.51%

Total non-performing assets as a percentage of:                                                                                 
Total assets                                           0.46%            1.35%            0.68%            0.71%            1.06%
Loans and real estate owned                            0.68%            2.18%            1.11%            1.17%            1.96%

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INTEREST RATE SENSITIVITY                                                       

Interest rate risk arises in the normal course of business due to differences in
the re-pricing and maturity characteristics of assets and liabilities. Since no 
single measurement system satisfies all management objectives, a combination of 
techniques are used to manage interest rate risk, including simulation analysis,
asset and liability re-pricing schedules and duration of equity. The Asset and  
Liability Committee ("ALCO") regularly reviews the results of these interest    
rate risk measurements. The ALCO, which is comprised of executive management    
from various areas of the Bank, including operations, lending, and deposit      
gathering, meets regularly to execute asset and liability management strategies.
The ALCO establishes and monitors guidelines on the sensitivity of earnings to  
changes in interest rates. The goal of the ALCO process is to maintain the      
Bank's interest rate risk at prudent levels to provide the maximum level of net 
interest income and minimal impact on earnings from major interest rate changes.

The ALCO frequently evaluates net interest income under various balance sheet   
and interest rate scenarios. The results of these analyses provide the          
information needed to assess the proper balance sheet structure.                

An unexpected change in economic activity, whether domestically or              
internationally, could translate into a materially different interest rate      
environment than currently expected as was noted during 2002 and 2003. A process
is maintained where management evaluates "base" net interest income under what  
is the current balance sheet structure and interest rate environment. This      
"base" net interest income is then evaluated against interest rate scenarios    
that are taken up and down 200 basis points from the most likely rate           
environment. In addition, adjustments to asset prepayment levels, yield curves  
and overall balance sheet mix and growth assumptions are made to be consistent  
with each interest rate environment. These assumptions are inherently uncertain 
and, as a result, the model cannot precisely predict the impact of higher or    
lower interest rates on net interest income. Actual results may differ from     
simulated results due to timing, magnitude and frequency of interest rate       
changes and changes in market conditions and management strategies, among other 
factors.                                                                        

At December 31, 2003, the measurement of risk exposure to net interest income   
during the year 2004 for a 200-basis-point decline in short-term interest rates 
indicates the net interest income will decrease 10.75% or $3.0 million and for a
200-basis-point rise indicates an increase of 2.48% or $.69 million.            
Additionally the Bank was positively gapped at 3 months by 16.4% of interest    
earning assets and at 12 months by 21.99% of interest earning assets. Re-pricing
assets exceeded re-pricing liabilities within all categories other than over 5  
years at December 31, 2003. The Bank had a positive gap of 19.37% within 12     
months of December 31, 2002. This is an increase in the gap caused by a shift of
investment securities and commercial real estate loans to within 12 months and  
other minor balance sheet changes.                                              

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INTEREST RATE SENSITIVITY ANALYSIS - TABLE 15                                   
(Dollars in thousands)                                                          

                                                        · Enlarge/Download Table

                                                             December 31, 2003                         
                                            0-3      3-12      1-3          3-5      Over 5            
                                          Months    Months    Years        Years      Years      Total 
                                          ------    ------    -----        -----      -----      ----- 
                                                                                                       
Assets                                                                                                 
Interest-bearing deposits               $    744                                               $    744
Securities (at cost)                      31,140    18,738    22,258        4,603     19,500     96,239
FHLB and FRB stock                         6,879                                                  6,879
Loans                                     80,024    87,642   113,154       44,393     29,911    355,124
                                        --------   -------   -------      -------   --------   --------
Total rate sensitive assets              118,787   106,380   135,412       48,996     49,411    458,986

Liabilities                                                                                            
Savings, NOW and time deposits            10,032    12,392    27,392        5,287         --     55,103
Money market deposits                     23,461    68,361    24,503       20,009         --    136,334
Borrowings                                10,000        --        --           --     55,000     65,000
                                        --------   -------   -------      -------   --------   --------
Total rate sensitive liabilities          43,493    80,753    51,895       25,296     55,000    256,437
                                        --------   -------   -------      -------   --------   --------
Interest sensitivity gap                  75,294    25,627    83,517       23,700     (5,589)   202,549
Cumulative interest sensitivity gap       75,294   100,921   184,438      208,138    202,549           
Cumulative interest sensitivity gap to                                                                 
  total rate sensitive assets              16.40%    21.99%    40.18%       45.35%     44.13%          

LIQUIDITY                                                                       

The Bank manages liquidity to insure adequate funds are available to meet the   
cash flow needs of depositors, borrowers and the Bank. The Bank's most readily  
available sources of liquidity are a highly marketable securities portfolio, the
core deposit base, and the ability to acquire large deposits in the local and   
national markets. Also loan repayments, maturities and possible loan sales, FHLB
advances, and repurchase agreements are additional forms of liquidity for the   
Bank.                                                                           

Liquidity is carefully monitored by the ALCO. Prospective funding needs are     
anticipated and compared to cash levels and available borrowing capacity. The   
Bank manages liquidity according to both a Liquidity Policy and a Liquidity     
Crisis Contingency Plan. The Policy and Plan dictate acceptable liquidity       
levels, identify all alternative sources for additional liquidity and articulate
certain "triggering events" that would accelerate the acquisition of liquid     
reserves. As of December 31, 2003 and 2002, cash and cash equivalents equaled   
9.21 % and 5.68 % of total assets, respectively. Net cash flows from operating  
activities provided $5.6 million compared to $3.1 million in 2002, while        
investing activities provided $34.2 million in 2003 compared to uses of $2.7    
million in 2002. The significant fluctuation in cash flows from investing       
activities was primarily the result of the reduction in the securities available
for sale portfolio through maturities, paydowns and sales. The $22.8 million    
decrease in cash flows from financing activities is primarily the result of a   
significant decrease in deposits during 2002 of $39.7 million, offset by the    
redemption of preferred stock of $20.7 million and additional borrowing         
repayments of $14.6 million. The accumulated effect of the Bank's operating,    
investing and financing activities resulted in cash and cash equivalents        
increasing approximately $6.3 million during 2002 to $30.8 million at December  
31, 2002.                                                                       

At December 31, 2003, the Bank had liquid assets totaling $139.4 million with   
additional borrowing capability of $10.0 million with the FHLB. The Bank's      
liquidity is considered adequate by management.                                 

FORWARD-LOOKING STATEMENTS                                                      

Except for the historical information contained herein, the matters discussed in
this Report may be deemed to be forward-looking statements that involve risk and
uncertainties. Words or phrases "will likely result," "are expected to," "will  
continue," "is anticipated," "estimate," "project," or similar expressions are  

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intended to identify "forward-looking statements" within the meaning of the     
Private Securities Litigation Reform Act of 1995. These forward-looking         
statements represent the judgment of management as of the date of this report.  
The Corporation disclaims, however, any intent or obligation to update these    
forward-looking statements.                                                     

Factors which could cause actual results to differ, include, but are not limited
to, changes in interest rates and interest rate relationships; demand for       
products and services; the degree of competition by traditional and             
non-traditional competitors; changes in banking regulations; changes in tax     
laws; changes in prices, levies and assessments; the impact of technological    
advances and issues; governmental and regulatory policy changes; the outcomes of
pending and future litigation and contingencies; trends in customer behavior as 
well as their ability to repay loans; changes in the national economy and       
changes in economic conditions of the Bank's market area and the other risks    
detailed from time to time in Franklin's SEC reports.                           

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK              

    The information with respect to quantitative and qualitative market risk
is contained under the heading "Interest Rate Sensitivity" under "Item 7.       
Management's Discussion and Analysis of Financial Condition and Results of      
Operation" on pages 30 and 31.                                                  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                             

  The auditor's report, consolidated financial statements (including the
quarterly summary of selected consolidated financial data) and notes to         
consolidated financial statements are included on pages F-1 through F-27 hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND         
FINANCIAL DISCLOSURE                                                            

None.                                                               

ITEM 9A. CONTROLS AND PROCEDURES                                                

 (a) The term "disclosure controls and procedures" is defined in rules
13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the "Exchange 
Act"). These Rules refer to the controls and procedures of a company that are   
designed to ensure that information required to be disclosed by a company in the
reports that it files under the Exchange Act is recorded, processed, summarized 
and reported within required time periods. Our Chief Executive Officer and Chief
Financial Officer have evaluated the effectiveness of our disclosure controls   
and procedures as of the end of the period covered by this report (the          
"Evaluation Date"), and have concluded that, as of the Evaluation Date, our     
disclosure controls and procedures are effective in providing them with material
information relating to the Company known to others within the Company which is 
required to be included in our periodic reports filed under the Exchange Act.   

(b) There has been no change in the Company's internal control over 
financial reporting that occurred during the quarter ended December 31, 2003    
that materially affected, or is reasonably likely to materially affect, the     
Company's internal control over financial reporting.                            

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                     

     DIRECTORS. The following table sets forth certain information as of March
22, 2004, with respect to the current directors of Franklin.                    

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                                                        · Enlarge/Download Table

                                                                          Current Term
Name                Age  Position(s) Held             Director Since (1)  Expires     
----                ---  ----------------             ---------------     -------     
                                                                                      
Walter J. Aspatore  60   Director                     2003                2006        
Irving R. Beimler   56   Director                     2000                2004        
Dean A. Friedman    52   Director                     1983                2005        
Craig L. Johnson    44   President, CEO and Director  2003                2005        
Richard J. Lashley  45   Director                     2001                2006        
John Wm. Palmer     43   Director                     2001                2005        
David F. Simon      57   Chairman of the Board        1983                2004        

----------                                                                      
(1)   Includes term as director of Franklin Bank before Franklin became its     
holding company.                                                    

 Walter J. Aspatore: Member of the Audit and Compliance Committee. Mr.
Aspatore is the co-founder and Managing Director of Amherst Partners, LLC, an   
investment and merchant banking firm formed in 1994 and specializing in small   
and middle market companies. From 1992 to 1994, Mr. Aspatore was the President  
and Vice Chairman of Onset Investment Fund, a venture capital fund established  
to invest in engineering, manufacturing and technology related businesses. From 
1989 to 1992, Mr. Aspatore was the President of Cross & Trecker Corporation, a  
multi-national factory automation tool company.                                 

Irving R. Beimler: Member of the Loan, and Nominating and Governance
Committees. Since November 1997, Mr. Beimler has served as Senior Vice President
of Hovde Capital, Inc. and Hovde Capital Advisors, affiliates of Hovde Capital, 
L.L.C., general partner of Financial Institutions Partners, II, L.P. (See "Item 
12. Security Ownership of Certain Beneficial Owners and Management and Related  
Stockholder Matters.") From January 1996 through November 1997, Mr. Beimler was 
a self-employed consultant in Washington, D.C., providing litigation support,   
training course development and other consulting services for private companies 
and public agencies, including the FDIC. From September 1994 through January    
1996, Mr. Beimler served as Executive Vice President and Chief Credit Officer of
the Riggs National Bank in Washington, D.C. From 1974 through 1994, Mr. Beimler 
was employed by Fleet Bank and predecessor institutions, serving as Executive   
Vice President and Chief Credit Officer of Fleet Bank of New York from 1990     
through 1994.                                                                   

 Dean A. Friedman: Secretary of Franklin and Franklin Bank since their
respective inception and member of the Nominating and Governance Committee.     
Since 1992, Mr. Friedman has been principally employed as the President and     
Chief Executive Officer of Solomon Friedman Advertising, an advertising agency  
located in Bloomfield Hills, Michigan.                                          

     Craig L. Johnson: Since November 2003, Mr. Johnson has been the President
and CEO of Franklin and of Franklin Bank. Prior to this time, commencing June   
2003, Mr. Johnson was the Executive Vice President and Chief Lending Officer of 
Franklin Bank. Member of the Loan Committee. From 1991 to October 2002, Mr.     
Johnson served in a number of capacities with Republic Bancorp, Inc., most      
recently, as Vice Chairman and President of its Commercial Banking Division in  
Lansing, Michigan.                                                              

    Richard J. Lashley: Member of the Audit and Compliance, and Compensation
Committees. Mr. Lashley is an investment manager, primarily as a managing member
and founder of PL Capital, LLC and Goodbody/PL Capital LLC, which firms serve as
the general partners of and/or have discretion over the following: Financial    
Edge Fund, LP, Financial Edge/Strategic Fund, LP, Goodbody/PL Capital LP, Dr.   
Irving Smokler, and Archimedes Overseas LTD (the "PL Capital Entities"). (See   
"Item 12. Security Ownership of Certain Beneficial Owners and Management and    
Related Stockholder Matters.") Mr. Lashley is also a director of Central        
Bancorp, Inc. of Somerville, Massachusetts. Mr. Lashley is a Certified Public   
Accountant (New Jersey - status inactive).                                      

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John Wm. Palmer: Member of the Audit and Compliance, Compensation,  
Strategic Planning and Loan Committees. Mr. Palmer is an investment manager,    
primarily as a managing member and founder of PL Capital, LLC and Goodbody/PL   
Capital LLC, which firms serve as the general partners of and/or have investment
discretion over the PL Capital Entities. (See "Item 12. Security Ownership of   
Certain Beneficial Owners and Management and Related Stockholder Matters.") Mr. 
Palmer is also a member of the Board of Directors of Clever Ideas, Inc., a      
Chicago based specialty finance company. Mr. Palmer is a Certified Public       
Accountant (Illinois and Michigan - status inactive).                           

     David F. Simon: Chairman of the Board of Franklin and Franklin Bank since
their respective inception and a member of the Compensation, Strategic Planning,
Loan, and Nominating and Governance Committees; since January 1, 2001, Mr. Simon
has been engaged in commercial real estate development, acquisition and         
consulting primarily through Simon Realty Partners, LLC. Mr. Simon is also a    
Managing Director of Wellington Partners LLC providing business advisory and    
transactional services to emerging and entrepreneurial businesses. Formerly, Mr.
Simon was an attorney in private practice specializing in securities, real      
estate and financial institutions law from 1971 to 1991.                        

    EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS. The following table sets forth
certain information at March 22, 2004, with respect to the executive officers of
Franklin or Franklin Bank, all of whom serve in the capacities named:           

                                                                · Download Table

Name                    Age  Position(s) Held                Since
----                    ---  ----------------                -----
                                                                  
Leonard B. Carleton     57   Treasurer and Chief Financial   2003 
                             Officer                              

Ronald J. Carr          46   Senior Vice President -         2001 
                             Director of Human Resources          

Michael A. King         49   Senior Vice President - Retail  2003 
                             Banking                              

Darlene A. Nowak-Baker  38   Senior Vice President - Chief   2004 
                             Lending Officer                      

  Leonard B. Carleton: Mr. Carleton is the Treasurer and Chief Financial
Officer of Franklin and Franklin Bank. From 1978 to 2003, Mr. Carleton served in
a number of capacities with Comerica Bank, most recently, as Senior Vice        
President.                                                                      

 Ronald J. Carr: Mr. Carr is the Senior Vice President and Director of
Human Resources of Franklin Bank. Mr. Carr joined Franklin as its Vice President
of Human Resources in 2001. From November 1996 to November 2000, Mr. Carr served
Peoples State Bank in various capacities, including Vice President and Director 
of Human Resources and branch manager.                                          

    Michael A. King: Mr. King is the Senior Vice-President - Retail Banking.
Prior to joining Franklin, Mr. King was engaged in private consulting since     
January 2002. From 1990 to 2001, Mr. King served Michigan National Bank in      
various capacities including Global Head of Internet, Director of Alternative   
Banking and Retail Zone Manager, overseeing a network of 50 branches.           

 Darlene Nowak-Baker: Ms. Nowak-Baker is the Senior Vice-President and
Chief Lending Officer. Prior to joining Franklin, Ms. Nowak-Baker served as Vice
President Commercial Loan Officer at Republic Bank for seven years. Prior to    
that Ms. Nowak-Baker worked at Comerica Bank.                                   

AUDIT AND COMPLIANCE COMMITTEE                                      

The company has a separately-designated standing audit committee    
established by the Board of Directors in accordance with Section 3(a)(58)(A) of 
the Securities Exchange Act of 1934 for the purpose of overseeing the accounting
and financial reporting processes of the Company and audits of the financial    
statements of the Company. The current members of the Committee are Walter J.   
Aspatore, Richard J. Lashley and John Wm. Palmer. Each Committee member is      
"independent," as defined in Rule 4200(a)(15) of the National Association of    
Securities Dealers' Listing Standards. The Board of Directors                   

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determined that Messrs. Lashley and Palmer each met the qualification to be     
considered an "audit committee financial expert" as defined under regulations of
the Securities and Exchange Commission.                                         

COMPLIANCE WITH SECTION 16(A) OF SECURITIES EXCHANGE ACT OF 1934    

Pursuant to Section 16(a) of the Securities Exchange Act of l934,   
Franklin's directors and officers, and persons who own more than ten percent of 
Franklin's common stock, are required to file with the Securities and Exchange  
Commission (the "SEC") initial reports of ownership and reports of changes in   
ownership of common stock and other equity securities of Franklin. Officers,    
directors and greater than ten-percent shareholders are required by regulation  
to furnish Franklin with copies of all Section 16(a) reports they file. To      
Franklin's knowledge, based solely on review of the copies of such reports      
furnished to Franklin, all officers, directors and greater than ten percent     
beneficial owners complied with all applicable Section 16(a) filing             
requirements.                                                                   

CODE OF ETHICS                                                      

    Franklin has adopted a code of ethics that applies to, among others, its
principal executive officer, principal financial officer and principal          
accounting officer. A copy of Franklin's code of ethics is available at no      
charge by contacting:                                                           

Deborah Farrah                                                      
Franklin Bancorp, Inc                                               
24725 West Twelve Mile Road                                         
Southfield, Michigan 48034                                          
(248) 746-4117                                                      
dsf@franklinbank.com                                                

ITEM 11. EXECUTIVE COMPENSATION                                                 

SUMMARY COMPENSATION TABLE

     The following Summary Compensation Table sets forth the cash and non-cash
compensation for each of the last three years awarded to or earned by the       
current Chief Executive Officer of Franklin, the former Chief Executive Officer 
of Franklin and to other executive officers of Franklin who earned total salary 
and bonus compensation in excess of $100,000 in 2003.                           

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                             ANNUAL COMPENSATION                   LONG TERM COMPENSATION AWARDS             

                                                         RESTRICTED       SECURITIES          ALL OTHER      
NAME AND PRINCIPAL                                         STOCK          UNDERLYING         COMPENSATION    
     POSITION          YEAR      SALARY       BONUS (3)  AWARD(S) $    OPTIONS/SARS (#)          (4)         
     --------          ----      ------       ---------  ----------    ----------------          ---         
                                                                                                             
Craig L. Johnson (1)                                                                                         
President and CEO      2003     $ 83,077       $ 50,000     $ 0              6,500             $ 2,527       

David L. Shelp (2)                                                                                           
President and CEO      2003    $ 260,308         $ 0        $ 0              2,000             $1,009,830 (5)

                       2002     $225,000         $ 0        $ 0                0               $11,367       

                       2001     $215,000      $ 157,219     $ 0              4,500             $12,136       

Ronald J. Carr                                                                                               
Senior Vice President  2003     $88,918        $17,500      $ 0              1,125             $ 1,670       

                       2002     $72,569        $13,097      $ 0               735                $ 0         

                       2001     $63,808          $ 0        $ 0                0                 $ 0         

Michael A. King (6)                                                                                          
Senior Vice President  2003     $93,942        $ 24,000     $ 0              1,125             $ 2,217       

      (1) Appointed President and CEO on November 10, 2003. Prior to then, since
June 16, 2003, was Executive Vice President and Chief Lending Officer of        
Franklin Bank.                                                                  

(2) Retired as President and CEO on November 10, 2003.              

      (3) The bonus figures reflect amounts payable for performance in each year
shown; although it may have actually been paid in the year following.           

(4) These figures represent Franklin's 401(k) matching contribution,
Franklin's Employee Stock Ownership Plan contribution, and the insurance        
premiums paid by Franklin for officers' life and disability insurance coverage. 

(5) Also includes $ 998,304 in severance payments paid in 2003.     

(6) Appointed Senior Vice President of Retail Banking on, April 14, 
2003.                                                                           

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 OPTION GRANTS IN LAST FISCAL YEAR
 INDIVIDUAL GRANTS

                                                        · Enlarge/Download Table

                                                                      POTENTIAL REALIZED VALUE 
                                                                         AT ASSUMED RATES OF   
                  NUMBER OF     PERCENT OF                             STOCK APPRECIATION FOR  
                  SECURITIES  TOTAL OPTIONS                                 OPTION TERM        
                  UNDERLYING    GRANTED TO   EXERCISE OR                    -----------        
                   OPTIONS     EMPLOYEES IN   BASE PRICE  EXPIRATION                           
         NAME      GRANTED     FISCAL YEAR    ($/SH) (1)     DATE     5%($)(2)        10%($)(2)
         ----      -------     -----------    ----------     ----     --------        ---------
                                                                                               
Craig L. Johnson    1,500           6%          $18.76       6-16-13  $13,530         $38,213  

                    5,000          19%          $18.87       6-17-13  $45,365         $128,122 

David L. Shelp      2,000           8%          $17.93       4-14-13  $17,242         $48,696  

Ronald J. Carr      1,125           4%          $18.04       4-30-13  $ 9,758         $27,560  

Michael A. King     1,125           4%          $18.04       4-30-13  $ 9,758         $27,560  

(1) Granted at 110% of fair market value on date of grant.          

(2) In accordance with the rules of the Securities and Exchange     
Commission, these columns show gains that might exist for the respective        
options, assuming the market price of Bancorp's common stock appreciates from   
the date of grant over a period of ten years at the annualized rates of 5% and  
10%, respectively. If the stock price does not increase above the exercise price
at the date of grant, realized value to the named executive officers from these 
options will be zero.                                                           

 AGGREGATE OPTION EXERCISES IN FISCAL YEAR AND
 FISCAL YEAR END OPTION VALUES

   The following table summarizes the options exercised in the past fiscal
year, as well as the value of the options held by the executive officers named  
in the Summary Compensation Table above at December 31, 2003.                   

                                                        · Enlarge/Download Table

                                           NUMBER OF SECURITIES        VALUE OF UNEXERCISED    
                                          UNDERLYING UNEXERCISED     IN-THE-MONEY OPTIONS/SARS 
                                         OPTIONS/SARS AT FY-END (#)       AT FY-END ($)(1)     
                    SHARES                               ----------          -------------     
                  ACQUIRED ON   VALUE                                                          
      NAME         EXERCISE    REALIZED  EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
      ----         --------    --------  -------------------------    -------------------------
                                                                                               
Craig L. Johnson      -0-         -0-             6,500/0                     $17,585/0        

 David L. Shelp       -0-         -0-             43,778/0                    $420,269/0       

 Ronald J. Carr       -0-         -0-             1,860/0                     $6,043.50        

Michael A. King       -0-         -0-             1,125/0                     $3,948.75        


     (1) Value based on market value of Bancorp's common stock on December 31,
2003 minus the exercise price.                                                  

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COMPENSATION OF DIRECTORS                                           

    Non-employee Directors are entitled to receive a stated salary for their
services and a reasonable fixed sum, as well as reimbursement of reasonable     
expenses, for actual attendance at meetings of the Board and Committees of the  
Board. During 2003 the annual retainer amount was $13,000 ($23,000 for the      
Chairman of the Board) and the Board fee was $600 per meeting ($1,000 per       
meeting for the Chairman of the Board). The fee for all Committee meetings in   
2003 was $400 per meeting. Franklin has a 1986 Director's Stock Option Plan and 
a 1994 Director's Stock Option Plan. The period of time for granting options    
under the 1986 plan has expired. Mr. Friedman is the only current director who  
holds options in Franklin's Directors' stock option plans. Directors who are    
also employees are excluded from receiving additional compensation for their    
service on the Board of Directors and its Committees.                           

  Effective in October 1993, and as amended since then, the Bank entered
into severance agreements with certain of its non-employee Directors to provide 
compensation solely in the event of any change in control of Franklin Bank.     
Pursuant to these severance agreements, Franklin Bank paid out severance        
expenses in 2003 of approximately $892,399 in connection with a director and an 
advisory director. Franklin Bank has accrued approximately $426,000 in severance
expense with respect to Mr. Friedman who is entitled to severance payable upon  
completion of his service as a Director. There are no severance agreements with 
any other Directors.                                                            

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION         

    At a Board meeting held on June 17, 2003, the Board stated that David F.
Simon, a member of the Compensation Committee, is a non-executive Chairman of   
the Board of Franklin and of Franklin Bank and is neither an officer or employee
of Franklin or Franklin Bank.                                                   

EMPLOYMENT AGREEMENTS/SEVERANCE AGREEMENTS                          

   Franklin Bank and Craig L. Johnson entered into an employment agreement
dated as of June 16, 2003. Pursuant to the agreement, Mr. Johnson was employed  
as Franklin Bank's Executive Vice President of Lending. On November 10, 2003,   
Mr. Johnson became the President and CEO of Franklin and of Franklin Bank. The  
employment agreement, however, has not been modified to reflect such change. The
term of the agreement is for one year, provided, however, that the agreement    
shall be automatically extended for successive additional one-year periods,     
unless at least 90 days prior to any anniversary date, either Franklin Bank or  
Mr. Johnson furnishes the other with written notice that the term shall not be  
so extended. Under the agreement, Mr. Johnson is paid a base salary of $160,000 
per annum. On or before March 31 following each calendar year (except for       
calendar year 2003), Mr. Johnson is eligible to receive an annual performance   
bonus based upon Franklin Bank's achieving (i) targeted financial results for   
the prior year, taking into consideration the earnings set forth in the annual  
budget approved by Franklin Bank's Board of Directors each year; and/or (ii)    
such other goals and objectives as mutually determined each year during the term
of agreement between Franklin Bank and Mr. Johnson. The amount of the annual    
cash bonus earned and payable for any year shall be up to 40% of Mr. Johnson's  
base salary for such year and based on a formula established by the Compensation
Committee for all key executive officers of Franklin Bank. Mr. Johnson is       
eligible for a bonus for calendar year 2003 based on mutually agreed upon       
performance goals as well as other specific and agreed upon accomplishments,    
provided that such bonus shall not exceed $50,000. Pursuant to the employment   
agreement, Franklin granted Mr. Johnson an option to purchase 1,500 shares of   
Franklin common stock and an option to purchase 5,000 shares of Franklin common 
stock pursuant to Franklin's 1994 Stock Option Plan. Pursuant to the agreement, 
Franklin Bank agreed to pay Mr. Johnson for his costs of temporary housing for  
up to 90 days, not to exceed $2,000 per month. Under the agreement, Mr. Johnson 
participates in all of Franklin's benefit plans and, in addition, Franklin has  
agreed to pay for country club dues. Under the agreement, Mr. Johnson may be    
terminated at any time, with or without cause. In the event that Mr. Johnson is 
terminated without cause or there is a material and substantial reduction of his
duties or the relocation of his then current base salary or elimination of      
eligibility for annual cash bonus, eligibility for long term incentive          
compensation or any existing benefits, then pursuant to a change in control (as 
generally defined below), which occurs during the period commencing 180 days    
prior to the date of a change in control and ending on the first anniversary of 
a change in control, Franklin Bank will pay to Mr. Johnson 1.0 times Mr.        
Johnson's base salary and annual cash bonus if the termination occurs during the
first twelve months of his employment, or 1.5 times the average of Mr. Johnson's
previous three years (or fewer years if employment is less than three full      
years) of his base salary and annual cash bonus                                 

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if he is terminated after his first twelve months of employment. During Mr.     
Johnson's employment with Franklin Bank and during any period in which Mr.      
Johnson receives payment of his base salary, Mr. Johnson may not compete with   
Franklin Bank. In addition, during his employment and for a period after        
termination of his employment equal to the greater of six months or the period  
for which he receives payment of his base salary, Mr. Johnson may not solicit   
any customer, employee or agent of Franklin Bank.                               

      Mr. Johnson has executed an amendment to his employment agreement, waiving
his right to receive payments and benefits under his employment agreement and   
terminating such agreement upon the consummation of the merger with First Place,
provided that First Place enters into a change in control agreement with Mr.    
Johnson, which is substantially identical to severance agreements previously    
entered into between First Place and its officers. Without the waiver and       
release of a severance payment and upon a qualifying termination following      
completion of the merger, Mr. Johnson would be entitled to receive approximately
$150,000 of cash compensation, assuming consummation of the merger at March 22, 
2004.                                                                           

      Franklin Bank and Leonard B. Carleton entered into an employment agreement
dated as of June 16, 2003. Pursuant to the agreement, Mr. Carleton is employed  
as Franklin's Treasurer and Chief Financial Officer. The term of the agreement  
is one year, provided, however, that the agreement shall be automatically       
extended for successive additional one-year periods, unless at least 90 days    
prior to any anniversary date, either Franklin Bank or Mr. Carleton furnishes   
the other with written notice that the term shall not be so extended. Under the 
agreement, Mr. Carleton is paid a base salary of $125,000 per annum. On or      
before March 31 following each calendar year (except for calendar year 2003),   
Mr. Carleton is eligible to receive an annual performance bonus based upon      
Franklin Bank's achieving (i) targeted financial results for the prior year,    
taking into consideration the earnings set forth in the annual budget approved  
by Franklin Bank's board of directors each year; and/or (ii) such other goals   
and objectives as mutually determined each year during the term of the agreement
between Franklin Bank and Mr. Carleton. The amount of the annual cash bonus     
earned and payable for any year shall be based on a formula established by the  
compensation committee for all key executive officers of Franklin Bank. Mr.     
Carleton will be eligible for a bonus for calendar year 2003 based on a mutually
agreed upon performance goal, provided that such bonus shall not exceed $25,000.
Pursuant to the employment agreement, Franklin granted Mr. Carleton an option to
purchase 1,125 shares of Franklin common stock and an option to purchase 3,000  
shares of Franklin common stock pursuant to Franklin's 1994 stock option plan.  
Under the agreement, Mr. Carleton participates in all Franklin's benefit plans. 
Under the agreement, Mr. Carleton may be terminated at any time, with or without
cause. In the event that Mr. Carleton is terminated without cause or there is a 
material and substantial reduction of his duties or the relocation of Mr.       
Carleton from Franklin Bank's current headquarters to a location of at least 50 
miles away or Mr. Carleton resigns due to the reduction of his then current base
salary or elimination of eligibility for an annual cash bonus, eligibility for  
long term incentive compensation or any existing benefits, then pursuant to a   
change in control (as generally defined below), which occurs during the period  
commencing 180 days prior to the date of a change in control and ending on the  
first anniversary of a change in control, Franklin Bank will pay to Mr. Carleton
1.0 times Mr. Carleton's base salary and annual cash bonus if the termination   
occurs during the first twelve months of his employment or 1.5 times the average
of Mr. Carleton's previous three years (or fewer years, if employment is less   
than three full years) of his base salary and annual cash bonus if he is        
terminated after his first twelve months of employment. During Mr. Carleton's   
employment with Franklin Bank and for a period after the termination of Mr.     
Carleton's employment equal to the greater of (i) one year; or (ii) a period for
which Mr. Carleton receives payment of his base salary, Mr. Carleton may not    
compete with the bank nor solicit any customer, employee or agent of Franklin   
Bank. In the event there occurs a qualifying termination following completion of
the merger with First Place, Mr. Carleton will be entitled to a severance       
payment of up to approximately $150,000 of cash compensation, assuming          
consummation of the merger at March 22, 2004.                                   

     On April 14, 2003, Mr. Shelp and Franklin Bank entered into an employment
agreement. The employment agreement terminated upon Mr. Shelp's resignation on  
November 10, 2003. Among other things, the employment agreement provided as     
follows: Mr. Shelp would serve as the President and Chief Executive Officer and 
as a Director of Franklin and of Franklin Bank. Mr. Shelp would be paid a base  
salary of $260,000 per annum retroactive to January 1, 2003. Mr. Shelp would be 
eligible for the 2003 executive bonus plan pursuant to which his bonus          
compensation, to a maximum 90% of his base salary, was to be paid based on      
achieving targeted diluted earnings per share goals. Mr. Shelp also was granted 
an option with respect to 2,000 shares under the 1994 Key Executive Incentive   
Stock Option Plan. Such                                                         

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options vested on the date of Mr. Shelp's termination of employment. With       
respect to 2,700 options previously granted to Mr. Shelp, such options became   
immediately exercisable on April 14, 2003. After termination of his employment, 
Mr. Shelp may provide consulting services to Franklin Bank, upon Franklin Bank's
request and at times mutually agreed to, at the rate of $200 per hour. During   
his employment and for a period of 1 year thereafter, Mr. Shelp is prohibited   
from soliciting any customer of Franklin Bank or soliciting, for purposes of    
employment or association, any employee or agent of Franklin Bank.              

    As has been disclosed in the previous proxy statements of Franklin Bank,
beginning in 1993, and as amended since then, Franklin Bank has entered into    
severance agreements with certain former and current senior officers. The       
severance agreements, as amended, generally provide compensation in the event of
a change in control of Franklin Bank (including the merger with First Place) and
either a subsequent termination of the designated officer by Franklin (other    
than for cause) or a termination by the officer because of a material change in 
the terms of employment occurring within 3 years thereafter. Pursuant to such   
severance agreements, Mr. Shelp was paid severance of $998,304 in 2003. There   
are only 6 of these previously disclosed severance agreements outstanding. If   
the remaining agreements are triggered and payable, they would amount to an     
after-tax cost to Franklin of approximately $231,000.                           

    Franklin Bank has entered into change in control agreements with each of
Ronald J. Carr, its Senior Vice President - Director of Human Resources and     
Michael A. King, its Senior Vice President - Retail Banking. These agreements   
generally provide that upon a change in control (as defined below) and          
termination of his employment by Franklin Bank without cause, or his resignation
as a result of his removal from the position with Franklin Bank, or a material  
and substantial reduction of his duties in such position or his relocation from 
Franklin Bank's current headquarters to a location at least 50 miles away or his
resignation due to the reduction of his then current base salary or elimination 
of eligibility for annual cash bonus, eligibility for long-term incentive       
compensation or any existing benefits, which occur during the period commencing 
180 days prior to the change in control and ending on the first anniversary of a
change in control, then as applicable, Mr. Carr or Mr. King would be entitled to
1.0 times his base salary and annual cash bonus if such termination occurs      
during the first twelve months of his employment with Franklin Bank or 1.5 times
the average of his three years (or fewer years if employment is less than three 
full years) of the base salary and annual cash bonus paid if such termination   
occurs after his first twelve months of employment. A change in control is      
generally defined to include acquisition by a person of more than 30% of        
Franklin's outstanding voting securities, the purchase of more than 30% of      
Franklin's outstanding securities pursuant to a tender or exchange offer, or    
upon consummation of a transaction resulting in a merger, where Franklin's      
shareholders do not control more than 50% of the merged entities voting         
securities, or resulting in the sale of substantially all of the assets of      
Franklin or resulting in the liquidation or dissolution of Franklin.            

    In the event there occurs a qualifying event following completion of the
merger and Mr. Carr is terminated, he would be entitled to a severance payment  
of up to approximately $102,500 of cash compensation, assuming consummation of  
the merger at March 22, 2004. It is expected that Mr. King will continue with   
First Place Bank after the merger as Senior Vice President - Retail Banking of  
the Franklin Bank Division and will execute an amendment to his change in       
control agreement waiving his right to receive payments under the agreement.    
Without the waiver and release of his severance payment and upon a qualifying   
event following completion of the merger, Mr. King would be entitled to receive 
up to approximately $154,000 of cash compensation, assuming consummation of the 
merger at March 22, 2004.                                                       

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND     
RELATED STOCKHOLDER MATTERS                                                     

   The following table presents certain information, as of March 22, 2004,
with respect to the common stock owned by each director, each executive officer,
and all executive officers and directors as a group of Franklin, and by each    
person (including any "group" as defined in Section 13(d)(3) of the Securities  
Exchange Act of 1934, as amended) who is known to Franklin to be the beneficial 
owner of more than 5% of the outstanding shares of Franklin's common stock. The 
shares and percentages shown below include shares which may be acquired by the  
persons listed pursuant to outstanding Franklin stock options beneficially owned
and exercisable within 60 days of March 22, 2004. Except as otherwise indicated 
below, each person listed has sole voting and investment power as to the shares 
listed:                                                                         

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                                                                                     PERCENT OF 
                                                                                     OUTSTANDING
                                                                   COMMON              COMMON   
                                                                    STOCK               STOCK   
                                NAME                          AGE    (1)                 (2)    
                                ----                                 ---                 ---    
                                                                                                
Walter J. Aspatore                                            60       500                 *    
Irving R. Beimler                                             56     1,000    (3)          *    
Leonard B. Carleton                                           57     4,125                 *    
Ronald Carr                                                   46     1,929                 *    
Dean A. Friedman                                              52    53,626    (4)        1.4%   
Craig L. Johnson                                              44     6,600                 *    
Michael A. King                                               49     1,125                 *    
Richard J.  Lashley                                           45     3,000  (1) (5)        *    
John Wm. Palmer                                               43     2,000  (1) (5)        *    
David F. Simon                                                57   104,509    (6)        2.7%   
All Executive Officers and Directors as a group (10 persons)       178,414               4.0%   
Hot Creek Investors, L.P. (7)                                      249,586    (8)        6.6%   
Dimensional Fund Advisors, Inc. (7)                                193,004    (9)        5.1%   
Financial Institution Partners, II L.P. (7)                        346,287    (10)       9.2%   
PL Capital, LLC and Goodbody/PL Capital LLC (7)                    348,000    (11)       9.2%   
Philip J. Timyan (7)                                               261,180    (12)       6.9%   
Millenco, L.P. (7)                                                 199,552    (13)       5.3%   

----------                                                                      
*     less than 1.0% of the outstanding shares                                  

(1)   Includes the following shares which may be acquired pursuant to           
outstanding stock options: Mr. Carleton: 4,125; Mr. Carr: 1,860; Mr.
 Friedman: 18,189; Mr. King: 1,125; Mr. Johnson: 6,500; and Mr. Simon:
67,176. This information also includes common shares which have been
    allocated to principal shareholders who are participants in the Franklin
     Bank's ESOP approximately as follows: Mr. Carr: 69; and Mr. Simon: 4,309.
    Franklin Bank's ESOP holds approximately 70,755 shares. Messrs. Aspatore
   and Friedman are members of the ESOP Committee and Messrs. Aspatore and
Friedman are the ESOP Trustees. Generally, participants direct the  
   Committee how to vote the shares allocated to their account, and to the
   extent such shares are not voted or no voting instruction are provided,
the Trustees will vote such shares as instructed by the Committee.  

(2)   The calculation of each of the percentages shown in this column is based  
     on the number of shares outstanding at March 22, 2004, plus the number of
 shares held by executive officers and directors which may be acquired
pursuant to outstanding options at such date.                       

(3)   Mr. Beimler is the senior vice president of Hovde Capital, Inc. and senior
     vice president of Hovde Capital Advisors, which are affiliated with Hovde
    Capital, LLC, the general partner of Financial Institutions Partners, II
L.P. See footnote (10) below.                                       

(4)   Includes 8,496 shares held by Mr. Friedman as custodian for his children. 

(5)   With respect to Mr. Lashley, shares include 2,000 shares held by his wife.
     Messrs. Lashley and Palmer are investment managers, primarily as managing
     members of PL Capital, LLC and Goodbody/PL Capital LLC. See footnote (11)
below.                                                              

(6)   Includes 5,194 shares held by Mr. Simon as trustee for his children and   
     7,499 shares held by a group in which Mr. Simon exercises voting control.
     In addition, the amount includes 1,951 shares held by an adult son of Mr.
Simon, as to which shares Mr. Simon disclaims beneficial ownership. 

(7)   Based on information included in Schedule 13D, Schedule 13F and/or        
Schedule 13G under the Securities Exchange Act of 1934.             

(8)   Hot Creek Investors, L.P., Hot Creek Capital, L.L.C., its General Partner,
   and David M.W. Harvey, the principal member of the General Partner, are
located in Gardnerville, Nevada.                                    

(9)   Dimensional Fund Advisors, Inc. is located in Santa Monica, California.   

(10)  Financial Institution Partners II, L.P. is located in Washington, D.C.    

(11)  PL Capital, LLC, Goodbody/PL Capital and the PL Capital Entities are      
located in Naperville, Illinois.                                    

(12)  Held directly and indirectly, Mr. Timyan's principal business offices are 
located in Western Springs, Illinois.                               

(13)  Millenco, L.P., Millenium Management, LLC, its managing partner and Israel
A. Englander, the sole managing member of the managing partner, are 
located in New York, New York.                                      

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EQUITY COMPENSATION PLAN INFORMATION
12-31-03

                                                        · Enlarge/Download Table

                                                                                 NUMBER OF SECURITIES    
                                                                                REMAINING AVAILABLE FOR  
                              NUMBER OF SECURITIES TO    WEIGHTED-AVERAGE    FUTURE ISSUANCE UNDER EQUITY
                              BE ISSUED UPON EXERCISE    EXERCISE PRICE OF        COMPENSATION PLANS     
                              OF OUTSTANDING OPTIONS,  OUTSTANDING OPTIONS,      (EXCLUDING SECURITIES   
       PLAN CATEGORY            WARRANTS AND RIGHTS.   WARRANTS AND RIGHTS.    REFLECTED IN COLUMN (A))  
       -------------            -------------------    -------------------     ------------------------  
                                        (a)                     (b)                       (c)            
                                                                                                         
Equity compensation plans             229,965                 $11.94                    168,992          
approved by security holders                                                                             

     The above table provides information about Franklin's equity compensation
plans, which consist solely of four stock option plans. Franklin assumed such   
stock option plans in connection with it becoming the holding company for       
Franklin Bank. All of Franklin's stock option plans were approved by security   
holders. The stock option plans consist of two directors' plans and two employee
plans: the 1986 Directors Stock Option Plan, the 1994 Directors Stock Option    
Plan, the 1986 Key Executive Stock Option Plan and the 1994 Key Executive       
Incentive Stock Option Plan. The period in which options can be granted under   
the two 1986 plans has expired.                                                 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                         

  For the years ended December 31, 2003, 2002 and 2001, Franklin engaged
Solomon Friedman Advertising, for media placement and radio production fees.    
Dean A. Friedman, a director of Franklin, is President, Chief Executive Officer 
and a part owner of Solomon Friedman Advertising. The Bank paid $483,877,       
$522,483 and $616,027 to Solomon Friedman Advertising for the years ended       
December 31, 2003, 2002 and 2001, respectively which includes the costs of media
and production. In August 2002, Franklin adopted a policy prohibiting future    
transactions with affiliates, and seeking to end any existing transactions in   
accordance with their respective terms. Pursuant to this policy, Franklin was   
scheduled to cease doing business with Solomon Friedman Advertising upon        
expiration of its written agreement on December 31, 2003. However, Franklin and 
Solomon Friedman Advertising have extended the Solomon Friedman Advertising     
agreement for the interim period of January 1, 2004 up to the date of the merger
with First Place, and Franklin has waived the application of its policy only    
insofar as such extension.                                                      

ITEM 14. PRINCIPAL ACCOUNT FEES AND SERVICES                                    

AUDIT AND NON-AUDIT FEES                                            

   Aggregate fees for professional services rendered for Franklin by Grant
Thornton LLP as of the years ended December 31, 2003 and 2002 are set forth     
below. The aggregate fees included in the Audit category are fees billed for the
fiscal years for the audit of Franklin's annual financial statements and review 
of financial statements and statutory and regulatory filings or engagements. The
aggregate fees included in each of the other categories are fees billed in the  
fiscal years.                                                                   

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                                                                · Download Table

                               2003               2002  
                               ----               ----  
                                                        
AUDIT FEES                   $166,100           $126,570
AUDIT-RELATED FEES               0                  0   
TAX FEES                      47,925             32,364 
ALL OTHER FEES                111,660            49,995 
     TOTAL                   $325,685           $208,929

Audit Fees for the years ended December 31, 2003 and 2002 were for  
professional services rendered for the audits of the consolidated financial     
statements of Franklin, quarterly review of the financial statements included in
Franklin's Quarterly Reports on Form 10-Q, or services that are normally        
provided by Grant Thornton LLP in connection with statutory and regulatory      
filings or engagements for such years.                                          

    Audit-Related Fees as of the years ended December 31, 2003 and 2002 were
for assurance and related services by Grant Thornton LLP that are reasonably    
related to the performance of the audit or review of Franklin's financial       
statements.                                                                     

Tax Fees as of the years ended December 31, 2003 and 2002 were for  
professional services rendered by Grant Thornton LLP for services related to tax
compliance, tax advice and tax planning.                                        

    All Other Fees as of the years ended December 31, 2003 and 2002 were for
services rendered for due diligence and severance compensation calculations.    

    None of the services described above was approved by the Audit Committee
under the de minimus exception provided by Rule 2-01(c)(7)(i)(C) under          
Regulation S-X.                                                                 

     POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS                                                

      The Audit Committee pre-approves all audit and non-audit services provided
by the independent auditors prior to the engagement of the independent auditors 
with respect to such services.                                                  

 PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K        

The following documents are filed as part of this report:           

(A) (1) FINANCIAL STATEMENTS                                                    

  The consolidated financial statements of Franklin and its subsidiaries
filed with this report are set forth on the Index to Consolidated Financial     
Statements of this report.                                                      

(A) (2) FINANCIAL STATEMENT SCHEDULES                                           

ALL OTHER FINANCIAL STATEMENT SCHEDULES HAVE BEEN OMITTED AS THE REQUIRED       
INFORMATION IS INAPPLICABLE.                                                    

(A) (3) EXHIBITS                                                                

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                                                        · Enlarge/Download Table

                                                                                 SEQUENTIAL PAGE NUMBER  
EXHIBIT                                                                         WHERE ATTACHED EXHIBITS  
NO.                                                                    DOCUMENT ARE LOCATED IN THE 10-K  
                                                                                                         
2.1      Business Combination Application dated March 14, 2002 filed with the OCC(1)...................  
2.2      Consolidation Agreement dated as of April 23, 2002(2).........................................  
3.1      Articles of Incorporation(1)..................................................................  
3.2      Bylaws(1).....................................................................................  
3.3      Amendments to Bylaws(3).......................................................................  
4.1      Specimen Stock Certificate(1).................................................................  
10.1     Key Executive Stock Option Plan(2)............................................................  
10.2     1986 Directors' Stock Option Plan(2)..........................................................  
10.3     1994 Directors' Stock Option Plan(2)..........................................................  
10.4     Amendment (1998) to 1994 Directors' Stock Option Plan(2)......................................  
10.5     Form of Officers Severance Agreement(2).......................................................  
10.6     Form of Amendment to Officers Amended and Restated Severance Agreement(2).....................  
10.7     Form of Amended and Restated Severance Agreement (Non-Employee Directors)(2)..................  
10.8     Form of Amendment to Amended and Restated Severance Agreement (Non-Employee directors)(2).....  
10.9     Form of Second Amendment to amended and Restated Severance Agreement                            
         (Non-Employee Directors)(2)...................................................................  
10.10    Amended and Restated Severance Agreement of David L. Shelp(2).................................  
10.11    Employment Agreement of David. L. Shelp(t)....................................................  
10.12    Employment Agreement of Craig L. Johnson(4)...................................................  
10.13    Employment Agreement of Leonard B. Carleton(4) ...............................................  
10.14    Change in Control Agreement of Ronald J. Carr(4)..............................................  
10.15    Change in Control Agreement of Michael A. King(4)  ...........................................  
10.16    Amended and Restated 1994 Key Executive Incentive Stock Option Plan(4) .......................  
10.17    Agreement and Plan of Merger Dated as of November 10, 2003 by and between First Place           
         Financial Corporation and Franklin Bancorp, Inc.(5)...........................................  
10.18    Amendment to Employment Agreement of Craig L. Johnson (t).....................................  
21       Subsidiaries of Registrant(t).................................................................  
23.1     Consent of Grant Thornton LLP(t)..............................................................  
24.1     Powers of Attorney (included on Signature Page) ..............................................  
31.1     Certification of Chief Executive Officer(t)...................................................  
31.2     Certification of Chief Financial Officer(t)...................................................  
32.1     Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(t)....................  

(B) REPORTS ON FORM 8-K                                                         

   On November 12, 2003, registrant filed a Form 8-K, disclosing in Item 5
thereof the proposed merger between First Place Financial Corp. and registrant, 
in Item 9 thereof a webcast by First Place Financial Corp. and in Item 12       
thereof the results of operations for registrant's 2003 third quarter.          

(C) EXHIBITS                                                                    

See Item 15(a)(3).                                                  

(D) FINANCIAL STATEMENT SCHEDULES                                               

None.                                                               

----------                                                                      
(1)   .Incorporated by reference to Exhibits to form 8-K filed on November 7,   
2002, Commission File No. 50078.                                    

(2)   Incorporated by reference to Exhibits to form 8-K/A filed on November 15, 
2002, Commission file No. 50078.                                    

(3)   Incorporated by reference to Exhibit 3.5 to Form 10-K filed on March 31,  
2003, Commission File No. 50078.                                    

(4)   Incorporated by reference to Exhibits to Form 10-Q filed on August 14,    
2003, Commission File No. 50078                                     

(5)   Incorporated by reference to Exhibit 99.2 to Form 8-K filed on November   
12, 2003, Commission File No. 50078                                 

(t)   Filed herewith.                                                           

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SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the        
undersigned thereunto duly authorized.                                          

FRANKLIN BANCORP, INC.

March 30, 2004               By: /s/ Craig L. Johnson                           
                                 -----------------------------------------------
                                 Craig L. Johnson, President and Chief Executive
Officer       

    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Craig L. Johnson and Leonard B. Carleton, and    
each of them, his true and lawful attorneys-in-fact and agents, with full power 
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of  
Franklin Bancorp, Inc.), to sign and file pursuant to the Securities Exchange   
Act of 1934, as amended, any and all amendments to this Annual Report on Form   
10-K together with all exhibits thereto, and other documents in connection      
therewith, with the Securities and Exchange Commission, granting unto said      
attorneys-in-fact and agents, and each of them, full power and authority to do  
and perform each and every act and thing requisite and necessary to be done in  
and about the premises, as fully to all intents and purposes as he might or     
could do in person, hereby ratifying and confirming all that said               
attorneys-in-fact and agents or any of them, or their or his substitute or      
substitutes, may lawfully do or cause to be done by virtue hereof.              

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities         
indicated on behalf of Franklin Bancorp, Inc. this 30th day of March 2004.      

                                                        · Enlarge/Download Table
                                                                                        
/s/  Craig L. Johnson                              /s/ Irving R. Beimler                
---------------------------------------------  -----------------------------------------
Craig L. Johnson, President, CEO and Director          Irving R. Beimler, Director      
(Principal Executive Officer)                                                           

/s/  Leonard B. Carleton                           /s/ Dean A. Friedman                 
---------------------------------------------  -----------------------------------------
Leonard B. Carleton, Chief Financial                   Dean A. Friedman, Director       
Officer and Treasurer (Principal Financial                                              
Officer and Principal Accounting Officer)                                               

/s/  David F. Simon                                /s/ Richard J. Lashley               
---------------------------------------------  -----------------------------------------
David F. Simon, Chairman of the Board                  Richard J. Lashley, Director     

/s/  Walter J. Aspatore                            /s/ John W. Palmer                   
---------------------------------------------  -----------------------------------------
Walter J. Aspatore, Director                           John W. Palmer, Director         

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FRANKLIN BANCORP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                        · Enlarge/Download Table
                                                                                            
Report of Independent Certified Public Accountants.......................................F-2

Consolidated Statements of Financial Condition at December 31, 2003 and 2002.............F-3

Consolidated Financial Statements of Income for the years ended                             

December 31, 2003, 2002 and 2001.........................................................F-4

Consolidated Financial Statements of Comprehensive Income for the years ended               
December 31, 2003, 2002 and 2001.........................................................F-5

Consolidated Statements of Shareholders' Equity for the years ended                         

December 31, 2003, 2002 and 2001.........................................................F-6

Consolidated Statements of Cash Flows for the years ended                                   

December 31, 2003, 2002 and 2001.........................................................F-7

Notes to Consolidated Financial Statements...............................................F-8

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders                                             
Franklin Bancorp, Inc.                                                          

We have audited the accompanying consolidated statements of financial condition 
of Franklin Bancorp, Inc. and its wholly-owned subsidiary Franklin Bank, N.A. as
of December 31, 2003 and 2002, and the related consolidated statements of       
income, comprehensive income, shareholders' equity and cash flows for each of   
the three years in the period ended December 31, 2003. These financial          
statements are the responsibility of the Company's management. Our              
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and       
perform the audit to obtain reasonable assurance about whether the financial    
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements. An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Franklin Bancorp,   
Inc. and its wholly-owned subsidiary Franklin Bank, N.A. as of December 31, 2003
and 2002, and the results of its operations and its cash flows for each of the  
three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.                  

Southfield, Michigan                                                            
January 23, 2004                                                                

F-2 

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                  

                                                        · Enlarge/Download Table

                                                               At December 31,          
                                                     ---------------------------------- 
                                                          2003                 2002     
                                                          ----                 ----     
                                                                                        
Assets                                                                                  
Cash and Due From Banks                              $  46,995,714        $  18,171,153 
Interest-Earning Deposits                                  744,479            3,580,028 
Time Deposits with Federal Home Loan Bank                  103,983            9,050,162 
                                                     -------------        ------------- 
Cash and Cash Equivalents                               47,844,176           30,801,343 
Securities Available for Sale                           91,570,290          149,836,544 
Federal Home Loan Bank Stock, at Cost                    5,946,700            5,868,900 
Federal Reserve Bank Stock, at Cost                        932,750            1,541,500 

Loans                                                  355,124,239          333,345,726 
Allowance for Loan Losses                               (4,923,469)          (5,926,813)
                                                     -------------        ------------- 
Net Loans                                              350,200,770          327,418,913 
Accrued Interest Receivable                              2,717,721            3,075,368 
Real Estate Owned                                          147,144            2,004,449 
Premises and Equipment, Net                              3,075,976            3,026,171 
Cash Surrender Value of Life Insurance                  11,144,263            9,799,009 
Prepaid Expenses and Other Assets                        5,383,188            9,106,119 
                                                     -------------        ------------- 
Total Assets                                         $ 518,962,978        $ 542,478,316 
                                                     =============        ============= 

Liabilities and Shareholders' Equity                                                    
Deposits                                               406,379,774          429,129,830 
Short Term Borrowings                                   65,000,000           65,000,000 
Accrued Interest Payable                                   214,827              260,275 
Other Liabilities                                        1,631,095            2,446,516 
                                                     -------------        ------------- 
Total Liablilities                                     473,225,696          496,836,621 
Commitments and Contingencies                                   --                   -- 

Common Stock - No Par Value; Stated Value $1;                                           
Authorized 6,000,000 shares, issued and outstanding                                     
3,753,667 and 3,647,593 at December 31, 2003 and                                        
2002, respectively                                       3,753,667            3,647,593 
Additional Paid-In Capital                              28,214,668           27,154,384 
Retained Earnings                                       12,310,373           12,413,704 
Accumulated Other Comprehensive Income (Loss)            1,458,574            2,426,014 
                                                     -------------        ------------- 
Total Shareholders' Equity                              45,737,282           45,641,695 
                                                     -------------        ------------- 
Total Liabilities and Shareholder's Equity           $ 518,962,978        $ 542,478,316 
                                                     =============        ============= 

The accompanying notes are an integral part of these financial statements.      

F-3 

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CONSOLIDATED STATEMENTS OF INCOME                                               

                                                        · Enlarge/Download Table

                                                                Year Ended December 31,               
                                                     ------------------------------------------------ 
                                                        2003              2002               2001     
                                                        ----              ----               ----     
                                                                                                      
Interest Income                                                                                       
Interest On Loans                                    $22,009,688      $ 25,147,191       $ 28,664,587 
Interest on Securities                                 3,081,173         5,856,111          7,373,257 
Other Interest and Dividends                           2,341,892         2,553,531          2,771,627 
                                                     -----------      ------------       ------------ 
Total Interest Income                                 27,432,753        33,556,833         38,809,471 

Interest Expense                                                                                      
Interest on Deposits                                   3,149,406         4,951,123          7,237,936 
Interest on Other Borrowings                           2,896,187         2,959,471          3,299,197 
                                                     -----------      ------------       ------------ 
Total Interest Expense                                 6,045,593         7,910,594         10,537,133 
Net Interest Income                                   21,387,160        25,646,239         28,272,338 
Provision for Loan Losses                              2,902,612         3,809,760          1,858,500 
                                                     -----------      ------------       ------------ 
Net Interest Income After Provision for Loan Losses   18,484,548        21,836,479         26,413,838 

Non-Interest Income                                                                                   
Deposit Account Service Charges                        3,085,870         3,222,270          3,594,836 
Loan Fees                                                660,767           536,999            325,032 
Net Gain on Sale of Securities                           412,000           648,357          1,143,587 
Net Gain on Sale of Other Assets                         270,239          (191,897)           (58,843)
Increase in Cash Value or and Proceeds from Life                                                      
Insurance                                                515,254         2,331,772             18,357 
Other                                                    470,287           479,574            690,705 
                                                     -----------      ------------       ------------ 
Total Non-Interest Income                              5,414,417         7,027,075          5,713,674 

Non-Interest Expense                                                                                  
Compensation and Benefits                              9,375,052         9,584,065          9,773,879 
Severance Compensation                                 3,077,030         2,489,519            708,047 
Occupancy and Equipment                                3,250,226         3,217,045          3,332,432 
Advertising                                              550,778           609,690            798,619 
Federal Insurance Premiums                                65,366            69,237            186,318 
Defaulted Loan Expense                                   790,793           778,223            400,720 
Communication Expense                                    565,166           594,277            585,340 
Outside Services                                       2,651,310         2,913,156          2,199,226 
Merger Expense                                           303,509                --             67,192 
Other                                                  1,895,595         2,388,858          2,074,904 
                                                     -----------      ------------       ------------ 
Total Non-Interest Expense                            22,524,825        22,644,070         20,126,677 
                                                     -----------      ------------       ------------ 
Income Before Provision for Federal Income Taxes       1,374,140         6,219,484         12,000,835 
Provision for Federal Income Taxes                       296,067           603,137          3,360,066 
                                                     -----------      ------------       ------------ 
Net Income Before Preferred Stock Dividends            1,078,073         5,616,347          8,640,769 
Preferred Stock Dividends of Subsidiary                       --         1,800,900          1,800,900 
                                                     -----------      ------------       ------------ 
Net Income                                           $ 1,078,073      $  3,815,447       $  6,839,869 
                                                     ===========      ============       ============ 

Income Per Common Share                                                                               
  Basic                                              $      0.29      $       1.05       $       1.92 
  Diluted                                                   0.28              1.01               1.86 

The accompanying notes are an integral part of these financial statements.      

F-4 

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                 

                                                        · Enlarge/Download Table

                                                                   Year Ended December 31,           
                                                            2003             2002            2001    
                                                         -----------       ----------      ----------
                                                                                                     
Net Income                                               $ 1,078,073       $3,815,447      $6,839,869
 Other comprehensive income net of tax:                                                              
  Unrealized gains on securities:                                                                    
    Unrealized gains/(loss) arising during period           (695,670)       1,844,135       1,369,433
    Less reclassification adjustment for gains included      271,770          427,916         754,767
                                                         -----------       ----------      ----------
    in net income                                                                                    
    Other comprehensive income                              (967,440)       1,416,219         614,666
                                                         -----------       ----------      ----------
Comprehensive Income                                     $   110,633       $5,231,666      $7,454,535
                                                         ===========       ==========      ==========

The accompanying notes are an integral part of these financial statements.      

F-5 

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STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY                                    
For year ended December 31, 2003                                                

                                                        · Enlarge/Download Table

                                                                                        ACCUMULATED                 
                                                          ADDITIONAL                       OTHER          TOTAL     
                                              COMMON       PAID-IN        RETAINED     COMPREHENSIVE  SHAREHOLDER'S 
                                               STOCK       CAPITAL        EARNINGS     INCOME/(LOSS)     EQUITY     
                                            -----------  ------------   ------------   -------------  ------------- 
                                                                                                                    
Balance at January 1, 2001                  $ 3,552,550  $ 27,459,376    $ 3,881,411      $ 395,129    $ 35,288,466 
Net income                                                                 6,839,869                      6,839,869 
Exercise of options                              54,992       379,870                                       434,862 
Less:  cash dividends declared                                              (998,404)                      (998,404)
Other comprehensive income                                                                  614,666         614,666 
                                            -----------  ------------   ------------    -----------    ------------ 

Balance at December 31, 2001                  3,607,542    27,839,246      9,722,876      1,009,795      42,179,459 
Net income                                                                 3,815,447                      3,815,447 
Exercise of options                              40,051       439,757                                       479,808 
Tax benefit on non-qualified stock options                     74,983                                        74,983 
Initial issuance costs of Franklin Finance                                                                          
preferred stock                                            (1,199,602)                                   (1,199,602)
Less:  cash dividends declared                                            (1,124,619)                    (1,124,619)
Other comprehensive                                                                       1,416,219       1,416,219 
                                            -----------  ------------   ------------    -----------    ------------ 

Balance at December 31, 2002                  3,647,593    27,154,384     12,413,704      2,426,014      45,641,695 
Net income                                                                 1,078,073                      1,078,073 
Exercise of options                             106,074     1,060,284                                     1,166,358 
Less:  cash dividends declared                                            (1,181,404)                    (1,181,404)
Other comprehensive income                                                                 (967,440)       (967,440)
                                            -----------  ------------   ------------    -----------    ------------ 

Balance at Dec. 31, 2003                    $ 3,753,667  $ 28,214,668   $ 12,310,373    $ 1,458,574    $ 45,737,282 
                                            ===========  ============   ============    ===========    ============ 

The accompanying notes are an integral part of these financial statements.      

F-6 

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CONSOLIDATED STATEMENTS OF CASH FLOWS                                           

                                                        · Enlarge/Download Table

                                                                                 TWELVE MONTHS ENDED DECEMBER 31,           
                                                                                 --------------------------------           
                                                                            2003               2002                2001     
                                                                            ----               ----                ----     
                                                                                                                            
Cash flows from operating activities                                                                                        
Net income                                                              $  1,078,073       $  3,815,447       $   6,839,869 
Adjustments to reconcile net income to cash provided by                                                                     
operating activities:                                                                                                       
Provision for loan losses                                                  2,902,612          3,809,760           1,858,500 
Depreciation and amortization                                              1,210,181          1,157,721           1,342,882 
Realized gain on sale of securities, net and other assets                   (682,239)          (456,460)         (1,084,744)
Gain on redemption of life insurance                                              --         (1,720,147)                 -- 
Increase in cash surrender value of life insurance                          (515,254)          (611,625)            (18,357)
Net deferral of loan origination costs/fees                                   36,293             46,217            (386,250)
Decrease in accrued interest receivable                                      357,647            197,719             855,019 
Amortization and accretion on securities                                    (370,458)           950,189          (1,190,768)
Decrease/(increase) in prepaid expenses and other assets                   2,377,677         (4,929,101)           (884,401)
Increase/(decrease) in accrued interest payable, deferred taxes                                                             
and other liabilities                                                       (815,422)           791,759          (1,022,494)
                                                                        ------------       ------------       ------------- 
Total adjustments                                                          4,501,037           (763,968)           (530,613)
                                                                        ------------       ------------       ------------- 
Net cash provided by operating activities                                  5,579,110          3,051,479           6,309,256 

Cash flows from investment activities                                                                                       
(Purchase) of securities available for sale                              (34,944,375)       (49,668,362)       (149,287,216)
Proceeds from sales of securities available for sale                      32,738,159         26,970,258         111,620,470 
Proceeds from maturities and paydowns of securities available for sale    59,047,968         33,528,612          46,112,188 
Net decrease/(increase) in loans                                         (22,781,857)       (13,510,972)        (10,247,400)
(Purchase) sale of Federal Reserve Bank/Federal Home Loan                                                                   
Bank stock                                                                   530,950            (22,400)           (210,550)
Proceeds from/(Purchase of) cash value life insurance                       (830,000)         2,551,120         (10,000,000)
Proceeds from the sale of real estate owned                                1,536,451            579,487             982,223 
Capital expenditures                                                      (1,068,470)        (1,030,930)           (622,525)
                                                                        ------------       ------------       ------------- 
Net cash provided by/(used in) investment activities                      34,228,825           (603,187)        (11,652,810)

Cash flows from financing activities                                                                                        
Net (decrease)/increase in deposits                                      (22,750,056)        39,771,581           1,439,664 
Decrease in short term borrowings and subordinated capital notes                  --        (14,605,696)         (2,720,405)
Exercise of common stock options                                           1,166,358            554,791             434,862 
Redemption of preferred stock                                                     --        (20,700,000)                 -- 
Cash dividends paid on common stock                                       (1,181,404)        (1,124,619)           (998,404)
                                                                        ------------       ------------       ------------- 
Net cash (used in)/provided by financing activities                      (22,765,102)         3,896,057          (1,844,283)
                                                                        ------------       ------------       ------------- 
Net increase in cash and cash equivalents                                 17,042,834          6,344,349          (7,187,837)
Beginning cash and cash equivalents                                       30,801,342         24,456,994          31,644,831 
                                                                        ------------       ------------       ------------- 
Ending cash and cash equivalents                                        $ 47,844,176       $ 30,801,343          24,456,994 
                                                                        ============       ============       ============= 

Supplemental disclosures of cash flow information                                                                           
Cash paid during the period for:                                                                                            
Interest                                                                $  6,171,214       $  7,930,130       $  10,559,583 
Federal income taxes                                                              --          2,475,000           3,280,000 
Non-cash investing and financing activities:                                                                                
Transfer from loans to real estate owned (net)                             2,473,971          2,697,132             486,735 

The accompanying notes are an integral part of these financial statements.      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

ORGANIZATION                                                                    

Effective at the close of business on October 23, 2002, Franklin Bank, N.A. (the
"Bank") was reorganized and Franklin Bancorp, Inc. ("Bancorp" or the            
"Corporation") was formed. All of the outstanding common shares of the Bank were
exchanged on a one for one basis for the common shares of Bancorp to create a   
one bank holding company. As control did not change, this transaction was       
accounted for at historical cost, therefore there was not a significant effect  
on the comparability of the financial statements presented. Franklin Bank, N.A. 
is a nationally chartered commercial bank, and a member of the Federal Reserve  
Bank ("FRB") System and the Federal Home Loan Bank ("FHLB") System. As a member 
of these systems, the Bank maintains a required investment in capital stock of  
the FRB of Chicago and the FHLB of Indianapolis.                                

Deposits are insured by the Savings Association Insurance Fund ("SAIF") within  
certain limitations, as administered by the Federal Deposit Insurance           
Corporation ("FDIC"). The Bank operates four branches along with its main office
branch in the communities of Southfield, Birmingham, Grosse Pointe Woods, and   
Troy, Michigan. The Bank is engaged in the business of commercial and retail    
banking. The majority of the Bank's income is derived from commercial and to a  
lesser extent retail business lending activities and investments.               

PRINCIPLES OF CONSOLIDATION                                                     

The consolidated financial statements consist of the accounts of Bancorp and its
wholly-owned subsidiary Franklin Bank, N.A. and its wholly owned subsidiaries,  
Franklin Mortgage Services LLC and Franklin Safe Deposit Company. Significant   
inter-company balances and transactions have been eliminated.                   

PREFERRED STOCK OF SUBSIDIARY                                                   

Franklin Finance Corporation ("the Company"), formerly a wholly owned subsidiary
of Franklin Bank, N.A. issued 2,070,000 shares of 8.70% Non-cumulative          
Exchangeable Preferred Stock, Series A ("Series A Preferred Shares"), with a    
liquidation preference of $10 per share. The Company was a real estate          
investment trust established for the purpose of acquiring, holding and managing 
real estate mortgage assets. Dividends on Series A Preferred Shares were        
non-cumulative and were payable quarterly in arrears. The Series A Preferred    
Shares were treated as regulatory Capital for the Bank. On December 22, 2002,   
the Series A Preferred Shares were redeemed for cash at a redemption price of   
$10 per share, plus accrued and unpaid dividends, thereon. The Board of         
Directors of the Company approved this dissolution and liquidation of the       
Company effective as of December 31, 2002.                                      

SECURITIES                                                                      

The Bank classifies securities into held to maturity, available for sale and    
trading categories. Held to maturity securities are those which management has  
the positive intent and the Bank has the ability to hold to maturity, and are   
reported at amortized cost. Available for sale securities are those which the   
Bank may decide to sell if needed for liquidity, asset/liability management or  
other reasons. Available for sale securities are reported at fair value, with   
unrealized gains or losses included as a separate component of other            
comprehensive income or loss. Trading securities are bought principally for sale
in the near term, and are reported at fair value with unrealized gains or losses
included in earnings. There were no securities classified as trading or held to 
maturity at December 31, 2003 or 2002.                                          

Realized gains or losses are determined based on the amortized cost of the      
specific security sold. Interest and dividend income is adjusted by amortization
of purchase premium or discount and are included in income.                     

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LOANS AND ALLOWANCE FOR LOAN LOSSES                                             

Loans, for which management has the intent and the Bank has the ability to hold 
for the foreseeable future, until maturity or payoff, are reported at their     
outstanding, unpaid principal balances, reduced by any charge-offs or specific  
valuation accounts and net of any deferred fees or costs on originated loans,   
unamortized premiums or discounts on purchased loans. Loans held for sale are   
reported at the lower of cost or fair value.                                    

On an ongoing basis, the Bank's loan portfolio is reviewed and analyzed as to   
credit risk, performance, collateral value and quality. The allowance for loan  
losses is maintained at a level believed to be adequate by management to provide
for probable loan losses inherent in the loan portfolio. Management's judgment  
as to the adequacy of the allowance, including the allocated and unallocated    
elements, is a result of ongoing review of larger individual loans, the overall 
risk characteristics of the smaller homogeneous loans, the level of             
non-performing assets, historical net charge-offs and the impact of prevailing  
economic conditions. Loans are charged-off to the extent they are deemed to be  
uncollectible.                                                                  

A loan is considered impaired and placed on non-accrual status when, based on   
current information and events, it is probable that the Bank will be unable to  
collect all principal and interest amounts due according to the contractual     
terms of the loan agreement typically when the loan becomes 90 days past due.   
Smaller balance homogeneous loans are collectively evaluated for impairment.    
Impaired loans, or portions thereof, are charged off when deemed uncollectible. 

The carrying value of impaired loans is periodically adjusted to reflect cash   
payments, revised estimates of future cash flows, and increases in the present  
value of expected cash flows due to the passage of time. Cash payments          
representing interest income are reported as such and recognized as income when 
received. Increases or decreases in carrying value due to changes in estimates  
of future payments or the passage of time are reported as reductions or         
increases in the provision for loan losses.                                     

Discounts and premiums on purchased residential real estate loans are amortized 
to income using the interest method over the remaining period to contractual    
maturity, adjusted for anticipated prepayments. Discounts and premiums on       
purchased consumer loans are recognized over the expected lives of the loans    
using methods that approximate the interest method.                             

Loan origination fees and certain direct origination costs are capitalized and  
recognized as an adjustment of the yield of the related loan. Fees received for 
originating loans for other institutions are recognized as income when the      
services are performed.                                                         

CONCENTRATIONS                                                                  

The Bank has no foreign loans and there were no concentrations greater than 10% 
of total loans that are not disclosed as a separate category.                   

REAL ESTATE OWNED                                                               

Real estate properties acquired through, or in lieu of, loan foreclosure are    
initially recorded at fair value less estimated costs to sell at the date of    
foreclosure, establishing a new cost basis. After foreclosure, valuations are   
periodically performed by management, and the real estate is carried at the     
lower of the new cost basis or the new fair value. Revenue and expenses from    
operations are included in defaulted loan expense, and additions to the         
valuation allowance are included in other expense.                              

PREMISES AND EQUIPMENT                                                          

Premises and equipment, including leasehold improvements, are carried at cost   
less accumulated depreciation and amortization. Depreciation and amortization   
are computed on a straight-line basis over the estimated lives of the assets.   
The service lives are 30 years for building, three to seven years for furniture 
and equipment and the lesser of the lease terms or useful life (three to ten    
years) for leasehold improvements.                                              

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CASH SURRENDER VALUE OF LIFE INSURANCE                                          

During 2003 and 2001, the Bank purchased life insurance policies on key members 
of management. In the event of death of one of these individuals, the Bank would
receive a specified cash payment equal to the face value of the policy. Such    
policies are recorded at their cash surrender value. Increases in cash surrender
value are reported as income.                                                   

STATEMENT OF CASH FLOWS                                                         

For the purpose of presentation in the consolidated statements of cash flows,   
cash and cash equivalents are defined as those amounts included in the          
consolidated statements of financial condition caption "Cash and cash           
equivalents." These items have original maturities of ninety days or less.      

STOCK OPTIONS                                                                   

At December 31, 2003 and 2002, the Corporation has two stock-based, employee    
compensation plans and two stocked based director compensation plans, which are 
described more fully in Note 9. The Corporation accounts for those plans under  
the recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based employee 
compensation cost is reflected in net income, as all options granted under those
plans has an exercise price greater than or equal to the market value of the    
underlying common stock on the date of grant. The following table illustrates   
the effect on net income (loss) and earning (loss) per share if the Corporation 
had applied the fair value recognition provisions of FASB Statement No. 123,    
Accounting for Stock-Based Compensation, as amended by FASB Statement No. 148,  
to stock-based employee compensation.                                           

                                                        · Enlarge/Download Table

                                                                    Year Ended December 31,              
                                                           2003               2002               2001    
                                                           ----               ----               ----    
                                                                                                         
Net income, as reported                               $   1,078,073      $   3,815,447      $   6,839,869
Deduct:  total stock-based employee compensation                                                         
expense determined under fair value based method for                                                     
all awards, net of tax                                      133,186             20,608            116,936
                                                      -------------      -------------      -------------
Pro forma net income                                  $     944,887      $   3,794,839      $   6,722,933

Earnings per share:                                                                                      
Basic - as reported                                   $        0.29      $        1.05      $        1.92
Basic - pro forma                                              0.26               1.04               1.83
Diluted - as reported                                          0.28               1.01               1.86
Diluted - pro forma                                            0.25               1.01               1.83

INCOME PER COMMON SHARE                                                         

Basic income per share excludes dilution and is computed by dividing income     
available to common shareholders by the weighted average common shares          
outstanding for the period. Diluted income per share reflects the potential     
dilution that could occur if options or other contracts to issue common stock   
were exercised and converted into common stock or resulted in the issuance of   
common stock that then shared income of the entity.                             

COMPREHENSIVE INCOME                                                            

Comprehensive income is the sum of net income plus the change in net unrealized 
gains, net of deferred taxes, on investment securities available for sale.      

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INCOME TAXES                                                                    

The Corporation records income tax expense based on the amount of taxes due on  
its return plus changes in deferred taxes, computed based on the expected future
tax consequences of temporary differences between the carrying amounts and tax  
bases of assets and liabilities, using enacted tax rates. Valuation allowances  
are established when necessary to reduce deferred tax assets to the amount      
expected to be realized.                                                        

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS                         

The preparation of financial statements in conformity with generally accepted   
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of         
contingent assets and liabilities at the date of the financial statements, and  
the reported amounts of revenues and expenses during the reporting period.      
Actual results could differ from those estimates.                               

Estimates that are more susceptible to change in the near term include the      
allowance for loan loss, the fair value of securities available for sale, and   
valuation of repossessed assets.                                                

RECENT ACCOUNTING PRONOUNCEMENTS                                                

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),"Guarantor's   
Accounting and Disclosure Requirements for Guarantees, Including Indirect       
Guarantees of Indebtedness of Others", which addresses the disclosure to be made
by a guarantor in its interim and annual financial statements about its         
obligations under guarantees. FIN 45 requires the guarantor to recognize a      
liability for the non-contingent component of the guarantee, this is the        
obligation to stand ready to perform in the event that specified triggering     
events or conditions occur. The initial measurement of this liability is the    
fair value of the guarantee at inception. The recognition of the liability is   
required even if it is not probable that payments will be required under the    
guarantee or if the guarantee was issued with a premium payment or as part of a 
transaction with multiple events. The initial recognition and measurement       
provisions are effective for all guarantees within the scope of FIN 45 issued or
modified after December 31, 2002. The impact of adoption is not expected to have
a significant impact on the Corporation's financial reporting.                  

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation 
of Variable Interest Entities," which addresses consolidation by business       
enterprises of variable interest entities that possess certain characteristics  
as defined within the interpretation. However, in December 2003, the FASB issued
Interpretation No. 46(R) ("FIN 46(R)"), which revises FIN 46 and is intended to 
clarify some of the provisions of FIN 46 and to exempt certain entities from its
requirements. FIN 46(R) requires the deconsolidation of trust preferred security
subsidiaries. FIN 46(R) grants the companies the option to adopt its provisions 
as of the end of the first period ending after December 31, 2003 or elect to    
defer until the first period ending after March 15, 2004. As of December 31,    
2003, the Company has decided to defer the application of FIN 46(R) until March 
15, 2004. Management believes the adoption of FIN 46(R) in the first quarter of 
2004 will not have a material impact on the financial statements.               

On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on 
Derivative Instruments and Hedging Activities" (SFAS 149) which is effective for
hedging relationships entered into or modified after June 30, 2003. SFAS 149    
amends and clarifies financial accounting and reporting for derivative          
instruments, including certain derivative instruments embedded in other         
contracts and for hedging activities under SFAS 133. The adoption of this rule  
did not have a material impact on the Corporation's results of operations or    
financial condition.                                                            

2. LOANS                                                                        

                                                                · Download Table

                                                      December 31,            
                                            --------------------------------- 
                                                 2003                2002     
                                                 ----                ----     
                                                                              
Loans held for investment                                                     
Real estate                                                                   
  Single family mortgage                    $  62,090,659       $  11,256,265 
  Home equity                                   4,565,146           5,449,350 
  Commercial mortgage                         181,440,549         188,394,330 
  Construction                                 21,782,420          38,888,679 
Consumer                                       19,831,239          24,512,016 
Commercial                                     72,122,884          76,918,188 
Lease financing                                         0              34,184 
                                            -------------       ------------- 
Total loans held for investment               361,832,897         345,453,012 

Less                                                                          
  Undistributed construction funds              7,494,420          12,777,497 
  Unamortized discounts on purchased loans             --             150,624 
  Unamortized discounts on lease financing             --               1,220 
  Unamortized net loan fees                      (785,762)           (822,055)
                                            -------------       ------------- 
Loans held for investment                     355,124,239         333,345,726 
Allowance for loan losses                       4,923,469           5,926,813 
                                            -------------       ------------- 
Net loans                                   $ 350,200,770       $ 327,418,913 

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2. LOANS (CONTINUED)                                                            

ALLOWANCE FOR LOAN LOSSES                                                       

                                                                · Download Table

                                             Year Ended December 31,          
                                       2003            2002            2001   
                                    ----------      ----------      ----------
                                                                              
Balance at Beginning of Period      $5,926,813      $4,863,948      $3,951,552
Provision for Losses                 2,902,612       3,809,760       1,858,500
Charge-offs                                                                   
   Commercial                        1,904,545       2,210,026       1,143,857
   Commercial Mortgage               2,687,166               0               0
   Construction                              0               0               0
   Residential                         432,971         268,794          51,815
   Overdraft                            74,911         104,424         124,043
   Consumer                          1,633,984       1,650,631         847,638
   Lease Financing                           0          68,334         175,917
                                    ----------      ----------      ----------
Total Charge-Offs                    6,733,577       4,302,209       2,343,270
Recoveries                                                                    
   Commercial                          923,859         225,928         303,232
   Commercial Mortgage                 537,038               0               0
   Construction                              0               0               0
   Residential                          13,500               0             148
   Overdraft                            55,071          35,259         118,548
   Consumer                          1,214,172       1,053,712         558,100
   Lease Financing                      83,982         240,415         417,138
                                    ----------      ----------      ----------
Total Recoveries                     2,827,621       1,555,314       1,397,166
                                    ----------      ----------      ----------
Net Charge-offs                      3,905,956       2,746,895         946,104
                                    ----------      ----------      ----------
Balance at End of Period            $4,923,469      $5,926,813      $4,863,948
                                    ==========      ==========      ==========

At December 31, 2003, 2002 and 2001, the balance of impaired loans was $ 1.7    
million, $4.8 million and $3.1 million, respectively. Of this amount, $669      
thousand, $1.4 million and $595 thousand in impaired loans required no allowance
for loan loss allocation at December 31, 2003, 2002 and 2001, respectively. At  
December 31, 2003, 2002 and 2001 the remaining impaired loans of $1.0 million,  
$3.4 million and $2.5 million had $0.4 million, $2.0 million and $298 thousand  
of the allowance for loan losses allocated to them, respectively, although the  
entire allowance remains available for charge-offs of any loan.                 

The average balance of impaired loans for 2003, 2002 and 2001 was $4.4 million, 
$1.5 million and $2.0 million, respectively. Contractual interest income due and
recognized on impaired loans during 2003 was $194 thousand and $121 thousand,   
respectively with $285,000 due and $10,800 recognized in 2002, and $341,000 due 
and $0 recognized on impaired loans in 2001. Non-accrual loans at December 31,  
2003, 2002 and 2001 amounted to $1.7 million, $4.8 million and $3.1 million     
respectively, and are included in impaired loans.                               

At December 31, 2001, the Bank serviced whole loans and participations sold to  
others totaling approximately $1 million; the Bank was not servicing loans for  
others at December 31, 2003 or 2002.                                            

A large percentage of the Bank's portfolio of loans is comprised of loans       
collateralized by commercial or residential real estate, substantially all of   
which were located in southeastern Michigan.                                    

Management believes the allowance for loan losses at December 31, 2003, 2002 and
2001 is adequate. However, changing economic conditions in the Bank's lending   
area or future events impacting specific outstanding loans may result in        
adjustments to the allowance.                                                   

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3. DEBT AND EQUITY SECURITIES                                                   

Securities Available for Sale                                                   

                                                        · Enlarge/Download Table

                                                           Gross        Gross                   
                                           Amortized    Unrealized   Unrealized          Fair   
                                              Cost         Gains      Losses(1)          Value  
                                              ----         -----      ---------          -----  
                                                                                                
December 31, 2003                                                                               
  Mortgage-backed securities             $ 28,875,884  $    432,330  $    (57,891)  $ 29,250,323
  U.S. Government and agency securities    29,520,552       298,406       (69,375)    29,749,583
  Tax-exempt municipal securities           9,948,524       512,327                   10,460,851
  Taxable municipal securities              1,356,000                                  1,356,000
  Corporate bonds                          19,659,369     1,094,164            --     20,753,533
                                         ------------  ------------  ------------   ------------
Total                                    $ 89,360,329  $  2,337,227  $   (127,266)  $ 91,570,290

December 31, 2002                                                                               
  Mortgage-backed securities             $ 66,165,358  $  1,812,586                 $ 67,977,944
  U.S. Government and agency securities    29,104,210       602,966                   29,707,176
  Tax-exempt municipal securities           8,757,475       243,702                    9,001,177
  Taxable municipal securities              1,000,000                                  1,000,000
  Corporate bonds                          41,133,723     1,089,039       (72,515)    42,150,247
                                         ------------  ------------  ------------   ------------
Total                                    $146,160,766  $  3,748,293  $    (72,515)  $149,836,544

(1) Investments with unrealized losses have been in an unrealized loss position 
for less than 12 months. The Bank believes the losses are temporary based on    
fluxuations in market interest rates.                                           

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3. DEBT AND EQUITY SECURITIES (CONTINUED)                                       

Gross realized gains, losses and proceeds on sale of securities available for   
sale were:                                                                      

                                                        · Enlarge/Download Table

                                                                           Year ended December 31,               
                                                               ------------------------------------------------- 
                                                                   2003              2002               2001     
                                                                   ----              ----               ----     
                                                                                                                 
Gross realized gains on U.S. Government and agency                                                               
securities                                                     $         --       $   341,182      $     291,877 
Gross realized gains on mortgage-backed securities                  455,511           307,175            468,325 
Gross realized gains/(losses) on corporate bonds                    (43,737)               --            438,438 
Gross realized losses on SBA pool                                        --                --            (55,053)
                                                                                                   ------------- 
Gross proceeds from the sale of available for sale securities    32,249,491        26,970,258        111,620,470 

The scheduled maturities of available for sale securities at December 31, 2003  
were as follows:                                                                

                                                                · Download Table

                                                  Amortized          Fair    
                                                    Cost             Value   
                                                    ----             -----   
                                                                             
Securities due within one year                                               

  U.S. Government and agency securities          $ 8,526,280      $ 8,665,469
  Corporate bonds                                  6,495,756        6,596,967
                                                 -----------      -----------
  Tax-exempt municipals                           15,022,036       15,262,436

Securities due after one through five years                                  
  Mortgage-backed securities                      20,040,060       19,990,990
  Corporate bonds                                  4,998,834        5,418,730
  Taxable municipals                               1,356,000        1,356,000
  Tax-exempt municipals                            2,591,945        2,710,426
                                                 -----------      -----------
                                                  28,986,839       29,476,146

Securities due after five through ten years                                  
  Mortgage-backed securities                       2,560,997        2,666,296
  U.S. Government and agency securities              954,212        1,093,125
  Corporate bonds                                  5,164,779        5,710,120
  Tax-exempt municipals                              762,585          811,548
                                                 -----------      -----------
                                                   9,442,573       10,281,089

Securities due after ten years                                               
  Mortgage-backed securities                      26,314,887       26,584,026
  Corporate bonds                                  3,000,000        3,027,716
  Tax-exempt municipals                            6,593,994        6,938,877
                                                 -----------      -----------
                                                  35,908,881       36,550,619
                                                 -----------      -----------

Total                                            $89,360,329      $91,570,290

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4. DEPOSITS                                                                     

                                                                · Download Table

                                                      December 31,         
                                             ------------------------------
                                                 2003              2002    
                                                 ----              ----    
                                                                           
Business checking                            $177,665,712      $180,011,082
Personal checking                               7,645,666         5,396,446
                                             ------------      ------------
Total non-interest bearing deposits           185,311,378       185,407,528
Statement savings                                 130,704           272,427
Variable rate accounts                                                     
  Money funds                                  93,124,079       111,118,189
  Money markets                                54,561,371        54,247,085
Negotiable order of withdrawal accounts        24,804,963        19,897,678
Fixed rate certificates of deposit             48,447,279        58,186,923
                                             ------------      ------------
Total                                        $406,379,774      $429,129,830
                                             ============      ============

Time deposits issued in denominations of $100,000 or more at December 31, 2003  
and 2002 totaled $19.7 million and $21.0 million, respectively.                 

Fixed rate certificates of deposit at December 31, 2003 mature as follows:      

                                                                · Download Table
                                             
      2004                       $ 19,890,058
      2005                         21,082,285
      2006                          3,765,471
      2007                          3,183,497
      2008                            263,101
Thereafter                            262,866
                                 ------------
     Total                       $ 48,447,279

Interest expense on deposits is summarized as follows:                          

                                                                · Download Table

                                                 Years Ended December 31,          
                                         ------------------------------------------
                                            2003            2002            2001   
                                            ----            ----            ----   
                                                                                   
Statement savings                        $    1,139      $    2,808      $    4,773
Variable rate accounts:                                                            
  Money funds                             1,104,307       1,276,799       1,713,112
  Money markets                             554,087       1,484,947       2,621,801
Negotiable order of withdrawal accounts      72,284         130,826          95,467
Fixed rate certificates                   1,417,588       2,055,743       2,802,783
                                         ----------      ----------      ----------
Total                                    $3,149,406      $4,951,123      $7,237,936
                                         ==========      ==========      ==========

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5. BORROWINGS                                                       

The Bank utilizes borrowings from the FHLB as well as securities sold under     
agreements to repurchase (repurchase agreements) to meet its borrowing needs. At
December 31, 2003, the Bank had available additional borrowing capacity of up to
$10 million, which would be collateralized by investment securities available   
for sale and performing first mortgage loans. At December 31, 2003, 2002 and    
2001, investment securities and performing first mortgage loans of approximately
$115.7 million and $101.4 million, respectively, were pledged to secure         
borrowings.                                                                     

                                                                · Download Table

                                  Contract              Outstanding              
                                  Interest              December 31,             
Description   Maturity              Rate         2003                     2002   
-----------   --------              -----        ----                     ----   
                                                                                 
FHLB Advance  February 23, 2004      5.50   $ 10,000,000             $ 10,000,000
FHLB Advance  January 10, 2011       4.78     20,000,000               20,000,000
FHLB Advance  January 11, 2011       4.15     10,000,000               10,000,000
FHLB Advance  September 6, 2011      4.82     10,000,000               10,000,000
FHLB Advance  September 12, 2011     2.99     15,000,000               15,000,000
                                            ------------             ------------
                                            $ 65,000,000             $ 65,000,000
                                            ============             ============

Advances with contract maturity dates in 2011 are subject to conversion to      
floating rates at the option of the FHLB re-pricing provisions prior to the     
stated maturity date.                                                           

The following table sets forth the maximum month-end balance, average daily     
balance, and weighted average rate of the FHLB advances and line of credit for  
the periods indicated:                                                          

                                                                · Download Table

                                           Year Ended December 31,           
                                ---------------------------------------------
                                    2003             2002             2001   
                                    ----             ----             ----   
                                                                             
Maximum balance                 $65,000,000      $82,181,269      $79,605,696
Average balance                  65,000,000       65,528,135       51,805,602
Weighted average interest rate         4.39             4.43             4.74

The following table sets forth the maximum month-end balance, average daily     
balance, and weighted average interest rate of the repurchase agreements for the
periods indicated:                                                              

                                                                · Download Table

                                          Year Ended December 31,            
                                ---------------------------------------------
                                   2003             2002             2001    
                                   ----             ----             ----    
                                                                             
Maximum balance                 $        --      $20,451,000      $46,993,075
Average balance                          --        3,133,395       16,491,525
Weighted average interest rate           --             1.82             5.13

In December 2003, the Bank paid a dividend of $8 million to the holding company,
and the holding company used these funds to purchase a subordinated, capital    
note from the Bank in the same amount. The note bears interest at 5.25 % and    
matures in seven years. The note and investment are eliminated in consolidation 
of the financial statements.                                                    

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6. REGULATORY MATTERS                                                           

The Bank is required by law to maintain average cash balances or balances with  
the Federal Reserve Bank based on a percentage of deposits. At December 31, 2003
and 2002, these reserves totaled $3.9 million and $3.4 million, respectively.   

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

Quantitative measures established by regulation to ensure capital adequacy      
require the Corporation and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier I capital (as defined in the    
regulations) to risk weighted assets (as defined), and of Tier I capital (as    
defined) to average assets (as defined). As of December 31, 2003 the Corporation
and the Bank met all capital adequacy requirements to which they are subject.   

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

                                                        · Enlarge/Download Table

                                                                                                Well         
                                                                                          Capitalized Under  
                                                                 For Capital              Prompt Corrective  
                                                 Actual           Adequacy    Purposes        Provisions     
(Dollars in thousands)                           Amount  Ratio      Amount      Ratio    Amount        Ratio 
                                                -------  -----     -------      -----   -------        ----- 
                                                                                                             
As of December 31, 2003                                                                                      
Total capital (to risk weighted assets)         $49,202  11.37%    $26,594       8.00%  $43,257        10.00%
Tier 1 capital (to risk weighted assets)         44,279  10.24      17,303       4.00    25,954         6.00 
Tier 1 capital (to risk fourth quarter average                                                               
assets)                                          44,279   8.32      21,060       4.00    31,590         5.00 

As of December 31, 2002                                                                                      
Total capital (to risk weighted assets)          48,304  11.89      32,510       8.00%   40,637        10.00%
Tier 1 capital (to risk weighted assets)         43,214  10.63      18,255       4.00    24,382         6.00 
Tier 1 capital (to risk fourth quarter average                                                               
assets)                                          43,214   7.55      22,896       4.00    28,620         5.00 

The Bank is also subject to limitations under the Federal Reserve Act on the    
amount of loans or advances that can be extended to the Corporation and         
dividends that can be paid to the Corporation. Loans or advances are limited to 
10 percent of the Bank's capital stock and surplus on a secured basis.          
Generally, approval is needed if total dividends declared in any calendar year  
exceed the retained "net profit" (as defined in the Federal Reserve Act) of that
year plus the retained "net profit" of the preceding two years. In addition,    
dividends paid by the Bank to the Corporation would be prohibited if the effect 
thereof would cause the Bank's capital to be reduced below applicable minimum   
capital requirements. The amount of retained "net profit" is approximately $0 at
January 1, 2004 as the Bank paid the $8 million dividend in December 2003.      

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7. PREMISES AND EQUIPMENT                                                       

                                                                · Download Table

                                                         December 31,           
                                                ------------------------------- 
                                                    2003               2002     
                                                    ----               ----     
                                                                                
Land and land improvements                      $    200,000       $    200,000 
Building                                             583,337            583,337 
Furniture, fixtures and equipment                 12,557,809         11,832,452 
Leasehold improvements                             2,835,554          2,494,572 
                                                ------------       ------------ 
Total                                             16,176,700         15,110,361 
Less accumulated depreciation and amortization   (13,100,724)       (12,084,190)
                                                ------------       ------------ 
Premises and equipment, net                     $  3,075,976       $  3,026,171 
                                                ============       ============ 

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8. FEDERAL INCOME TAXES                                                         

The following is a summary of the provision for federal income taxes:           

                                                                · Download Table

                                           Year Ended December 31,            
                                --------------------------------------------- 
                                   2003              2002              2001   
                                   ----              ----              ----   
                                                                              
Current expense                 $(226,778)      $ 1,003,270       $ 3,549,584 
Deferred expense/(benefit)        522,845          (400,133)         (189,518)
                                ---------       -----------       ----------- 
Total                           $ 296,067       $   603,137       $ 3,360,066 
                                =========       ===========       =========== 

A reconciliation of the statutory rate to the effective rate is shown below:    

                                                                · Download Table

                                                Year Ended December 31,             
                                      --------------------------------------------- 
                                        2003              2002              2001    
                                        ----              ----              ----    
                                                                                    
Provision computed at statutory rate  $ 467,208       $ 2,114,625       $ 4,080,284 
Tax exempt interest                    (122,225)          (99,272)         (100,114)
Bank owned life insurance              (175,186)         (778,680)               -- 
Affordable housing credit                    --          (125,740)         (125,740)
Other, net                              126,271           104,510           117,942 
                                      ---------       -----------       ----------- 
Total                                 $ 296,067       $ 1,215,443       $ 3,972,372 
                                      =========       ===========       =========== 

The tax effects of temporary differences that give rise to significant portions 
of deferred tax assets and deferred liabilities are presented below:            

                                                                · Download Table

                                                December 31,       
                                         --------------------------
                                            2003            2002   
                                            ----            ----   
                                                                   
Deferred tax assets:                                               
  Allowance for loan losses              $1,673,979      $2,015,117
  Non-accrual loan interest                  52,042          96,794
  Gain on sale of real estate owned              --         149,080
   Premises and equipment                    31,364         288,353
  Low income housing credit                 125,740              --
  Other                                      74,897          15,528
                                         ----------      ----------
Total deferred tax assets                 1,958,023       2,564,872

Deferred tax liabilities:                                          
  Unrealized gain on securities             751,386       1,249,765
  Affordable housing                         62,233          42,710
  Net deferred loan fees                    267,117         310,926
  Other                                     132,793         145,375
                                         ----------      ----------
Total deferred tax liabilities            1,213,529       1,748,776
                                         ----------      ----------

Net deferred tax assets                  $  744,493      $  816,096
                                         ==========      ==========

The above amounts are included in prepaid expenses and other assets and other   
liabilities on the consolidated statements of financial condition.              

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9. STOCK OPTIONS AND EMPLOYEE STOCK OWNERSHIP PLAN                              

In 1986 and 1994, shareholders approved the adoption of two separate stock      
option plans for certain key executives and two separate stock option plans for 
non-employee directors of the Bank, (collectively, "the Plans"). As part of the 
consummation of the reorganization discussed in Note 1, the Bank's stock option 
plans were assumed by the Corporation. In 1996, shareholders approved an        
amendment to Key Executive Plan. In 1998, the shareholders approved a           
modification to both of these plans. In 2003, the shareholders approved another 
modification of the key executives plan.                                        

The Key Executive Plans authorize the grant of 364,400 common shares, while the 
Directors' Plan provides for the grant of up to 115,000 common shares. Grants   
made under the Plans are subject to certain anti-dilution provisions. If an     
option expires or terminates for any reason without having been fully exercised,
unexercised portions of the options are available for further grant under the   
Plans.                                                                          

Committees selected by the Board of Directors administer the Plans. Subject to  
the eligibility and other limitations of the Directors' Plan, the Committees are
authorized to make grants under the Plans and otherwise administer the Plans.   
The Committees may determine the term of each option the date on which each     
option shall be granted and the other relevant provisions of each option        
agreement.                                                                      

The Financial Accounting Standards Board issued Statement No. 123, "Accounting  
for Stock Based Compensation" ("SFAS No. 123") for transactions entered into    
during 1996 and thereafter. The Statement, which was amended by SFAS No. 148,   
establishes a fair value method of accounting for employee stock options and    
similar equity instruments such as warrants, and encourages all companies to    
adopt that method of accounting for all of their employee stock compensation    
plans. However, the Statements allow companies to continue measuring            
compensation cost for such plans using accounting guidance in place prior to    
SFAS Nos. 123 and 148. Companies that elect to remain with the former method of 
accounting must make pro-forma disclosures of net income and earnings per share 
as if the fair value method provided for in SFAS No. 123 had been adopted.      

The fair value of each option grant is estimated on the date of grant using the 
Black-Scholes options-pricing model with the following weighted-average         
assumptions used for grants in 2003: dividend yield of 3%; expected volatility  
of 5.1%; risk-free interest rates of approximately 4.0%; and expected lives of  
10 years. The result being a fair value per option of $4.17. There were no      
options granted in 2002 and therefore no valuation was performed.               

The following table summarizes stock options by plan at December 31, 2003. All  
information presented in this footnote with respect to stock options has been   
adjusted for the effects of all stock dividends.                                

                                                        · Enlarge/Download Table

                                                 Exercise Price Per Share                      
                              -----------------------------------------------------------------
                               Number of                                             Number of 
                                Shares                           Weighted              Shares  
                              Outstanding        Range            Average           Exercisable
                              -----------        -----            -------           -----------
                                                                                               
Key Executives' 1994 Plan       199,776      $8.14-$18.87      $      11.88           199,776  
Directors' 1986 Plan              4,514       $2.93-$8.78      $       6.53             4,514  
Directors' 1994 Plan             25,675      $6.99-$16.63      $      13.37            25,675  
                              ---------                                               -------  
Balance at December 31, 2003    229,965      $2.93-$18.87      $      11.94           229,965  

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9. STOCK OPTIONS AND EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)                  

The following is a summary of stock option activity for each of the three years 
in the period ended December 31, 2003.                                          

                                                        · Enlarge/Download Table

                                                  Weighted                           
                                                  Average                            
                                                  Exercise    Price per     Number of
                                                   Price        Share       Options  
                                                   -----        -----       -------  
                                                                                     
Outstanding January 1, 2001                       $10.15     $2.20-$16.63   373,476  

Addition of options - Key Executives' 1994 Plan    15.42     $9.69-$18.70    82,352  

Addition of options - Directors' 1994 Plan         16.63        $16.63       16,000  

Exercised in 2001                                   7.93     $2.20-$13.89   (54,992) 

Outstanding December 31, 2001                      11.74     $2.20-$18.70   416,836  

Exercised in 2002                                  11.98     $2.20-$13.89   (40,050) 

Retired in 2002                                    12.52     $6.99-$18.70   (16,136) 

Outstanding December 31, 2002                      11.68     $2.20-$18.70   360,650  

Additions of options - Key Executives' 1994 Plan   18.31    $17.93-$18.87    30,295  

Exercised in 2003                                  11.00     $2.20-$18.70  (106,074) 

Retired in 2003                                    11.00     $2.93-$18.70   (54,906) 

Outstanding December 31, 2003                      11.89     $2.93-$18.87   229,965  

The Corporation also has an Employee Stock Ownership Plan ("ESOP"). Cash        
contributions to the ESOP may be invested in either common or preferred stock of
the Corporation, purchased in the open market. For the years ended December 31, 
2003, 2002, and 2001, cash contributions of $84,000, $95,295, and $107,195,     
respectively, were made to the ESOP. The Corporation is not committed to        
predetermined ESOP contributions. The Board of Directors, as recommended by the 
ESOP Committee, must approve any further contributions to the ESOP.             

The Corporation sponsors a defined contribution savings plan qualified under    
Section 401(k) of the Internal Revenue Code. Substantially all full-time        
employees are covered under the Plan. The Corporation began contributing to the 
Plan in 2001, an amount equal to 25 % of employee's gross earnings up to 8% of  
the employee's compensation. The cost of the Plan amounted to $76,617, $71,102  
and $20,658 in 2003, 2002 and 2001, respectively.                               

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10. TRANSACTIONS WITH RELATED PARTIES                                           

The Bank has engaged an advertising agency in which a Director has a partial    
ownership interest. The Bank paid $483,877, $522,483, and $616,027, to this     
company for the years ended December 31, 2003, 2002, and 2001, respectively.    

Loan activity to officers of the Bank and their associates is summarized as     
follows:                                                                        

                                                                · Download Table

                                                 Year Ended December 31,      
                                             ---------------------------------
                                               2003         2002         2001 
                                               ----         ----         ---- 
                                                                              
Balance, beginning of year                   $    --      $ 6,888      $82,347
Additions                                         --       34,542       15,300
Less: Principal payments and loans sold           --       41,340       90,759
Balance, end of year                         $    --      $    --      $ 6,888

There were no loans to officers of the Bank and their associates during 2003.   

As of December 31, 2003, 2002 and 2001, there were no loans outstanding to      
Directors of the Corporation, the Bank or their associates.                     

11. FAIR VALUE OF FINANCIAL INVESTMENTS                                         

The following disclosure of the fair value of financial instruments is made in  
accordance with the requirements of Statement of Financial Accounting Standards 
No. 107, "Disclosures about Fair Value of Financial Instruments". The           
Corporation using available market information and appropriate valuation methods
has determined the fair value amounts. However, considerable judgment is        
necessarily required to interpret market data to develop the estimates of fair  
value. Accordingly, the estimates presented herein are not necessarily          
indicative of the amounts the Corporation could realize in a current market     
exchange. The use of different market assumptions and/or estimation             
methodologies may have a material effect on the fair value amounts.             

Fair values were determined using the following assumptions:                    

                                                        · Enlarge/Download Table

(Dollars is thousands)                                                                
                                                      December 31,                    
                                    --------------------------------------------------
                                      2003                       2002                 
                                    Carrying         Fair       Carrying        Fair  
                                     Amount         Value        Amount         Value 
                                     ------         -----        ------         ----- 
                                                                                      
ASSETS                                                                                
Cash and cash equivalents           $ 47,844      $ 47,844      $ 30,801      $ 30,801
Securities available for sale         91,570        91,570       149,837       149,837
Loans                                355,124       358,831       327,419       336,410
Accrued interest receivable            2,718         2,718         3,075         3,075
FHLB and FRB stock                     6,879         6,879         7,410         7,410

LIABILITIES                                                                           
Deposits without stated maturities   357,932       357,932       370,943       370,943
Time deposits                         48,448        49,212        58,187        59,291
Borrowings                            65,000        72,655        65,000        65,217
Accrued interest payable                 215           215           260           260

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CASH AND CASH EQUIVALENTS                                                       

For cash and cash equivalents, the carrying amount is a reasonable estimate of  
fair value.                                                                     

SECURITIES AVAILABLE FOR SALE                                                   

For securities available for sale, fair values are based on quoted market prices
or dealer quotes.                                                               

LOANS                                                                           

For certain homogeneous categories of loans, such as some residential mortgages,
consumer loans, commercial real estate loans, etc., fair value is estimated by  
discounting the future cash flows over the life to maturity using the current   
rates at which similar loans would be made to borrowers with similar credit     
ratings. For those loans tied to a prime rate index, fair values approximate    
carrying values. Both the carrying value and fair value of loans receivable are 
shown net of the allowance for loan losses.                                     

ACCRUED INTEREST RECEIVABLE AND PAYABLE                                         

The carrying values of accrued interest receivable and payable approximate their
fair values.                                                                    

FHLB STOCK AND FRB STOCK                                                        

The carrying values of the FHLB and FRB stock approximate fair value.           

DEMAND DEPOSITS AND TIME DEPOSITS                                               

The fair values of demand deposits, savings accounts and certain money market   
deposits are the amount payable on demand at the reporting date. The fair value 
of fixed-maturity certificates of deposit is estimated using the current rates  
for deposits of similar remaining maturities.                                   

BORROWINGS                                                                      

The fair value of borrowings is estimated using the current rates for borrowings
of similar remaining maturities.                                                

12. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK    

At December 31, 2003, 2002 and 2001 the Bank had outstanding loan commitments   
for loans that have either not been accepted by the borrower or not closed of   
approximately $10.3 million, $21.0 million, and $21.5 million, respectively.    
These include commitments for commercial business loans, residential mortgages  
and home equity loans.                                                          

Under loan agreements for transactions which had closed, the Bank had           
commitments to fund commercial lines of credit, of approximately $70.4 million, 
$53.5 million and $52.9 million at December 31, 2003, 2002 and 2001,            
respectively. The Bank had commitments to fund construction loans of            
approximately $5.9 million, $7.9 million and $12.8 million at December 31, 2003,
2002 and 2001, respectively. The Bank had commitments to fund home equity loans 
of approximately $4.6 million, $5.2 million and $6.7 million at December 31,    
2003, 2002 and 2001, respectively. As certain commitments to make loans and fund
lines of credit expire without being used, the amount does not necessarily      
represent future cash commitments.                                              

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The Bank leases four of its offices from unaffiliated entities for its          
headquarters in Southfield and three branch offices in Birmingham, Southfield,  
and Troy. Minimum rents under all non-cancelable leases are summarized as       
follows:                                                                        

                                                                · Download Table

                    Year Ended  
                    December 31,
                    ------------
                                
      2004          $ 1,097,003 
      2005            1,126,156 
      2006            1,155,430 
      2007            1,069,475 
      2008              995,507 
Thereafter            1,170,083 
                    ----------- 
                    $ 6,613,654 

Rental expense for the years ended December 31, 2003, 2002, and 2001 totaled    
$1,152,977, $1,000,584, and $957,839, respectively.                             

As of December 31, 2003, a contingent liability exists of approximately $0.3    
million through April 2004 relating to remaining officer severance arrangements.

The Bank is a defendant in lawsuits arising in the normal course of business. In
the opinion of management the results of these lawsuits will not have a         
significant adverse effect on the Bank's consolidated financial statements.     

COMMITMENTS                                                                     

Commitments to extend credit are agreements to lend to a customer as long as    
there is no violation of any condition established in the contract. Commitments 
generally have fixed expiration dates or other termination clauses and may      
require payment of a fee. The commitments for equity lines of credit may expire 
without being drawn upon. Therefore, the total commitment amounts do not        
necessarily represent future cash requirements. The amount of collateral        
obtained, if it is deemed necessary by the Company, is based on management's    
credit evaluation of the customer.                                              

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

Commercial and standby letters-of-credit are conditional commitments issued by  
the Company to guarantee the performance of a customer to a third party. Those  
letters-of-credit are primarily issued to support public and private borrowing  
arrangements. Essentially all letters of credit issued have expiration dates    
within one year. The credit risk involved in issuing letters-of-credit is       
essentially the same as that involved in extending loan facilities to customers.
The Company generally holds collateral supporting those commitments if deemed   
necessary.                                                                      

13. COMPUTATION OF PRIMARY AND FULLY DILUTED INCOME PER SHARE       

The following table sets forth the computation of basic and diluted income per  
share:                                                                          

Net income per share is computed based on the weighted-average number of shares 
outstanding, including the dilutive effect of stock options, as follows:        

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                                                        · Enlarge/Download Table

                                                                Year Ended              
                                                                December 31,            
                                                       2003         2002         2001   
                                                    ----------   ----------   ----------
                                                                                        
Numerator                                                                               
Net Income                                          $1,078,073   $3,815,447   $6,839,869

Numerator for basic and diluted earnings per share                                      
Income available for common shareholders            $1,078,073   $3,815,447   $6,839,869

Denominator                                                                             
Denominator for basic earnings per share -                                              
  Weighted average share outstanding                 3,700,353    3,632,268    3,569,608

Employee stock options                                  83,823      138,227      109,111
Denominator for diluted earnings per share -                                            
  Adjusted weighted average share outstanding        3,784,176    3,770,495    3,678,719

Basic earnings per share                            $     0.29   $     1.05   $     1.92
Diluted earnings per share                          $     0.28   $     1.01   $     1.86

14. RECENT DEVELOPMENT                                                          

As previously announced, Franklin has entered into a definitive agreement dated 
as of November 10, 2003, and as amended on February 3, 2004 (the "merger        
agreement") to be acquired by First Place Financial Corporation ("First Place"),
a unitary savings and loan holding company. First Place Bank, a federal savings 
association and wholly-owned subsidiary of First Place, is headquartered in     
Warren, Ohio. Under the agreement, the holding companies will merge with        
Franklin merging with and into First Place. After the holding companies merge,  
the subsidiaries will merge (the "subsidiary merger"), with First Place merging 
with Franklin Bank, and Franklin Bank changing its name to "First Place Bank"   
and its main office to Warren, Ohio. In connection with the merger, on February 
9, 2004, Franklin Bank filed an application with the Office of Thrift           
Supervision to convert from a national banking association to a federal savings 
association. Such conversion is proposed to occur at the same time as the merger
of the holding companies. First Place and Franklin may agree, due to business,  
tax or other considerations, to revise the structure of the subsidiary merger   
before the subsidiary merger is completed by amending the subsidiary merger     
agreement (e.g., by having Franklin Bank merge with and into First Place Bank). 
Completion of the merger depends on satisfying a number of conditions. There is 
no certainty as to whether or when the conditions to the merger will be         
satisfied, or waived where permissible or that the merger will be completed.    

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15. PARENT COMPANY ONLY FINANCIAL INFORMATION                                   

During the year ended December 31, 2002, Franklin Bancorp was formed. Following 
is condensed financial information as of and for the year ended December 31,    
2003 and 2002.                                                                  

                                                                · Download Table

                                     December 31,          
                            -------------------------------
                                2003               2002    
                                ----               ----    
                                                           
Condensed Balance Sheet                                    
Cash                        $    638,082       $        962
Receivable from subsidiary       115,504            181,629
Investment in subsidiary      44,983,696         45,459,104
                            ------------       ------------
Total assets                $ 45,737,282       $ 45,641,695
                            ============       ============

Shareholders' Equity        $ 45,737,282       $ 45,641,695
                            ============       ============

                                                                · Download Table

                                                      Year Ended December 31,     
                                                  ------------------------------- 
                                                      2003               2002     
                                                      ----               ----     
                                                                                  
Condensed Statement of Income                                                     
Dividend from subsidiary                          $  8,791,828       $    472,723 
Income on subordinated note                              1,167                 -- 
Operating expenses                                     313,568            180,855 
                                                  ------------       ------------ 
                                                     8,479,427            291,868 
Income tax benefit                                     106,613             61,491 
Undistributed earnings of subsidiary                (7,507,967)         3,462,088 
                                                  ------------       ------------ 
Net income                                        $  1,078,073       $  3,815,447 
                                                  ============       ============ 

Condensed Statement of Cash Flows                                                 
Operating activities                                                              
  Net income                                      $  1,078,073       $  3,815,447 
  Adjustments to reconcile net income to                                          
   cash provided by operating activities                                          
     Undistributed earnings of subsidiary            7,507,968         (3,462,088)
      (Increase)/decrease in due from affiliates        66,125           (181,629)
                                                  ------------       ------------ 
Cash provided by operations                          8,652,166            171,730 

Financing activities                                                              
Cash dividend paid on common stock                  (1,181,404)          (290,906)
Exercise of common stock options                     1,166,358            120,138 
Purchase of subordinated note                       (8,000,000)                -- 
                                                  ------------       ------------ 
Cash used in financing activities                   (8,015,046)          (170,768)
                                                  ------------       ------------ 

Increase/(Decrease) in cash                            637,120                962 
Beginning cash balance                                     962                  0 
                                                  ------------       ------------ 
Ending cash balance                               $    638,082       $        962 
                                                  ============       ============ 

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16. QUARTERLY SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA                   
(Dollar amounts in thousands, except per share data)                            

                                                        · Enlarge/Download Table

                                                                                        2003                            
                                                           -------------------------------------------------------------
                                                              First             Second          Third           Fourth  
                                                             Quarter           Quarter         Quarter          Quarter 
                                                             -------           -------         -------          ------- 
                                                                                                                        
Interest income                                            $     7,290       $    7,030      $    6,462      $     6,651
Interest expense                                                 1,683            1,508           1,448            1,407
  Net interest income                                            5,607            5,522           5,014            5,244
Provision for loan losses                                          626              626           1,026              625
  Net interest income after provision for loan losses            4,981            4,896           3,988            4,619
Non-interest income                                              1,540            1,302           1,154            1,418
Non-interest expense                                             7,632            5,160           4,690            5,042
  Income/(loss) before provision for federal income taxes       (1,111)           1,038             452              995
Provision/(benefit)  for federal income taxes                     (333)             311              25              293
  Net income/(loss)                                        $      (778)      $      727      $      427      $       702

Income per common share:                                                                                                
  Net income/(loss) per common share                                                                                    
    Basic                                                  $     (0.21)      $     0.20      $     0.12      $      0.19
    Diluted                                                      (0.21)            0.19            0.11             0.18
  Average common shares outstanding                                                                                     
    Basic                                                    3,666,688        3,685,136       3,709,083        3,718,870
    Diluted                                                  3,754,431        3,762,263       3,794,077        3,802,693

                                                        · Enlarge/Download Table

                                                                                    2002                             
                                                       ------------------------------------------------------------- 
                                                           First            Second          Third           Fourth   
                                                          Quarter          Quarter         Quarter          Quarter  
                                                          -------          -------         -------          -------  
                                                                                                                     
Interest income                                        $     8,627       $    8,525      $    8,425      $     7,980 
Interest expense                                             1,989            2,003           1,984            1,935 
  Net interest income                                        6,638            6,522           6,441            6,045 
Provision for loan losses                                      475              500             300            2,535 
  Net interest income after provision for loan losses        6,163            6,022           6,141            3,510 
Non-interest income                                          1,195            1,528           1,523            2,781 
Non-interest expense                                         4,573            4,827           5,490            7,754 
  Income before provision for federal income taxes           2,785            2,723           2,174           (1,463)
Provision for federal income taxes                             721              676             503           (1,297)
Net income before preferred stock dividends                  2,064            2,047           1,671             (166)
Preferred stock dividends of subsidiary                        450              450             450              450 
  Net income                                           $     1,614       $    1,597      $    1,221      $      (616)

Income per common share:                                                                                             
  Net income per common share                                                                                        
    Basic                                              $      0.45       $     0.44      $     0.34      $     (0.18)
    Diluted                                                   0.43             0.42            0.32            (0.16)
  Average common shares outstanding                                                                                  
    Basic                                                3,620,125        3,631,768       3,635,331        3,641,879 
    Diluted                                              3,755,540        3,779,187       3,774,348        3,772,285 

F-27

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EXHIBITS INDEX

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EXHIBIT                                                                           PAGE NO.
-------                                                                           --------
                                                                                          
10.11  Employment Agreement of David L. Shelp..................                         46
10.18  Amendment to Employment Agreement of Craig L. Johnson...                         50
21     Subsidiaries of Registrant..............................                         50
23.1   Consent of Grant Thornton LLP...........................                         51
24.1   Power of Attorney ...................................... Included on signature page
31.1   Certification of Chief Executive Officer ...............                         52
31.2   Certification of Chief Financial Officer................                         53
32.1   Certification Pursuant to Section 906 of the                                       
         Sarbanes-Oxley Act of 2002............................                         54

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Dates Referenced Herein and Documents Incorporated By Reference

		Referenced-On Page
This 10-K Filing	Date	First	Last	Other Filings

	1/1/01	34	66
	10/26/01	10
	12/31/01	23	69
	2/14/02	4
	3/14/02	44
	4/23/02	44
	7/30/02	11
	10/23/02	4	53	8-K12G3, 8-K12G3/A
	11/7/02	44		8-K12G3
	11/15/02	44		8-K12G3/A
	12/22/02	53
	12/31/02	23	71	10-K, 10-K/A
	1/1/03	12	39
	3/31/03	44		10-K, 10-Q
	4/14/03	16	40	3
	4/30/03	56		DEF 14A
	6/16/03	16	39	8-K
	6/17/03	38		DEF 14A
	6/30/03	1	56	10-Q
	8/14/03	44		10-Q
	11/10/03	4	70	8-K
	11/12/03	44		10-Q, 425, 8-K
For The Period Ended	12/31/03	1	71
	1/1/04	42	62
	1/23/04	47
	2/3/04	4	70
	2/9/04	4	70
	3/15/04	56		3
	3/22/04	1	41
Filed On / Filed As Of	3/30/04	45
	4/5/04	16		8-K
	5/1/07	12
	3/31/08	12
	1/1/10	12
	11/1/10	12

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Franklin Bancorp Inc Mi · 10-K · For 12/31/03

Filed On 3/30/04 4:38pm ET · SEC File 0-50078 · Accession Number 950124-4-1362

Annual Report · Form 10-KFiling Table of Contents

10-K · Annual Report for the Fiscal Year Ended 12/31/03Document Table of Contents

Dates Referenced Herein and Documents Incorporated By Reference

Annual Report · Form 10-K
Filing Table of Contents

10-K · Annual Report for the Fiscal Year Ended 12/31/03
Document Table of Contents