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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý   Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

¨   Transition Report Under Section 13 or 15(d) of The Exchange Act

For the transition period from                     to                    

Commission file number 0-24433

POINTE FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

21845 Powerline Road

Boca Raton, Florida 33433

(Address of principal executive offices)   (Zip Code)

(561) 368-6300

(Registrant's telephone number, including area code)

——————————————————————————————————

(Former name, former address and former fiscal year, if changed since last report)

——————————

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

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES   ¨     NO   ý

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date;

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

($ In Thousands)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Earnings

($ In thousands, except per share amounts)

See Accompanying Notes to Condensed Consolidated Financial Statements

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity

Nine Months Ended September 30, 2004 and 2003

($ In thousands)

See Accompanying Notes to Condensed Consolidated Financial Statements

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

($ In thousands)

(continued)

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows, Continued

($ In thousands)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

1.  General. In the opinion of the management of Pointe Financial Corporation, the accompanying condensed consolidated financial statements contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2004, the results of operations for the three- and nine-month periods ended September 30, 2004 and 2003 and cash flows for the nine-month periods ended September 30, 2004 and 2003. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004.

Pointe Financial Corporation (the "Holding Company") owns 100% of Pointe Bank (the "Bank"), a state-chartered commercial bank, and Pointe Financial Services, Inc. On February 12, 2002, the Bank incorporated an additional subsidiary, Will No-No, Inc., a Florida Corporation, which owns, maintains, and disposes of the Bank's foreclosed assets (collectively, the "Company"). The Bank provides a variety of community banking services to small and middle-market businesses and individuals through its ten banking offices located in Broward, Miami-Dade and Palm Beach counties, Florida. Pointe Financial Services, Inc. is an inactive subsidiary and Will No-No, Inc. had no activity during the nine months ended September 30, 2004.

2.  Loan Impairment and Loan Losses. The activity in the allowance for loan losses is as follows (in thousands):

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

(continued)

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

2.  Loan Impairment and Loan Losses, Continued. The average net investment in impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):

Non accrual and past due loans were as follows (in thousands):

3.  Earnings Per Share. Earnings per share ("EPS") of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS which is computed using the treasury stock method. The following table presents the calculations of the weighted-average number of shares for diluted EPS.

4.  Regulatory Capital. The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at September 30, 2004 of the regulatory capital requirements and the Bank's actual capital on a percentage basis:

(continued)

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

5.  Stock Award Plans. Certain key employees and directors of the Company have options to purchase shares of the Company's common stock under a nonqualified stock option plan adopted in 1994. In 1998, a new Incentive Compensation and Stock Award Plan ("1998 Plan") was adopted under which both qualified and nonqualified options and shares of restricted stock can be granted and awarded, as applicable, to employees and directors. The Company's Board of Directors in 2001 determined that all new options would be granted under the 1998 Plan. Directors options vest immediately and officers and employees vest over three and five years. A total of 400,000 options or shares can be granted to directors and employees of the Company under the 1998 Plan. As of September 30, 2004, 1,380 options or shares rema in available for grant. A summary of stock option transactions follows ($ in thousands, except per share amounts):

(continued)

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

5.  Stock Award Plans, Continued. The Company accounts for their stock option plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25. No stock option-based employee compensation cost is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure to stock-based employee compensation ($ in thousands, except per share amounts).

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

(continued)

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

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

6.  Subsequent Event. On October 27, 2004, the Company signed a definitive agreement with The South Financial Group, Inc. (“South Financial”) under which the Company will merge with and into South Financial, with South Financial surviving the merger. Under the terms of the merger agreement, South Financial will issue a fixed consideration of 2,554,022 shares of South Financial common stock and $24,493,075 in cash. Holders of Company common stock shall have the right to receive cash, South Financial common stock, or a mixture of cash and South Financial common stock.  Without giving effect to any elections, this equates to $9.50 cash and 0.9906 shares of South Financial common stock for each fully-diluted share of Company common stock. The transaction is subject to customary closing conditions, inclu ding receipt of regulatory approvals and the approval of the Company’s stockholders.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Hacker, Johnson & Smith PA, the Company's independent registered public accounting firm, have made a limited review of the financial data as of September 30, 2004, and for the three- and nine-month periods ended September 30, 2004 and 2003 presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board.

Their report furnished pursuant to Article 10 of Regulation S-X is included herein.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Pointe Financial Corporation

Boca Raton, Florida:

We have reviewed the accompanying interim condensed consolidated balance sheet of Pointe Financial Corporation and Subsidiaries (the "Company") as of September 30, 2004, the related interim condensed consolidated statements of earnings for the three- and nine- month periods ended September 30, 2004 and 2003, the related condensed consolidated statements of cash flows and changes in stockholders' equity for the nine-month periods ended September 30, 2004 and 2003. These interim financial statements are the responsibility of the Company's management.

We conducted our reviews in accordance with the standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with United States generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet as of December 31, 2003, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 13, 2004 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Hacker, Johnson & Smith PA

HACKER, JOHNSON & SMITH PA

Fort Lauderdale, Florida

October 29, 2004

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

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

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

Financial Condition

Pointe Financial Corporation’s consolidated total assets at September 30, 2004, were $428.9 million as compared to $348.7 million at December 31, 2003, an increase of $80.2 million, or 23.0% The Company’s loans net of reserves at September 30, 2004, were at $276.4 million compared to $253.4 million at December 31, 2003, an increase of $23.0 million, or 9.1%. Total deposits at September 30, 2004 were $315.6 million compared to $263.9 million at December 31, 2003, a $51.7 million increase, or 19.6%. The Company’s stockholders’ equity at September 30, 2004, increased to $36.9 million as compared to $34.9 million at December 31, 2003.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Results of Operations:

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

——————

(1)

Yield on securities is stated on a tax equivalent basis.

(2)

Includes interest-bearing deposits, Federal Home Loan Bank stock and Federal Reserve Bank stock.

(3)

Includes nonaccrual loans.

(4)

Includes advances from Federal Home Loan Bank and other borrowings which consist of investment repurchase agreements.

(5)

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

(6)

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

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

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

———————

(1)

Yield on securities is stated on a tax equivalent basis.

(2)

Includes interest-bearing deposits, Federal Home Loan Bank stock and Federal Reserve Bank stock.

(3)

Includes nonaccrual loans.

(4)

Includes advances from Federal Home Loan Bank and other borrowings which consist of investment repurchase agreements.

(5)

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

(6)

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

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the Three Months Ended September 30, 2004 and 2003

General. Net earnings for the three months ended September 30, 2004 were $756,000 or $.33 basic and $.32 diluted earnings per share compared to net earnings of $713,000 or $.32 basic and $.31 diluted earnings per share for the three months ended September 30, 2003. The increase in the Company’s third quarter net earnings results primarily from an increase in net interest income. Average interest earning assets during the quarter increased to $366.0 million, from $313.3 million for the same period in 2003.  The average balance of interest bearing liabilities also increased to $261.6 million from $234.5 million for the same period last year.

Interest Income And Expense. Interest income increased by $637,000, or 13.8%, to $5.3 million for the three months ended September 30, 2004 from $4.6 million for same period in 2003. Interest on loans increased by $360,000 or 8.9% to $4.4 million for the three months ended September 30, 2004 from $4.0 million for the same period in 2003. The increase is the result of a $33.7 million or 13.9% increase in average loan volumes to $276.8 million from $243.1 million at September 30, 2003 partially offset by a decline in the weighted-average yield to 6.37% for the three months ended September 30, 2004 from 6.66% for the same period 2003. Interest on securities increased $260,000, or 48.3% to $798,000 from $538,000 for the same period in 2003. The increase is a result of a $17.7 million, or 28.5% inc rease in average securities volume to $79.7 million from $62.1 million for the period ending September 30, 2003.  

Interest expense on deposits decreased $27,000 or 3.7% to $712,000 for the three months ended September 30, 2004 from $739,000 for the three months ended September 30, 2003. The weighted average yield on interest bearing deposits decreased to 1.40% for the three months ending September 30, 2004 from 1.57% for the same period in 2003.   

Interest expense on borrowings increased $48,000, or 10.7% to $495,000 for the three months ending September 30, 2004 from $447,000 for the same period in 2003.  The increase in the expense is a result of an increased volume of $12.0 million in average borrowing offset in part by a decrease on the weighted average rate to 3.38% at September 30, 2004 from the 3.84% for the same period in 2003.

Provision For Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company's market areas, and other factors related to the collectibility of the Company's loan portfolio. The Company did not record any provision for the three months ended September 30, 2004. Management believes the balance in the allowance for loan losses of $3.3 million at September 30, 2004 is adequate.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the Three Months Ended September 30, 2004 and 2003, continued

Non-Interest Income. Non-interest income decreased $69,000 for the three months ended September 30, 2004 compared to the same period in 2003. The decline is primarily due to decreased net realized gains on the sale of securities of $76,000, decreased loan correspondent fees of $72,000 offset by increased service charges and fees on deposit accounts of $45,000 and other noninterest income of $34,000.

Non-Interest Expenses. Non-interest expenses increased $296,000 for the three months ended September 30, 2004 compared to the same period in 2003. Professional fees increased $221,000, or 381.0% over the same period for 2003. The increase in professional fees is primarily the result of the Company’s need to address issues related to shareholder activism and efforts to explore strategic alternatives.

Income Taxes. Income taxes for the three months ended September 30, 2004 were $360,000 (an effective rate of 32.3%) compared to $352,000 (an effective rate of 33.1%) for the comparable 2003 period.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the Nine Months Ended September 30, 2004 and 2003

General. Net earnings for the nine months ended September 30, 2004 were $2.4 million or $1.07 basic and $1.02 diluted earnings per share compared to net earnings of $1.8 million or $.79 basic and $.77 diluted earnings per share for the nine months ended September 30, 2003. The increase in the Company's net earnings was primarily due to an increase in the net interest income, partially offset by increases in the loan loss provision and non-interest expenses.

Interest Income and Expense. Interest income increased by $1.3 million or 9.5%, from $13.7 million for the nine months ended September 30, 2003 to $15.0 million for the nine months ended September 30, 2004. Interest income on loans increased $1.0 million or 9.2% due to a $38.1 million increase in average loan volumes from $228.3 million in 2003 to $266.5 million in 2004 partially offset by a decline in the weighted-average yield from 6.76% in 2003 to 6.33% in 2004. Interest income on securities increased $301,000, or 15.5% due to a $7.0 million increase in average securities volume from $67.8 million to $74.7 million in 2004. The increased securities income is also a result of an increase in the weighted average yield to 4.30% earned in 2004 from 4.10% in 2003.

Interest expense on deposits decreased to $2.0 million for the nine months ended September 30, 2004 from $2.5 million for the nine months ended September 30, 2003. Interest expense on deposits decreased due to a decrease in the average rate paid on deposits from 1.77% in 2003 to 1.35% in 2004, as the average deposit volumes increased to $198.8 million from $187.9 million during 2003.

Interest expense on borrowings decreased $17,000 to $1.384 million for the nine months ended September 30, 2004 from $1.401 million for the nine months ended September 30, 2003. Interest expense on borrowings decreased due to a decrease in the weighted-average rate paid for the nine months to 3.43% compared to 4.05% for the same period in 2003, as the average borrowing volumes increased to $53.8 million from $46.1 million in 2003.

Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company's market areas, and other factors related to the collectibility of the Company's loan portfolio. The Company recorded a provision of $215,000 for the nine months ended September 30, 2004, compared to a credit of $100,000 for the same period in 2003. Management believes the balance in the allowance for loan losses of $3.3 million at September 30, 2004 is adequate.

Non-interest Income. Non-interest income increased $96,000 or 3.9% due to the sale of the Boca Greens branch during the nine months ended September 30, 2004 which resulted in a gain of $320,000. In addition, service charges and fees on deposit accounts increased $126,000 offset by a decrease in realized gains on the sale of securities of $270,000 and a decrease in loan correspondent fees of $149,000.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the Nine Months Ended September 30, 2004 and 2003, continued

Non-interest Expenses. Non-interest expenses increased $588,000 for the nine months ended September 30, 2004 compared to the same period in 2003, due to increases in salaries and employee benefits of $407,000 which relate to the Company's expansion.  During the nine months of operation, professional fees increased $288,000 over the same period in 2003, as a result of the Company’s need to address issues related to shareholder activism and efforts to explore strategic alternatives.

Income Taxes. Income taxes for the nine months ended September 30, 2004 was $1.1 million (an effective rate of 31.8%) compared to income taxes of $808,000 (an effective rate of 31.6%) for the comparable 2003 period.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liquidity and Capital Resources

The Company's primary sources of cash during the nine months ended September 30, 2004 was from net deposit inflows of $51.7 million and $45.9 million from maturities, sales and exercised call options by issuers of government securities that were held in the Company's available for sale portfolio. Cash was used primarily for net loan originations of $23.1 million and for the purchase of securities available for sale of $74.3 million. At September 30, 2004, the Company had outstanding commitments to originate loans of $23.0 million and time deposits of $53.6 million that mature in one year or less. It is expected that these requirements will be funded from the sources described above. At September 30, 2004, the Bank exceeded its regulatory liquidity requirements.

The following table shows selected rates for the periods ended or at the dates indicated:

—————

(1)

Annualized for the nine months ended September 30, 2004 and 2003.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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

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

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

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

A summary of the amounts of the Company's financial instruments, with off-balance sheet risk at September 30, 2004, follows (in thousands):

Management believes that the Company has adequate resources to fund all of its commitments and that substantially all its existing commitments will be funded in the next twelve months.

Management believes the Bank was in compliance with all minimum capital requirements which it was subject to at September 30, 2004. See note 4 to the condensed consolidated financial statements.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from the interest-rate risk inherent in its lending and deposit taking activities. The Company has little or no risk related to trading accounts, commodities or foreign exchange.

Management actively monitors and manages its interest rate risk exposure. The primary objective in managing interest-rate risk is to limit, within established guidelines, the adverse impact of changes in interest rates on the Company's net interest income and capital, and is effected by adjusting the Company's asset-liability structure to obtain the maximum yield-cost spread on that structure. Management relies primarily on its asset-liability structure to control interest rate risk. However, a sudden and substantial increase in interest rates could adversely impact the Company's earnings, to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. There has been no significant change in the Company's market risk exposure since December 31, 2003.

Item 4.  Controls and Procedures

The Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15e and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2004. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.

There were no changes made in the Company's internal controls over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

PART II.  OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibits are filed as part of this report.

2.1

Agreement and Plan of Merger, dated as of October 27, 2004, by and between The South Financial Group, Inc. and Pointe Financial Corporation (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 29, 2004 and incorporated by reference herein).

3.1

Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant's Form SB-2 Registration Statement, File No. 333-49835, as initially filed with the Securities and Exchange Commission on April 9, 1998 (the “Registration Statement”).

3.2

Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on June 28, 2004.).

4.1

Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registration Statement).

31.1

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

31.2

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

32.1

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

32.2

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

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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

SIGNATURES

In accordance with 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.

25

EXHIBIT INDEX

2.1

Agreement and Plan of Merger, dated as of October 27, 2004, by and between The South Financial Group, Inc. and Pointe Financial Corporation (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 29, 2004 and incorporated by reference herein).

3.1

Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registration Statement).

3.2

Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 28, 2004).

4.1

Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registration Statement).

31.1

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

31.2

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

32.1

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

32.2

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