---

---

UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549_________________

FORM 10-K

(Mark One)


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

# For the fiscal year
ended December 31, 2004

OR

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

# Commission File Number
0-24433

POINTE FINANCIAL
CORPORATION(Exact name of
Registrant as specified in its charter)

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

21845 Powerline Road,
Boca Raton, Florida 33433(Address of principal
executive offices)(Zip Code)

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

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

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

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

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

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes o No x

The
aggregate market value of the Common Stock held by non-affiliates of the Registrant, based
upon the average bid and asked prices as quoted on the NASDAQ Stock Market on June 30,
2004, the last business day of the most recently completed second fiscal quarter, was
$47,516,229*.

The
Registrant had 2,293,973 shares of Common Stock outstanding on March 16, 2005.

# DOCUMENTS INCORPORATED
BY REFERENCE

The
Registrants Definitive Proxy Statement for its 2005 Annual Meeting of Stockholders
or an amendment to this Form 10-K will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by this
Form 10-K pursuant to Rule G(2) and Rule G(3) of the General Instructions for Form
10-K. Information from such Definitive Proxy Statement or amendment will be incorporated
by reference into Part II, Item 5 and Part III, Items 10, 11, 12 and 13 hereof.

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

---

---

INDEX

|PART I     |                                                                                                                |   
|---------- | -------------------------------------------------------------------------------------------------------------- | --
|           |                                                                                                                |   
|Item 1.    | Description of Business                                                                                        |   
|           | Introduction                                                                                                   | 1 
|           | Proposed
Merger with The South Financial
  Group, Inc                                                          | 2 
|           | Business                                                                                                       | 2 
|           | Investment Banking Joint Venture                                                                               | 3 
|           | Market
Area and Competition                                                                                    | 3 
|           | Employees                                                                                                      | 3 
|           | Forward-Looking Statements                                                                                     | 3 
|           |                                                                                                                |   
|Item 2.    | Properties                                                                                                     | 4 
|           |                                                                                                                |   
|Item 3.    | Legal Proceedings                                                                                              | 5 
|           |                                                                                                                |   
|Item 4.    | Submission of Matters to a Vote of
  Security Holders                                                          | 5 
|           |                                                                                                                |   
|PART II    |                                                                                                                |   
|           |                                                                                                                |   
|Item 5.    | Market For Registrants Common
  Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 6 
|           |                                                                                                                |   
|Item 6.    | Selected Financial Data                                                                                        | 7 
|           |                                                                                                                |   
|Item 7.    | Managements Discussion and
  Analysis of Financial Condition and Results of Operations                        | 9 
|           |                                                                                                                |   
|Item 7A.   | Quantitative and Qualitative
  Disclosures About Market Risk                                                   | 26
|           |                                                                                                                |   
|Item 8.    | Financial Statements and Supplementary
  Data (See index page 25)                                              | 26
|           |                                                                                                                |   
|Item 9.    | Changes in and Disagreements with
  Accountants on Accounting and Financial Disclosure                         | 27
|           |                                                                                                                |   
|Item 9A.   | Controls and Procedures                                                                                        | 27
|           |                                                                                                                |   
|Item 9B.   | Other Information                                                                                              | 27
|           |                                                                                                                |   
|PART III   |                                                                                                               
|           |                                                                                                                |   
|Item 10.   | Directors and Executive Officers of
  the Registrant                                                           | 28
|           |                                                                                                                |   
|Item 11.   | Executive Compensation                                                                                         | 29
|           |                                                                                                                |   
|Item 12.   | Security Ownership of Certain
  Beneficial Owners and Management and Related Stockholder Matters               | 29
|           |                                                                                                                |   
|Item 13.   | Certain Relationships and Related
  Transactions                                                               | 30
|           |                                                                                                                |   
|Item 14.   | Principal Accounting Fees and
  Services                                                                       | 30
|           |                                                                                                                |   
|PART IV    |                                                                                                               
|           |                                                                                                                |   
|Item 15.   | Exhibits, Financial Statement
  Schedules                                                                      | 30
|           |                                                                                                                |   
|           |                                                                                                                |   
|SIGNATURES | 33                                                                                                            



---

# PART I

# Item 1.     Description of
Business

# Introduction

Pointe
Financial Corporation, a Florida corporation, (Pointe or the
Company) is a bank holding company headquartered in Boca Raton. Pointes
principal business consists of operating its commercial bank subsidiary, Pointe Bank, a
Florida state chartered commercial bank (the Bank). At December 31, 2004,
the Company had total assets of $413.2 million and stockholders equity of $37.4 million.

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

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

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

The
BHCA has been substantially amended by the Gramm-Leach-Bliley Financial Modernization Act
of 1999 (the Modernization Act). The portion of the Modernization Act
affecting the powers of the Company became effective March 13, 2000. The
Modernization Act, among other things:

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

|(ii) |  | allows insurers and other financial services companies to acquire banks or bank
                    holding companies; and
|---- |  | --------------------------------------------------------------------------------------------------------------------------

|(iii) |  | establishes the overall regulatory structure applicable to bank holding
                    companies that also engage in insurance and securities operations.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

---

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

# Proposed Merger with The
South Financial Group, Inc.

On
October 27, 2004, the Company signed a definitive agreement with The South Financial
Group, Inc. (South Financial) under which the Company agreed to merge with and
into South Financial, with South Financial surviving the merger. Under the terms of the
Merger Agreement, which has been unanimously approved by the Boards of Directors of both
South Financial and Pointe, 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 Pointe common
stock shall have the right to elect to receive cash, South Financial common stock, or a
mixture of cash and South Financial common stock. On February 11, 2005 the Company
announced that its shareholders approved the Agreement and Plan of Merger, between Pointe
and South Financial at its special meeting of the shareholders. The merger will close upon
the satisfaction of customary closing conditions, including the receipt of regulatory
approvals.

# Business

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

On
June 12, 1998, the Company completed an initial public offering issuing 869,565 shares of
its common stock. The proceeds totaled $12.1 million of which $6.0 million was invested in
the Bank; the remainder was retained by the Company for general corporate purposes.
Following its business plan to build its network of banking center locations into
communities that are consistent with the Banks focus on small businesses,
professionals and individuals, in 1999 the Bank opened two branches in Palm Beach County.
In 2001, the Bank opened one de novo branch in Broward County and acquired four branches
in Miami-Dade County from Republic Bancshares, Inc. of St. Petersburg, Florida. During the
year ending December 31, 2002, the Company entered into a lease agreement for a de
novo branch office in Miami-Dade Countys South Beach. The office was opened for
business during the last quarter of 2003.

During
2003, the Company closed two unprofitable banking offices located in Doral and West Boca
Raton. The Doral office was a lease obligation acquired in the Republic Bancshares
acquisition. The customers accounts of the Doral office were transferred to the
Banks Airpark facility during the second quarter of 2003. The customers
accounts of the West Boca Raton office located on State Road 7 were transferred to the
Banks main office. The vacated West Boca Raton office was sold during 2004. The
Company does not believe that the closure of these offices has had a negative impact on
its business.

The
Bank opened a new office in Downtown Boca Raton during the third quarter of 2004. The
office is located in the center of the Boca Raton business district is expected to expand
the business opportunities for the Bank.

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

2

---

# Investment Banking Joint
Venture

In
July, 2000, the Company formed Pointe Capital, LLC (Pointe Capital) an
investment banking joint venture with First Integrated Capital. Pointe Capital offered
investment banking services to customers overlooked by larger investment banking firms. In
2001, Pointe Capital became a broker-dealer registered with the Securities and Exchange
Commission and a member of the National Association of Securities Dealers. During 2003,
Pointe Capital discontinued operating activities and in 2004, the net assets of Pointe
Capital were liquidated.

# Market Area and
Competition

The
Companys market area is primarily Palm Beach, Broward and Miami-Dade counties. The
financial services industry in which the Company operates is highly competitive. The Bank
competes with national and state banks, savings and loan associations and credit unions
for loans and deposits. In addition, the Bank competes with other providers of financial
services, from both inside and outside Florida, including finance companies, institutional
buyers of commercial paper, money market funds, brokerage firms, investment companies,
insurance companies, insurance agencies and governmental agencies. These competitors are
actively engaged in marketing various types of loans, commercial paper, short-term
obligations, investments, insurance and other products and services. The Company
anticipates that the intensity of competition among financial institutions will continue
to increase.

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

# Employees

As
of December 31, 2004, the Company had 124 employees of which 121 were full-time and 3
part-time. The Companys employees are not represented by a collective bargaining
group, and the Company considers its relations with its employees to be good. The Company
provides employees with benefits customary in the banking industry, which include major
medical insurance, group term life insurance, dental insurance, long-term disability
insurance, a 401(k) plan, and vacation and sick leave.

# Forward-Looking
Statements

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

3

---

# Item 2.     Properties

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

|Location                                                                       |  | Date
  Acquired/
  Leased
  December 31, 2004 |  | Lease Expiration
  and
  Renewal Terms |  | Book
 Value of Land
  and Building at
  December 31, 2004 |       | Book Value
  Of Leasehold
  Improvements
  and Furniture
  Fixtures and
  Equipment at
  December 31, 2004 |  | Square
  Footage
|------------------------------------------------------------------------------ |  | --------------------------------------------- |  | -------------------------------------- |  | --------------------------------------------------------- | ----- | ---------------------------------------------------------------------------------------------------------- |  | ----------------
|                                                                               |  |                                               |  |                                        |  | (Dollars in thousands)                                    |       | (Dollars in thousands)                                                                                     |  |                 
|Main Office (1)                                                                |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|21845 Powerline Road                                                           |  |                                               |  | 08/31/2012                             |  |                                                           |       |                                                                                                            |  |                 
|Boca Raton, Florida 33433                                                      |  | 2002                                          |  | 2 - 5 year period                      |  | $                                                         |      |                                                                                                            |  | $               
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|Pembroke Pines (1)                                                             |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|One S.W. 129th Avenue                                                          |  |                                               |  | 02/28/2006                             |  |                                                           |       |                                                                                                            |  |                 
|Pembroke Pines, Florida 33027                                                  |  | 1994                                          |  |                                       |  |                                                           |      |                                                                                                            |  |                 
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|Aventura (1)                                                                   |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|20495 Biscayne Boulevard                                                       |  |                                               |  | 09/30/2008                             |  |                                                           |       |                                                                                                            |  |                 
|Aventura, Florida 33180                                                        |  | 2001                                          |  | 3-10 year period                       |  |                                                           |      |                                                                                                            |  |                 
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|Ocean Ridge (1)                                                                |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|5112 N. Ocean Boulevard                                                        |  |                                               |  | 05/31/2009                             |  |                                                           |       |                                                                                                            |  |                 
|Ocean Ridge, Florida 33435                                                     |  | 1999                                          |  |                                       |  |                                                           |      |                                                                                                            |  |                 
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|Coral Springs                                                                  |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|4697 North State Road 7                                                        |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|Coral Springs, Florida 33067                                                   |  | 1999                                          |  |                                       |  |                                                           | 1,229 |                                                                                                            |  |                 
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|Coral Gables (1)                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|2222 Ponce de Leon Boulevard                                                   |  |                                               |  | 05/07/2008                             |  |                                                           |       |                                                                                                            |  |                 
|Coral Gables, Florida  33134                                                   |  | 2001                                          |  | 2-5 year period                        |  |                                                           |      |                                                                                                            |  |                 
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|South Miami (1)                                                                |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|8211 South Dixie Highway                                                       |  |                                               |  | 02/28/2006                             |  |                                                           |       |                                                                                                            |  |                 
|Miami, Florida  33143                                                          |  | 2001                                          |  | 1-1 year period                        |  |                                                           |      |                                                                                                            |  |                 
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|Airpark (1)                                                                    |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|720 N.W. 57th Avenue                                                           |  |                                               |  | 10/29/2009                             |  |                                                           |       |                                                                                                            |  |                 
|Miami, Florida  33126                                                          |  | 2001                                          |  | 1-10 year period                       |  |                                                           |      |                                                                                                            |  |                 
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|South Beach (1)                                                                |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|500 South Pointe Drive                                                         |  |                                               |  | 12/31/2012                             |  |                                                           |       |                                                                                                            |  |                 
|Miami Beach, Florida  33139                                                    |  | 2002                                          |  | 1-5 year period                        |  |                                                           |      |                                                                                                            |  |                 
|                                                                               |  |                                               |  |                                        |  |                                                           |       |                                                                                                            |  |                 
|Downtown Boca Raton (1)
  165 East Boca Raton Road
  Boca Raton, Florida 33432 |  | 2003                                          |  | 2/28/2009
  5  1 year periods         |  |                                                           |       |                                                                                                            |  |                 



_______________

(1)     Leased
branch office.


The
Bank owns and operates personal computers,
 teller terminals and associated  equipment.  At December 31,  2004, such equipment had a
net book value of $273,000, included above.

4

---

Item 3.     Legal Proceedings

The Company
is not subject to any material pending legal  proceedings,  other than ordinary routine
litigation  incidental to the business,  to which the Company or any of its subsidiaries
is a party or of which any of their property is the subject.

Item 4.     Submission of Matters to a Vote of Security Holders

No matters
were submitted to a vote of the stockholders  during the fourth quarter of the fiscal
year ended  December 31,  2004, through the solicitation of proxies or otherwise.

[Balance of page
intentionally left blank]

5

---

PART II

Item 5.        Market For Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

Market
Price and Dividends

(a)        The common stock of the Company,  par value $.01 per share,  has been traded on
the Nasdaq  National  Market System under the symbol "PNTE" since June 12, 1998. The
following table sets forth the high and low bids for the common stock for the periods
indicated as reported by Nasdaq.



|                           | Year Ended
|-------------------------- | ----------
|                           |           
|
|                           |           
|
|                          
|Quarter ended March 31     |           
|Quarter ended June 30      |           
|Quarter ended September 30 |           
|Quarter ended December 31  |           

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



|                              |                         
|----------------------------- | ------------------------
|Advest, Inc.                  | THE BRUT ECN, LLC       
|Keefe, Bruyette & Woods, Inc. | Ryan Beck & Co., Inc.   
|Archipelago Exchange (The)    | Fig Partners, LLC       
|National Stock Exchange       | UBS Capital Markets L.P.
|Knight Equity Markets, L.P.   | McDonnell Budd & Downes 

As
of December 31, 2004, there were 2,287,023 common shares issued and outstanding held
by approximately 127 shareholders of record and 358 beneficial shareholders, not including
persons or entities where stock is held in nominee or street name through
various brokerage firms or banks.

The
following table sets forth cash dividends paid during the years ended 2004 and 2003.

|2004         |  | 2003
|------------ |  | ----
|
|
|March 31     |  |     
|June 30      |  |     
|September 30 |  |     
|December 31  |  |     

Future
payments of dividends are subject to determination and declaration by the Board of
Directors. In addition, the Merger Agreement restricts the ability of the Company to pay
any dividend or make any distribution on its capital stock, other than the Companys
normal quarterly dividend not in excess of $0.09 per share, or an interim dividend if the
effective time of the merger would otherwise cause the Companys Shareholders not to
receive a quarterly dividend. See Note 17 to the Audited Consolidated Financial Statements
for discussion of restrictions on dividend payments.

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

6

---

# Item 6.     Selected
Financial Data

# SELECTED FINANCIAL DATA(Dollars in thousands,
except per share amounts)

|                                           | At December 31,
|------------------------------------------ | ---------------
|
|                                          
|Cash and cash equivalents                  |                
|Securities                                 |                
|Loans                                      |                
|Loans held for sale                        |                
|All other assets                           |                
|                                           |                
|                                          
|Total assets                               |                
|                                           |                
|                                          
|Deposits                                   |                
|Other borrowings                           |                
|All other liabilities                      |                
|Stockholders equity                       |                
|                                           |                
|                                          
|Total liabilities and stockholders equity |                
|                                           |                

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

7

---

# SELECTED FINANCIAL
DATA, Continued(Dollars
in thousands, except per share amounts)

|                                            | At or For TheYear Ended December 31, | 
|------------------------------------------- | ------------------------------------ | 
|                                           
|
|For the Period:                             |                                      | 
|Return on average assets                    |                                      | 
|Return on average equity                    |                                      | 
|Average equity to average assets            |                                      | 
|Interest rate spread during the period (3)  |                                      | 
|Net interest margin                         |                                      | 
|Noninterest income to average assets        |                                      | 
|Noninterest expense to average assets       |                                      | 
|Efficiency ratio                            |                                      | 
|                                           
|At the End of the Period:                   |                                      | 
|Ratio of average interest-earning assets to |                                      | 
|average interest-bearing liabilities        |                                      | 
|Nonperforming loans and foreclosed real     |                                      | 
|estate as a percentage of total assets      |                                      | 
|Allowance for loan losses as a percentage   |                                      | 
|of total loans                              |                                      | 
|Allowance for loan losses as a percentage   |                                      | 
|of nonperforming loans                      |                                      | 
|Total number of offices                     |                                      | 
|Full-service banking offices                |                                      | 
|Total shares outstanding at                 |                                      | 
|end of period                               |                                      | 
|Book value per share                        |                                      | 
|Tangible Book Value Per Share (4)           |                                      | 

________________

|(1) |  | In
2000, the Company sold $5.0 million of a FHLB advance  recording a pre-tax gain of
$125,000.  The gain is reported as an extraordinary  item; gain on extinguishment of
      debt, net of tax of $47,000.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(3) |  | Difference
between weighted-average yield on all interest-earning assets and weighted-average rate
on all interest-bearing liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Intangible
asset is a result of acquired branches in April 2001.
|--- |  | ----------------------------------------------------------------

8

---

Item 7.  Managements Discussion and Analysis of
Financial Condition and Results of Operations

Critical Accounting
Policies

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

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

General

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

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

On
October 27, 2004, the Company signed a definitive agreement with The South Financial
Group, Inc. (South Financial) under which the Company agreed to merge with and
into South Financial, with South Financial surviving the merger. Under the terms of the
Merger Agreement, which has been unanimously approved by the Boards of Directors of both
South Financial and Pointe, 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 Pointe common
stock shall have the right to elect to receive cash, South Financial common stock, or a
mixture of cash and South Financial common stock. On February 11, 2005 the Company
announced that its shareholders approved the Agreement and Plan of Merger, between Pointe
and South Financial at its special meeting of the shareholders. The merger will close upon
the satisfaction of customary closing conditions, including the receipt of regulatory
approvals.

At
December 31, 2004, the Company had total consolidated assets of $413.2 million, an
increase of $64.5 million or 18.5% over total assets of $348.7 million at
December 31, 2003. Total loans outstanding were $284.1 million at December 31, 2004
compared to $253.4 million at the end of 2003, $30.7 million or a 12.1% increase. The
Company realized $144.3 million in loan originations to the loan portfolio during
2004 compared to $137.9 million during 2003. During 2004, the Company received principal
reductions in the loan portfolio exceeding $113.6 million compared to the $101.9 million
during 2003. The Banks deposits increased to $311.0 million as of December 31,
2004 from $263.9 million as of December 31, 2003, a 17.9% increase. At December 31,
2004, the Companys noninterest bearing demand accounts were $91.6 million,
increasing by more than $20.3 million or 28.5%. At December 31, 2004, the
Companys time deposits were $76.5 million, a slight increase from December 31, 2003,
$75.5 million. The Companys borrowings, FHLB Advances and Repurchase Sweep Accounts
ended December 31, 2004 at $61.6 million, compared to $45.9 million at the end of 2003,
increasing by $15.7 million or 34.2%. The Companys net
earnings for the year ended
December 31, 2004 of $3.0 million compared to $2.5 million, an increase of $556,000 or
22.3% over the year ended December 31, 2003. Net interest income was $15.8 million in 2004
compared to $13.4 million during 2003, a $2.4 million increase or 18.0%. The
Companys net interest income to average interest earning assets ending
December 31, 2004 increased to 4.37%, compared to 4.25% in 2003. The net interest
spread (the difference between the weighted-average yield on interest earning assets less
the weighted-average cost paid on interest-bearing liabilities) ending December 31,
2004 increased to 3.92%, compared to 3.78% in 2003. The improvements of net interest
income, margin and spread result from the continuing shifting of deposit balances from
time deposits to less costly interest bearing transaction accounts and noninterest-bearing
demand deposits.

9

---

Credit Risk

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

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

|                                               | At December
31,
|---------------------------------------------- | ---------------
|                                               |                
|                                               |                
|                                              
|Nonaccrual loans:                              |                
|Residential real estate                        |                
|Commercial real estate                         |                
|Commercial                                     |                
|Consumer and other                             |                
|                                               |                
|                                               |                
|Total nonaccrual loans                         |                
|                                               |                
|                                               |                
|Total nonperforming assets                     |                
|                                               |                
|                                               |                
|Total nonperforming assets to total
loans      |                
|                                               |                
|                                               |                
|Foreclosed real estate-                        |                
|Real estate acquired by foreclosure or deed    |                
|in lieu of foreclosure                         |                
|                                               |                
|                                               |                
|Total nonperforming loans and foreclosed       |                
|real estate                                    |                
|                                               |                
|                                               |                
|Total nonperforming and foreclosed real estate |                
|to total assets                                |                
|                                               |                

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

|                                                |  | Year Ended December 31,  |    
|----------------------------------------------- |  | ------------------------ | ---
|                                                |  | 2004                     |    
|                                                |  | (Dollars
  in thousands) |    
|                                               
|                                                |  |                          |    
|Interest income that would have been recognized |  | $                        | -  
|Interest income recognized                      |  |                          | 14 
|Interest income foregone                        |  | $                        | (14
|                                                |  |                          |    

10

---

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

|                                                |  | Year Ended December 31, |         
|----------------------------------------------- |  | ----------------------- | --------
|                                                |  |                         |         
|                                                |  | 2004                    |         
|                                                |  |                         |         
|                                                |  | (Dollars in thousands)  |         
|                                               
|                                                |  |                         |         
|Average loans outstanding                       |  | $                       | 268,984 
|                                                |  |                         |         
|                                               
|                                                |  |                         |         
|                                               
|Allowance at beginning of
  year                |  |                         | 3,441   
|                                                |  |                         |         
|                                                |  |                         |         
|                                               
|Charge-offs:                                    |  |                         |         
|Residential
  real estate                       |  |                         | -       
|Commercial                                      |  |                         | (394    
|Consumer
  and other                            |  |                         | (66     
|                                                |  |                         |         
|                                                |  |                         |         
|                                               
|Total
  loans charged-off                       |  |                         | (460    
|                                                |  |                         |         
|                                                |  |                         |         
|Recoveries                                      |  |                         | 154     
|                                                |  |                         |         
|                                                |  |                         |         
|                                               
|Net (charge-offs)
  recoveries                  |  |                         | (306    
|                                                |  |                         |         
|                                                |  |                         |         
|                                               
|Provision (credit) for loan
  losses            |  |                         | 215     
|                                               
|                                                |  |                         |         
|Allowance on loans received
  in acquisition of |  |                         |         
|branches                                        |  |                         | -       
|                                                |  |                         |         
|                                                |  |                         |         
|                                               
|Allowance at end of year                        |  | $                       | 3,350   
|                                                |  |                         |         
|                                               
|                                                |  |                         |         
|Net charge-offs (reserves)                      |  |                         | .11     
|                                                |  |                         |         
|                                               
|                                                |  |                         |         
|Allowance as a percent of
  total loans         |  |                         | 1.17    
|                                                |  |                         |         
|                                                |  |                         |         
|                                               
|Allowance as a percentage
  of                  |  |                         |         
|nonperforming loans                             |  |                         | 2,863.25
|                                                |  |                         |         
|                                                |  |                         |         
|                                               
|Total loans at end of year                      |  |                         | 285,300 
|                                                |  |                         |         

The Companys
non-performing loans were $117,000 as of December 31, 2004, compared to
$729,000 at the end of 2003. The ratio of nonperforming loans to total loans
outstanding at .04% and nonperforming loans to total assets at .03% are
considered to be low in the industry.
The allowance at December 31, 2004 was $3.4 million, which represents
1.17% of total loans outstanding and 2,863.25% of nonperforming loans. At
December 31, 2003, the allowance was also $3.4 million, or 1.35%
outstanding and 472.02% of nonperforming loans. The Company recorded a
provision for loan losses of $215,000 for the year ended December 31, 2004
compared to a credit to the provision of $100,000 for the year ending December
31, 2003. During the year ending December 31, 2004, the Company realized
continued recoveries from commercial and commercial real estate loans
charged-off in previous reporting periods. The Company has historically had
strong asset quality as evidenced by the fact that the percentage of net
charge-offs to average loans outstanding over the last five years was .13%.
Management believes that the allowance for loan losses of $3.4 million was
adequate at December 31, 2004.

11

---

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

|                   | At December
31,
|------------------ | ---------------
|                   |                
|                   |                
|                   |                
|                   |                
|Commercial loans   |                
|Commercial real    |                
|estate loans       |                
|Residential real   |                
|estate loans       |                
|Consumer and other |                
|Loans              |                
|                   |                
|Total allowance    |                
|for loan losses    |                
|                   |                
|                   |                

The
allowance for loan losses is evaluated on a regular basis by management and is
based upon managements periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrowers ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
Management regularly reviews its loan portfolio and charge-off experience to
maintain the allowance at a level management feels is adequate. The most
dominant category of loans at the end of 2004, commercial and commercial real
estate loans, comprised 64.06% of the portfolio compared to 58.67% at the end
of 2003. At the end of 2004, residential real estate loans consisted of 26.75%
of the portfolio compared to 29.81% at the end of 2003. Consumer loans at the
end of 2004 were 9.19% of the loan portfolio compared to the 11.52% at the end
of 2003.

Results
of Operations

The
operating results of the Company depend primarily on its net interest income,
which is the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities, consisting primarily of
deposits. Net interest income is determined by the difference between yields
earned on interest-earning assets and rates paid on interest-bearing
liabilities (the interest-rate spread) and the relative amounts of
interest-earning assets and interest-bearing liabilities. The Companys success is dependent to a
significant extent upon general economic conditions in Florida, particularly
south Florida. General economic
conditions include such factors as the south Florida real estate market,
inflation, recession, unemployment and other factors beyond the Companys
control. The south Florida economy is susceptible to adverse effects resulting
from adverse conditions in the south Florida real estate markets, a decline in
tourism, or adverse economic conditions or recession in the national economy.
Economic recession over a prolonged period or other economic dislocation in
south Florida could cause increases in nonperforming assets, thereby causing
operating losses, impairing liquidity and eroding capital. There can be no
assurance that future adverse changes in the Florida economy would not have a
material adverse effect on the Companys financial condition, results of
operations or cash flows.In
addition, the Companys net earnings are also affected by the level of
nonperforming loans and foreclosed real estate, as well as the level of its
noninterest income, and its noninterest expenses, such as salaries and employee
benefits, occupancy and equipment costs and income taxes.

12

---

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

|                                                                             |  | Year
  Ended December 31, |        
|---------------------------------------------------------------------------- |  | ------------------------- | -------
|                                                                             |  |                           |        
|                                                                             |  | 2004                      |        
|                                                                             |  |                           |        
|                                                                             |  | Average
  Balance         |        
|                                                                             |  |                           |        
|                                                                             |  | (Dollars
  in thousands)  |        
|                                                                            
|                                                                             |  |                           |        
|Interest-earning assets:                                                     |  |                           |        
|Loans                                                                        |  | $                         | 268,984
|Securities (1)                                                               |  |                           | 81,373 
|Other interest-earning                                                       |  |                           |        
|assets (2)                                                                   |  |                           | 11,774 
|                                                                             |  |                           |        
|Total interest-
                 Earning
  assets                            |  |                           | 362,131
|                                                                             |  |                           |        
|Noninterest-earning                                                          |  |                           |        
|assets (3)                                                                   |  |                           | 21,073 
|                                                                             |  |                           |        
|Total assets                                                                 |  | $                         | 383,204
|                                                                             |  |                           |        
|Interest-bearing liabilities:                                                |  |                           |        
|Savings and NOW deposits                                                     |  | $                         | 35,036 
|Money-market deposits                                                        |  |                           | 92,333 
|Time deposits                                                                |  |                           | 78,423 
|Borrowings                                                                   |  |                           | 55,872 
|                                                                             |  |                           |        
|                                                                             |  |                           |        
|Total interest-
                 
  bearing 
                 
  liabilities |  |                           | 261,664
|                                                                             |  |                           |        
|Demand deposits                                                              |  |                           | 80,924 
|Noninterest-bearing liabilities                                              |  |                           | 4,600  
|Stockholders equity                                                         |  |                           | 36,015 
|                                                                             |  |                           |        
|Total liabilities and                                                        |  |                           |        
|stockholders                                                                |  |                           |        
|equity                                                                       |  | $                         | 383,203
|                                                                             |  |                           |        
|                                                                             |  |                           |        
|                                                                            
|Net interest income                                                          |  |                           |        
|                                                                             |  |                           |        
|                                                                             |  |                           |        
|                                                                            
|Interest-rate spread (4)                                                     |  |                           |        
|                                                                             |  |                           |        
|Net interest margin (5)                                                      |  |                           |        
|Ratio of average interest-                                                   |  |                           |        
|earning assets to                                                            |  |                           |        
|average interest-                                                            |  |                           |        
|bearing liabilities                                                          |  |                           | 1.38   
|                                                                             |  |                           |        

_____________

|(1) | Yield on
  securities is stated on a tax equivalent basis.                                                                                                                     
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes
  interest-bearing deposits and federal funds sold.                                                                                                                   
|(3) | Includes
  nonaccrual loans.                                                                                                                                                   
|(4) | Interest-rate spread represents the difference
  between the weighted-average yield on interest-earning assets and the
  weighted-average cost of interest-bearing liabilities.
|(5) | Net interest
  margin is net interest income divided by average interest-earning assets.                                                                                       

13

---

Rate/Volume
Analysis

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

|                                  |  | Year
  Ended December 31,
  2004 vs. 2003 |     
|--------------------------------- |  | ----------------------------------------- | ----
|                                  |  |                                           |     
|                                  |  | Increase
  (Decrease) Due To              |     
|                                  |  |                                           |     
|                                  |  | Rate                                      |     
|                                  |  |                                           |     
|                                  |  | (In
  Thousands)                          |     
|Interest-earning assets:          |  |                                           |     
|Loans                             |  | $                                         | (677
|Securities                        |  |                                           | 80  
|Other interest-earning
  assets   |  |                                           | 59  
|                                  |  |                                           |     
|                                 
|                                  |  |                                           |     
|Total                             |  |                                           | (538
|                                  |  |                                           |     
|                                  |  |                                           |     
|Interest-bearing liabilities:     |  |                                           |     
|Savings and NOW
  deposits        |  |                                           | (39 
|Money-market deposits             |  |                                           | 40  
|Time deposits                     |  |                                           | (378
|Borrowings                        |  |                                           | (214
|                                  |  |                                           |     
|                                 
|                                  |  |                                           |     
|Total                             |  |                                           | (591
|                                  |  |                                           |     
|                                  |  |                                           |     
|                                 
|Net change in net interest income |  | $                                         | 53  
|                                  |  |                                           |     

|                                    |  | Year
  Ended December 31,
  2004 vs. 2003 |       
|----------------------------------- |  | ----------------------------------------- | ------
|                                    |  |                                           |       
|                                    |  | Increase
  (Decrease) Due To              |       
|                                    |  |                                           |       
|                                    |  | Rate                                      |       
|                                    |  |                                           |       
|                                    |  | (In
  Thousands)                          |       
|Interest-earning assets:            |  |                                           |       
|Loans                               |  | $                                         | (1,608
|Securities                          |  |                                           | (556  
|Other
  interest-earning assets     |  |                                           | (100  
|                                    |  |                                           |       
|                                   
|                                    |  |                                           |       
|Total                               |  |                                           | (2,264
|                                    |  |                                           |       
|                                    |  |                                           |       
|Interest-bearing
  liabilities:     |  |                                           |       
|Savings
  and NOW deposits          |  |                                           | (33   
|Money-market
  deposits             |  |                                           | (483  
|Time
  deposits                     |  |                                           | (934  
|Borrowings                          |  |                                           | (275  
|                                    |  |                                           |       
|                                   
|                                    |  |                                           |       
|Total                               |  |                                           | (1,725
|                                    |  |                                           |       
|                                    |  |                                           |       
|                                   
|Net change in net interest
  income |  | $                                         | (539  
|                                    |  |                                           |       

14

---

# Liquidity and Capital
Resources

A
Florida chartered commercial bank is required to maintain a liquidity reserve of at least
15% of its total transaction accounts and 8% of its total nontransaction accounts. The
liquidity reserve may consist of cash on hand, cash on demand with other correspondent
banks and other investments and short-term marketable securities as determined by the
rules of Florida OFR, such as federal funds sold and United States securities or
securities guaranteed by the United States or agencies thereof. As of December 31,
2004 and December 31, 2003, the Bank had liquidity of approximately $73.4 million and
$52.4 million, or approximately 22.45% and 19.60%, respectively.

During
the year ended December 31, 2004, the Companys primary sources of funds
consisted of net increases in deposits, principal payments on loans and securities,
maturities and sales of securities and net cash flows from operating activities. The
Company used its capital resources principally to fund existing and continuing loan
commitments and the purchase of securities. At December 31, 2004, the Company had
commitments to originate loans totaling $5.6 million. Scheduled maturities of certificates
of deposit during the 12 months following December 31, 2004 totaled $57.0 million.
Management believes the Company has adequate resources to fund all of its commitments,
that substantially all of its existing commitments will be funded within the next twelve
months and, if so desired, that it can adjust the rates on certificates of deposit to
attract deposits in a changing interest-rate environment.

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

|                                  | One Year Or Less |  | After One YearTo Five Years |       | After Five Years |  | Total |  
|--------------------------------- | ---------------- |  | --------------------------- | ----- | ---------------- |  | ----- | -
|
|
|
|At December 31, 2004:             |                  |  |                             |       |                  |  |       |  
|U.S. Treasury securities          |                  |  | $                           | -     |                  |  | -     |  
|U.S. Government agency securities |                  |  |                             | -     |                  |  | -     |  
|Tax-exempt securities             |                  |  |                             | -     |                  |  | -     |  
|Mortgage-backed securities        |                  |  |                             | -     |                  |  | -     |  
|Mutual funds                      |                  |  |                             | 1,961 |                  |  | 4.14  |  
|Other                             |                  |  |                             | 129   |                  |  | -     |  
|                                  |                  |  |                             |       |                  |  |       |  
|                                 
|Total                             |                  |  | $                           | 2,090 |                  |  | 3.88  |  
|                                  |                  |  |                             |       |                  |  |       |  
|At December 31, 2003:             |                  | 
|U.S. Treasury securities          |                  |  | $                           | -     |                  |  | -     | %
|U.S. Government agency securities |                  |  |                             | -     |                  |  | -     |  
|Tax-exempt securities             |                  |  |                             | -     |                  |  | -     |  
|Mortgage-backed securities        |                  |  |                             | -     |                  |  | -     |  
|Mutual funds                      |                  |  |                             | 1,964 |                  |  | 4.65  |  
|Other                             |                  |  |                             | 25    |                  |  | 7.50  |  
|                                  |                  |  |                             |       |                  |  |       |  
|Total                             |                  |  | $                           | 1,989 |                  |  | 4.69  | %
|                                  |                  |  |                             |       |                  |  |       |  

# Regulatory Capital
Requirements

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

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

Quantitative
measures established by regulation to ensure capital adequacy require the Company and the
Bank to maintain minimum amounts and percentages (set forth in the following table) of
total and Tier 1 capital (as defined in the

15

---

regulations) to risk-weighted assets (as
defined) and of Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2004 and 2003, that the Company and the Bank met all
capital adequacy requirements to which they are subject.

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

As
of December 31, 2004, the most recent notification from the regulatory authorities
categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, an institution must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth
in the following tables. There are no conditions or events since that notification that
management believes have changed the Banks category. The Company and the Banks
actual capital amounts and capital percentages as of December 31, 2004 and 2003 are
also presented in the table (dollars in thousands).

|                                 | Actual |  | Minimum CapitalRequirement |        | MinimumTo Be WellCapitalized UnderPrompt CorrectiveAction Provisions | 
|-------------------------------- | ------ |  | -------------------------- | ------ | -------------------------------------------------------------------- | 
|
|As of December 31, 2004:         |        |  |                            |        |                                                                      | 
|Total capital to Risk-           |        | 
|Weighted assets:                 |        | 
|Consolidated                     |        |  | $                          | 37,818 |                                                                      | 
|Bank                             |        |  |                            | 35,835 |                                                                      | 
|                                
|Tier I Capital to Risk-          |        | 
|Weighted Assets:                 |        | 
|Consolidated                     |        |  |                            | 34,469 |                                                                      | 
|Bank                             |        |  |                            | 32,485 |                                                                      | 
|                                
|Tier I Capital to Average Assets |        | 
|Consolidated                     |        |  |                            | 34,469 |                                                                      | 
|                                 |        |  |                            |        |                                                                      | 
|Bank                             |        |  |                            | 32,485 |                                                                      | 
|                                
|As of December 31, 2003:         |        | 
|Total capital to Risk-           |        | 
|Weighted assets:                 |        | 
|Consolidated                     |        |  |                            | 34,556 |                                                                      | 
|Bank                             |        |  |                            | 31,619 |                                                                      | 
|                                
|Tier I Capital to Risk-          |        | 
|Weighted Assets:                 |        | 
|Consolidated                     |        |  |                            | 31,331 |                                                                      | 
|Bank                             |        |  |                            | 28,406 |                                                                      | 
|                                
|Tier I Capital to Average Assets |        | 
|Consolidated                     |        |  |                            | 31,331 |                                                                      | 
|Bank                             |        |  |                            | 28,406 |                                                                      | 

# Management of
Interest-Rate Risk and Market Risk

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

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

16

---

As
part of its asset and liability management, the Company has emphasized establishing and
implementing internal asset-liability decision processes, as well as communications and
control procedures to aid in managing the Companys earnings. Management believes
that these processes and procedures provide the Company with better capital planning,
asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate
guidelines which should result in tighter controls and less exposure to interest-rate
risk.

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

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

The
following table sets forth certain information relating to the Companys
interest-earning assets and interest-bearing liabilities at December 31, 2004 that
are estimated to mature or are scheduled to reprice within the period shown:

|                                 | ThreeMonths |  | MoreThanThreeMonthsTo SixMonths |         | More Than SixMonthsTo OneYear |  | MoreThan OneYear ToFive Years |    | MoreThanFive Years |         | Total | 
|-------------------------------- | ----------- |  | ------------------------------- | ------- | ----------------------------- |  | ----------------------------- | -- | ------------------ | ------- | ----- | 
|
|Loans (1), (2)                   |             |  | $                               | 156,106 |                               |  | 8,043                         |    |                    | 20,680  |       | 
|                                
|Securities (3)                   |             |  |                                 | 6,087   |                               |  | 6,088                         |    |                    | 2,093   |       | 
|                                
|Interest-bearing deposits        |             |  |                                 | 14      |                               |  | -                             |    |                    | -       |       | 
|                                 |             |  |                                 |         |                               |  |                               |    |                    |         |       | 
|Total rate-sensitive assets      |             |  |                                 | 162,207 |                               |  | 14,131                        |    |                    | 22,773  |       | 
|                                 |             |  |                                 |         |                               |  |                               |    |                    |         |       | 
|Deposit accounts (4):            |             | 
|Savings and NOW                  |             |  |                                 | 36,794  |                               |  | -                             |    |                    | -       |       | 
|Money-market deposits            |             |  |                                 | 106,125 |                               |  | -                             |    |                    | -       |       | 
|Time deposits                    |             |  |                                 | 17,741  |                               |  | 8,926                         |    |                    | 30,315  |       | 
|                                 |             |  |                                 |         |                               |  |                               |    |                    |         |       | 
|Total deposit accounts           |             |  |                                 | 160,660 |                               |  | 8,926                         |    |                    | 30,315  |       | 
|Borrowings (5)                   |             |  |                                 | 41,556  |                               |  | -                             |    |                    | 5,000   |       | 
|                                 |             |  |                                 |         |                               |  |                               |    |                    |         |       | 
|Total rate-sensitive liabilities |             |  |                                 | 202,216 |                               |  | 8,926                         |    |                    | 35,315  |       | 
|                                 |             |  |                                 |         |                               |  |                               |    |                    |         |       | 
|Gap (repricing differences)      |             |  | $                               | (40,009 | )                             |  | 5,205                         |    |                    | (12,542 | )     | 
|                                 |             |  |                                 |         |                               |  |                               |    |                    |         |       | 
|Cumulative GAP                   |             |  | $                               | (40,009 | )                             |  | (34,804                       | )  |                    | (47,346 | )     | 
|                                 |             |  |                                 |         |                               |  |                               |    |                    |         |       | 
|Cumulative GAP/total assets      |             |  |                                 | (9.68   | )%                            |  | (8.42                         | )% |                    | (11.46  | )%    | 
|                                 |             |  |                                 |         |                               |  |                               |    |                    |         |       | 

---

|(1) |  | In
preparing the table above,  adjustable-rate  loans are included in the period in which
the interest rates are next scheduled to      adjust rather than in the period in which
the loans mature.  Fixed-rate  loans are scheduled,  including  repayment,  according to
     their contractual maturities.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes
nonaccrual loans and loans held for sale.
|--- |  | --------------------------------------------------

|(3) |  | Securities
are scheduled  according to their respective  repricing,  predicted call dates and
maturity dates,  includes FHLB stock      and Federal Reserve Bank stock.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Savings,
 NOW and money-market  accounts are regarded as readily  accessible  withdrawable
 accounts.  All other time accounts are      scheduled according to their respective
maturity dates.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Borrowings
 include  FHLB fixed and  floating  rate  convertible  advances  which have a call
 option  and  investment  repurchase      agreements.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

17

---

The
following table reflects the contractual principal repayments of the Companys loan
portfolio at December 31, 2004:

|                                 | CommercialLoans |  | CommercialReal EstatLoans |        | ResidentialMortgageLoans |  | ConsumerLoans |  | Total |       
|-------------------------------- | --------------- |  | ------------------------- | ------ | ------------------------ |  | ------------- |  | ----- | ------
|
|Due within one year              |                 |  | $                         | 77,584 |                          |  | 46,594        |  |       | 11,170
|Due after one through five years |                 |  |                           | 10,809 |                          |  | 38,036        |  |       | 11,194
|Due after five years             |                 |  |                           | 1,311  |                          |  | 8,434         |  |       | 53,961
|                                 |                 |  |                           |        |                          |  |               |  |       |       
|                                
|Total                            |                 |  | $                         | 89,704 |                          |  | 93,064        |  |       | 76,325
|                                 |                 |  |                           |        |                          |  |               |  |       |       
|                                 |                 | 

Of
the $128.2 million in loans due after one year, 12.4% of such loans have fixed interest
rates and 87.6% have adjustable rates.

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

|                             | Year Ended December 31, | 
|---------------------------- | ----------------------- | 
|
|
|Originations:                |                         | 
|Commercial loans             |                         | 
|Commercial real estate loans |                         | 
|Residential real estate      |                         | 
|Consumer loans               |                         | 
|                             |                         | 
|                            
|Total loans originated       |                         | 
|                            
|Principal reductions         |                         | 
|                             |                         | 
|Increase (Decrease) in loans |                         | 
|                             |                         | 
|                             |                         | 

Throughout
2004, the Company did not originate any loan into the held for sale category. The Company
did originate $3.1 million of single family mortgages into the held for sale portfolio
during 2003. However, there were none originated during the years ended December 31, 2002,
2001 and 2000. The table above also excludes originations of loans to correspondent banks
of $8.2 million, $18.8 million, $15.5 million and $13.4 million for years ended
December 31, 2004, 2003, 2002 and 2001, respectively. The loans were originated by
the Company and sold to correspondent banks generating $143,000, $311,000, $254,000 and
$231,000 in fees, during such respective years.

18

---

# Loan Portfolio
Composition

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

|              | 2004 |  | 2003 |         | 2002 |  | 2001   |   | 2000 |        
|------------- | ---- |  | ---- | ------- | ---- |  | ------ | - | ---- | -------
|
|
|Commercial    |      |  | $    | 89,704  |      |  | 31.44  | % | $    | 66,341 
|Commercial    |      | 
|real estate   |      |  |      | 93,064  |      |  | 32.62  |   |      | 82,800 
|Residential   |      | 
|real estate   |      |  |      | 76,325  |      |  | 26.75  |   |      | 75,809 
|Consumer      |      |  |      | 26,207  |      |  | 9.19   |   |      | 29,276 
|              |      |  |      |         |      |  |        |   |      |        
|             
|Total loans.  |      |  | $    | 285,300 |      |  | 100.00 | % | $    | 254,226
|              |      |  |      |         |      |  |        |   |      |        
|Less:         |      | 
|Net deferred  |      | 
|loan fees     |      |  |      | (431    | )    |  |        |   |      | (454   
|             
|Allowance for |      | 
|loan losses   |      |  |      | (3,350  | )    |  |        |   |      | (3,441 
|              |      |  |      |         |      |  |        |   |      |        
|             
|Loans, net    |      |  | $    | 281,519 |      |  |        |   | $    | 250,331
|              |      |  |      |         |      |  |        |   |      |        

19

---

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

Commercial
business loans totaled $89.7 million or 31.44% of the Banks loan portfolio, as of
December 31, 2004. Commercial business loan underwriting practices assess the
borrowers creditworthiness and ability to repay, including an evaluation of the
value of any collateral securing the proposed loan. While commercial business loans
generally are made for shorter terms and at higher yields than one-to-four family
residential loans, such loans generally involve a higher level of risk than one-to-four
family residential loans.

The
Banks commercial real estate loans at December 31, 2004 totaled $93.1 million
or 32.6% of the Banks portfolio. The portfolio generally has terms ranging from five
to seven and in some cases ten years and interest rate adjustment periods ranging from
monthly to five years. Amortization periods for commercial mortgage loans generally are 15
to 20 years and do not exceed 25 years. Commercial real estate loans originated by the
Bank are primarily secured by income-producing properties such as office buildings,
warehouse buildings, retail space and to a lesser extent multi-family property. Generally,
in underwriting commercial real estate loans, the Bank requires the personal guaranty of
borrowers, a maximum loan to value ratio of 75%, and a cash flow to debt service ratio of
1.25 to 1 or higher. The Banks residential real estate mortgage loans at
December 31, 2004 totaled $76.3 million or 26.75% of the Banks total loan
portfolio. The Banks residential mortgage loans have terms which do not exceed 30
years and are secured by one-to-four family residences. Loans made for an amount in excess
of 80% of the appraised value of the financed residences are generally originated with
private mortgage insurance, which essentially insures that portion of the loan which is in
excess of 80% of the appraised value of the financed residences. The Company will
originate loans targeted at those low and moderate income home buyers whose underwriting
standard may exceed what is considered typical. As of December 31, 2004, the
residential loan portfolio of the Bank consisted of approximately 49.0% in adjustable rate
mortgages and 51.0% in fixed-rate loans. During 2004, the Company originated residential
real estate mortgage loans to correspondent banks, servicing released totaling $8.2
million. The Company originated $30.9 million of residential real estate mortgages to the
portfolio. Residential mortgage loans generally are underwritten by the Bank in accordance
with guidelines of the Federal National Mortgage Association (the FNMA) and
the Federal Home Loan Mortgage Corporation (the FHLMC).

Consumer
loans are extended for a variety of purposes including the purchase of automobiles, home
improvement, lines of credit, credit cards and unsecured personal loans. As of
December 31, 2004, consumer loans were approximately $26.2 million or 9.19% of total
loans. Consumer loan underwriting standards include an examination of the applicants
payment history on other debts and an evaluation of the applicants ability to meet
existing obligations and payments on the proposed loan. Although creditworthiness of the
applicant is of primary importance, the underwriting process also includes a comparison of
the value of the security, if any, in relation to the proposed loan amount. While consumer
loans generally involve a higher element of credit risk than one-to-four family
residential loans, consumer loans are typically made at higher interest rates and for
shorter terms, or at adjustable rates, and are helpful in maintaining a profitable spread
between the Banks loan yield and its cost of funds.

# Deposit Composition

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

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

|                                    | At December 31, | 
|----------------------------------- | --------------- | 
|
|
|
|Noninterest-bearing demand deposits |                 | 
|Savings and NOW deposits            |                 | 
|Money-market deposits               |                 | 
|Time deposits                       |                 | 
|                                    |                 | 
|Total deposits                      |                 | 
|                                    |                 | 

20

---

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

|                                    | At December 31, | 
|----------------------------------- | --------------- | 
|
|
|Due three months or less            |                 | 
|Due over three months to six months |                 | 
|Due over six months to one year     |                 | 
|Due over one year                   |                 | 
|                                    |                 | 
|Total                               |                 | 
|                                    |                 | 

The
scheduled maturities of time deposits are as follows:

|                                                | At December 31, | 
|----------------------------------------------- | --------------- | 
|
|
|Due in one year or less                         |                 | 
|Due in more than one but less than three years  |                 | 
|Due in more than three but less than five years |                 | 
|                                                |                 | 
|Total                                           |                 | 
|                                                |                 | 

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

|                                      | Year Ended December 31, | 
|------------------------------------- | ----------------------- | 
|
|
|Net increase before interest credited |                         | 
|Net interest credited                 |                         | 
|                                      |                         | 
|Net deposit increase                  |                         | 
|                                      |                         | 
|                                      |                         | 

The
following table indicates the daily average balances and weighted average interest rates
paid on interest bearing deposits for each of the three years ended December 31,
2004, 2003 and 2002:

|                       | Years Ended December 31, | 
|---------------------- | ------------------------ | 
|
|
|
|Savings and NOW        |                          | 
|Deposits               |                          | 
|Money-market           |                          | 
|Deposits               |                          | 
|Time deposits          |                          | 
|                       |                          | 
|Total interest-bearing |                          | 
|Deposits               |                          | 
|Noninterest bearing    |                          | 
|deposits               |                          | 
|                       |                          | 
|Total                  |                          | 
|                       |                          | 

21

---

Off-Balance Sheet
Arrangements and Aggregate Contractual Obligations

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

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

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

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

The
following is a summary of the Companys contractual obligations, including certain
on-balance sheet obligations, at December 31, 2004 (in thousands):

|                                                  |  | Payments Due by Period
|------------------------------------------------- |  | ----------------------
|
|Contractual Obligations                           |  |                       
|                                                 
|Deposits                                          |  |                       
|FHLB advances                                     |  |                       
|Other borrowings                                  |  |                       
|Operating leases                                  |  |                       
|Loan Commitments                                  |  |                       
|Standby letters of credit                         |  |                       
|Undisbursed construction and line of credit loans |  |                       
|                                                  |  |                       
|                                                 
|Total                                             |  |                       
|                                                  |  |                       

22

---

Comparison of Years
Ended December 31, 2004 and 2003

General

Net
earnings for the year ended December 31, 2004, were $3.0 million compared to $2.5
million in 2003. The increase in net earnings is attributed to the $15.6 million of net
interest income after the loan loss provision for the year ended December 31, 2004,
compared to $13.5 million in 2003, an increase of $2.1 million or 15.5%. Net interest
income improved primarily as a result of an increase of $46.7 million of average interest
earning assets offset in part by the $24.6 million increase in average interest bearing
liabilities. The Companys earnings per share were $1.34 basic and $1.29 diluted for
the year ended December 31, 2004 compared to $1.12 per basic and $1.08 diluted share in
2003.

Interest Income and
Expense

Interest
income increased by $2.2 million, or 11.9%, from $18.4 million for the year ended
December 31, 2003 to $20.6 million for the year ended December 31, 2004.
Interest income on loans increased $1.6 million primarily due to increased average volumes
of $269.0 million at December 31, 2004 from $233.5 million in 2003 partially offset by a
decline in the weighted-average yield from 6.68% in 2003 to 6.39% in 2004. Interest on
securities increased $541,000 primarily due to increased weighted average yields earned of
4.19% in 2004 compared to 4.07% in 2003, and an increase in the average securities
portfolio balance from $69.6 million in 2003 to $81.4 million in 2004. The marginal
increase in interest income on other interest-earning assets of $48,000 was due to an
increase in the weighted-average yield earned of 2.17% at December 31, 2004 compared to
1.69% for 2003. The other interest earning assets decreased from $12.3 million in 2003 to
$11.8 million in 2004.

Interest
expense on deposits decreased to $2.9 million for the year ended December 31, 2004
from $3.2 million for the year ending December 31, 2003. Interest expense on deposits
decreased due to a decrease in the average rate paid on deposits from 1.68% in 2003 to
1.41% in 2004, partially offset by an increase in the average balance from $189.4 million
in 2003 to $205.8 million in 2004.

Interest
expense on borrowings increased slightly by $70,000 to $1.9 million for the year ended
December 31, 2004 from $1.9 million in 2003. Interest expense on borrowings
increased due to increased average borrowings from $47.6 million in 2003 to $55.9 million
in 2004, offset by a decrease in the average rate paid for borrowings from 3.89% in 2003
to 3.44% in 2004.

Provision for Loan Losses

The
provision for loan losses is charged to earnings to bring the total allowance to a level
deemed appropriate by management and is based upon historical experience, the volume and
type of lending conducted by the Bank, industry standards, the amounts of nonperforming
loans, general economic conditions, particularly as they relate to the Banks market
areas, and other factors related to the collectibility of the Banks loan portfolio.
The Company recorded a provision of $215,000 for the year ended December 31, 2004 compared
to a credit to the provision of $100,000 in 2003. Managements decision to increase
the reserve is based on the composition and risk associated in the loan portfolio.
Managements assessment is that the allowance for loan losses of $3.4 million was
adequate at December 31, 2004.

Noninterest Income

Total
noninterest income for the year ended December 31, 2004 was $3.4 million compared to $3.2
million in 2003. The net increase in noninterest income of $122,000 was primarily due to
the $320,000 gain realized on the sale of a branch office previously closed in 2003 and an
increase in service charges on deposit accounts of $196,000, offset by a decrease in net
realized gain on the sale of securities of $374,000 and a decrease in loan correspondent
fees of $168,000.

Noninterest Expenses

Total
noninterest expenses increased $1.4 million to $14.5 million for the year ended
December 31, 2004 from $13.1 million in 2003. The increase in noninterest
expenses in 2004 was primarily a result of an increase in salaries and employee benefits
of $809,000 due to the required staff to support the Companys growth and an increase
of $551,000 in professional fees as a result of the Companys needs to address issues
related to shareholder activities and efforts to explore strategic alternatives.

23

---

Provision for Income
Taxes

The provision for income taxes
increased from $1.2 million (an effective rate at 32%) during the year ended
December 31, 2003 to $1.4 million (an effective rate at 32%) during the year ended
December 31, 2004.

Comparison of Years
Ended December 31, 2003 and 2002

General

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

Interest Income and
Expense

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

Interest
expense on deposits decreased to $3.2 million for the year ended December 31, 2003
from $4.9 million for the year ending December 31, 2002. Interest expense on deposits
decreased due to a decrease in the average rate paid on deposits from 2.64% in 2002 to
1.68% in 2003, and a shift in the amount of deposits from time to transaction accounts.

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

Provision for Loan Losses

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

Noninterest Income

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

Noninterest Expenses

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

24

---

Provision for Income
Taxes

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

Quarterly Data

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

|                                                    | Year Ended December 31, 2004
|--------------------------------------------------- | ----------------------------
|
|
|
|Interest income                                     |                             
|                                                    |                             
|Interest expense                                    |                             
|                                                    |                             
|                                                    |                             
|Net interest income                                 |                             
|                                                    |                             
|Provision for loan losses                           |                             
|                                                    |                             
|                                                    |                             
|Net interest income after provision for loan losses |                             
|                                                    |                             
|                                                    |                             
|Noninterest income                                  |                             
|Noninterest expense                                 |                             
|                                                    |                             
|                                                    |                             
|Net earnings before income taxes                    |                             
|Income taxes                                        |                             
|                                                    |                             
|                                                    |                             
|Net Earnings                                        |                             
|                                                    |                             
|                                                    |                             
|Basic earnings per common share                     |                             
|                                                    |                             
|                                                    |                             
|Diluted earnings per common share                   |                             
|                                                    |                             

|                                                    | Year Ended December 31, 2004
|--------------------------------------------------- | ----------------------------
|
|
|                                                   
|                                                    |                             
|Interest income                                     |                             
|                                                    |                             
|Interest expense                                    |                             
|                                                    |                             
|Net interest income                                 |                             
|                                                    |                             
|(Credit) provision for loan losses                  |                             
|                                                    |                             
|                                                    |                             
|Net interest income after provision for loan losses |                             
|                                                    |                             
|                                                    |                             
|Noninterest income                                  |                             
|Noninterest expense                                 |                             
|                                                    |                             
|                                                    |                             
|Net earnings before income taxes                    |                             
|Income taxes                                        |                             
|                                                    |                             
|                                                    |                             
|Net Earnings                                        |                             
|                                                    |                             
|                                                    |                             
|Basic earnings per common share                     |                             
|                                                    |                             
|                                                    |                             
|Diluted earnings per common share                   |                             
|                                                    |                             

25

---

Item 7a. Quantitative
and Qualitative Disclosures About Market Risk.

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

Item 8.  Financial
Statements and Supplementary Data.

INDEX

|                                                                                                     | Page(s) | 
|---------------------------------------------------------------------------------------------------- | ------- | 
|                                                                                                     |         | 
|Audited Consolidated Financial Statements                                                            |         | 
|                                                                                                     |         | 
|Report of Independent Registered Public Accounting Firm (Hacker, Johnson & Smith PA)                 |         | 
|                                                                                                     |         | 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                         |         | 
|                                                                                                     |         | 
|Consolidated Statements of Earnings for the years ended December 31, 2004, 2003 and 2002             |         | 
|                                                                                                     |         | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2004, 2003 and 2002 |         | 
|                                                                                                     |         | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002           |         | 
|                                                                                                     |         | 
|Notes to Consolidated Financial Statements                                                           |         | 

26

---

POINTE FINANCIAL
CORPORATION AND SUBSIDIARIESBoca Raton, Florida

Boca Raton, Florida


Audited Consolidated
Financial Statements

At December 31, 2004 and
2003 andfor Each of the Years
in the Three-Year Period Ended
December 31, 2004with Supplementary
Information

(Together With Report
of Independent Registered Public Accounting Firm)



---

# Report of Independent
Registered Public Accounting Firm

Pointe Financial
CorporationBoca Raton, Florida:

We
have audited the accompanying consolidated balance sheets of Pointe Financial Corporation
and Subsidiaries (the Company) at December 31, 2004 and 2003, and the related
consolidated statements of earnings, stockholders equity, and cash flows for each of
the years in the three-year period ended December 31, 2004. These financial statements are
the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31, 2004 and
2003, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2004 in conformity with U.S. generally accepted
accounting principles.

HACKER, JOHNSON &
SMITH PAFort Lauderdale, FloridaFebruary
23, 2005

F-1

---

# POINTE FINANCIAL CORPORATION
AND SUBSIDIARIES

Consolidated Balance Sheets


($ in thousands, except share amounts)


|                                                                          | At December 31, | 
|------------------------------------------------------------------------- | --------------- | 
|
|Assets                                                                    |                 | 
|Cash and due from banks                                                   |                 | 
|Interest-bearing deposits with banks                                      |                 | 
|                                                                          |                 | 
|                                                                         
|Total cash and cash equivalents                                           |                 | 
|                                                                         
|Securities available for sale                                             |                 | 
|Loans, net of allowance for loan losses of $3,350 and $3,441              |                 | 
|Loans held for sale                                                       |                 | 
|Accrued interest receivable                                               |                 | 
|Premises and equipment, net                                               |                 | 
|Federal Home Loan Bank stock, at cost                                     |                 | 
|Federal Reserve Bank stock, at cost                                       |                 | 
|Branch acquisition intangible asset                                       |                 | 
|Deferred income tax asset                                                 |                 | 
|Other assets                                                              |                 | 
|                                                                          |                 | 
|                                                                         
|Total                                                                     |                 | 
|                                                                          |                 | 
|                                                                         
|Liabilities and Stocjgikders Equity                                      |                 | 
|                                                                         
|Liabilities:                                                              |                 | 
|Noninterest-bearing demand deposits                                       |                 | 
|Savings and NOW deposits                                                  |                 | 
|Money-market deposits                                                     |                 | 
|Time deposits                                                             |                 | 
|                                                                         
|Total deposits                                                            |                 | 
|                                                                         
|Official checks                                                           |                 | 
|Federal Home Loan Bank advances                                           |                 | 
|Other borrowings                                                          |                 | 
|Accrued interest payable                                                  |                 | 
|Advance payments by borrowers for taxes and insurance                     |                 | 
|Other liabilities                                                         |                 | 
|                                                                          |                 | 
|                                                                         
|Total liabilities                                                         |                 | 
|                                                                          |                 | 
|                                                                         
|Commitments and contingencies (Notes 4, 8 and 9)                          |                 | 
|Stockholders equity:                                                     |                 | 
|Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued |                 | 
|Common stock, $.01 par value, 5,000,000 shares authorized;                |                 | 
|2,584,023 and 2,549,028 shares issued                                     |                 | 
|Additional paid-in capital                                                |                 | 
|Retained earnings                                                         |                 | 
|Accumulated other comprehensive income                                    |                 | 
|Treasury stock, at cost (297,000 shares)                                  |                 | 
|Stock incentive plan                                                      |                 | 
|                                                                          |                 | 
|                                                                         
|Total stockholders equity                                                |                 | 
|                                                                          |                 | 
|                                                                         
|Total                                                                     |                 | 
|                                                                          |                 | 
|                                                                         

See Accompanying Notes to
Consolidated Financial Statements.

F-2

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

Consolidated
Statements of Earnings


($ in thousands,
except per share amounts)


|                                                             | Year Ended December 31, | 
|------------------------------------------------------------ | ----------------------- | 
|
|Interest income:                                             |                         | 
|Loans                                                        |                         | 
|Securities available for sale                                |                         | 
|Other                                                        |                         | 
|                                                             |                         | 
|                                                            
|Total interest income                                        |                         | 
|                                                             |                         | 
|                                                            
|Interest expense:                                            |                         | 
|Deposits                                                     |                         | 
|Borrowings                                                   |                         | 
|                                                             |                         | 
|                                                            
|Total interest expense                                       |                         | 
|                                                             |                         | 
|                                                            
|Net interest income                                          |                         | 
|                                                            
|Provision (credit) for loan losses                           |                         | 
|                                                             |                         | 
|                                                            
|Net interest income after provision (credit) for loan losses |                         | 
|                                                             |                         | 
|                                                            
|Noninterest income:                                          |                         | 
|Service charges on deposit accounts                          |                         | 
|Gain on sale of premises and equipment                       |                         | 
|Net realized gain on sale of securities                      |                         | 
|Loan correspondent fees                                      |                         | 
|Other                                                        |                         | 
|                                                             |                         | 
|                                                            
|Total noninterest income                                     |                         | 
|                                                             |                         | 
|Noninterest expenses:                                        |                         | 
|Salaries and employee benefits                               |                         | 
|Occupancy and equipment                                      |                         | 
|Advertising and promotion                                    |                         | 
|Professional fees                                            |                         | 
|Data processing                                              |                         | 
|Amortization of intangible asset                             |                         | 
|Other                                                        |                         | 
|                                                             |                         | 
|                                                            
|Total noninterest expenses                                   |                         | 
|                                                             |                         | 
|                                                            
|Earnings before income taxes                                 |                         | 
|                                                            
|Income taxes                                                 |                         | 
|                                                             |                         | 
|                                                            
|Net earnings                                                 |                         | 
|                                                             |                         | 
|                                                            
|Earnings per share:                                          |                         | 
|Basic                                                        |                         | 
|                                                             |                         | 
|                                                            
|Diluted                                                      |                         | 
|                                                             |                         | 
|                                                            
|Weighted-average shares outstanding for basic                |                         | 
|                                                             |                         | 
|                                                            
|Weighted-average shares outstanding for diluted              |                         | 
|                                                             |                         | 

See Accompanying Notes to
Consolidated Financial Statements

F-3

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

Consolidated
Statements of Stockholders Equity


($ In thousands)


Years Ended December 31, 2004, 2003 and 2002

|                                            |  |  | Additional |           | Stock |   |    |  |  |        | AccumulatedOtherCompre-hensive |  | Total |  
|------------------------------------------- |  |  | ---------- | --------- | ----- | - | -- |  |  | ------ | ------------------------------ |  | ----- | -
|
|
|Balance at December 31, 2001                |  |  |            | 2,345,295 |       | $ | 23 |  |  | 24,110 |                                |  | (104  | )
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Comprehensive income:                       |  | 
|Net earnings                                |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                           
|Net change in unrealized loss on            |  | 
|available-for-sale securities, net of taxes |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Comprehensive income                        |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Common stock options exercised              |  |  |            | 129,540   |       |   | 2  |  |  | 1,463  |                                |  | -     |  
|                                           
|Shares committed to participants in         |  | 
|stock incentive plan                        |  |  |            | -         |       |   | -  |  |  | -      |                                |  | 19    |  
|                                           
|Shares cancelled in stock incentive plan    |  |  |            | (3,167    | )     |   | -  |  |  | (33    | )                              |  | 33    |  
|                                           
|Cash dividends paid                         |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Balance at December 31, 2002                |  |  |            | 2,471,668 |       |   | 25 |  |  | 25,540 |                                |  | (52   | )
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Comprehensive income:                       |  | 
|Net earnings                                |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                           
|Net change in unrealized gain on            |  | 
|available-for-sale securities, net of taxes |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Comprehensive income                        |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Common stock options exercised              |  |  |            | 70,884    |       |   | -  |  |  | 965    |                                |  | -     |  
|                                           
|Shares issued in stock incentive plan       |  |  |            | 10,891    |       |   | -  |  |  | 165    |                                |  | (165  | )
|                                           
|Shares committed to participants in         |  | 
|stock incentive plan                        |  |  |            | -         |       |   | -  |  |  | -      |                                |  | 28    |  
|                                           
|Shares cancelled in stock incentive plan    |  |  |            | (4,415    | )     |   | -  |  |  | (53    | )                              |  | 53    |  
|                                           
|Cash dividends paid                         |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Balance at December 31, 2003                |  |  |            | 2,549,028 |       |   | 25 |  |  | 26,617 |                                |  | (136  | )
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Comprehensive income:                       |  | 
|Net earnings                                |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                           
|Net change in unrealized gain on            |  | 
|available-for-sale securities, net of taxes |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Comprehensive income                        |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Common stock options exercised              |  |  |            | 30,569    |       |   | 1  |  |  | 600    |                                |  | -     |  
|                                           
|Shares issued in stock incentive plan       |  |  |            | 5,900     |       |   | -  |  |  | 166    |                                |  | (166  | )
|                                           
|Shares committed to participants in         |  | 
|stock incentive plan                        |  |  |            | -         |       |   | -  |  |  | -      |                                |  | 65    |  
|                                           
|Shares cancelled in stock incentive plan    |  |  |            | (1,474    | )     |   | -  |  |  | (21    | )                              |  | 21    |  
|                                           
|Cash dividends paid                         |  |  |            | -         |       |   | -  |  |  | -      |                                |  | -     |  
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  
|                                           
|Balance at December 31, 2004                |  |  |            | 2,584,023 |       | $ | 26 |  |  | 27,362 |                                |  | (216  | )
|                                            |  |  |            |           |       |   |    |  |  |        |                                |  |       |  

See Accompanying Notes to Consolidated Financial Statements

F-4

---

# POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

# Consolidated Statements of Cash Flows(in thousands)

|                                                                | Year Ended December 31,
|--------------------------------------------------------------- | -----------------------
|                                                                |                        
|Cash flows from operating activities:                           |                        
|Net earnings                                                    |                        
|Adjustments to reconcile net earnings to net cash provided by   |                        
|operating activities:                                           |                        
|Provision (credit) for loan losses                              |                        
|Depreciation and amortization                                   |                        
|Net amortization of fees, premiums, discounts and other         |                        
|Deferred income taxes (benefit)                                 |                        
|Shares committed to participants in incentive stock plan        |                        
|Gain on sale of securities available for sale                   |                        
|Gain on sale of premises and equipment                          |                        
|Gain on sale of foreclosed real estate                          |                        
|Originations of loans held for sale                             |                        
|Repayments of loans held for sale                               |                        
|Decrease (increase) in other assets                             |                        
|Increase in accrued interest receivable                         |                        
|(Decrease) increase in official checks                          |                        
|Increase (decrease) in accrued interest payable                 |                        
|(Decrease) increase in other liabilities                        |                        
|                                                                |                        
|                                                                |                        
|Net cash provided by operating activities                       |                        
|                                                                |                        
|                                                                |                        
|Cash flows from investing activities:                           |                        
|Purchase of securities available for sale                       |                        
|Proceeds from sale of securities available for sale             |                        
|Maturities and calls of securities available for sale           |                        
|Principal repayments on securities available for sale           |                        
|Net (increase) decrease in loans                                |                        
|Proceeds from sale of premises and equipment                    |                        
|Purchase of premises and equipment, net                         |                        
|Proceeds from sale of foreclosed real estate                    |                        
|Net (increase) decrease in other securities                     |                        
|                                                                |                        
|                                                                |                        
|Net cash (used in) provided by investing activities             |                        
|                                                                |                        
|                                                                |                        
|Cash flows from financing activities:                           |                        
|Net increase in deposits                                        |                        
|Net increase (decrease) in Federal Home Loan Bank advances      |                        
|Net increase (decrease) in other borrowings                     |                        
|(Decrease) increase in advance payments for taxes and insurance |                        
|Proceeds from exercise of stock options                         |                        
|Cash dividends paid on common stock                             |                        
|                                                                |                        
|                                                                |                        
|Net cash provided by (used in) financing activities             |                        
|                                                                |                        
|                                                                |                        
|Net decrease in cash and cash equivalents                       |                        
|                                                                |                        
|Cash and cash equivalents at beginning of year                  |                        
|                                                                |                        
|                                                                |                        
|Cash and cash equivalents at end of year                        |                        
|                                                                |                        

(continued)

F-5

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Consolidated
Statements of Cash Flows, Continued (in thousands)

|                                                                        | Year Ended December 31,
|----------------------------------------------------------------------- | -----------------------
|                                                                        |                        
|Supplemental disclosure of cash flow information:                       |                        
|Cash paid during the year for:                                          |                        
|Interest                                                                |                        
|                                                                        |                        
|                                                                        |                        
|Income taxes                                                            |                        
|                                                                        |                        
|                                                                        |                        
|Noncash transactions:                                                   |                        
|Reclassification of loans to foreclosed real estate                     |                        
|                                                                        |                        
|                                                                        |                        
|Reclassification of other assets to foreclosed real estate              |                        
|                                                                        |                        
|                                                                        |                        
|Accumulated other comprehensive income (loss), change in net unrealized |                        
|gain (loss) on securities available for sale net of tax                 |                        
|                                                                        |                        
|                                                                        |                        
|Tax benefit related to exercise of common stock options                 |                        
|                                                                        |                        
|                                                                        |                        
|Activity in stock incentive plan, net                                   |                        
|                                                                        |                        

See Accompanying Notes to
Consolidated Financial Statements.

F-6

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements

# At December 31, 2004
and 2003 and For the Years EndedDecember 31, 2004, 2003 and 2002

# (1) Description of Business and Summary of Significant Accounting Policies

General.Pointe Financial Corporation (the Holding Company)
          owns all the common stock of Pointe Bank (the Bank), a
          state-chartered commercial bank and Pointe Financial Services, Inc. On February
          12, 2002, the Bank incorporated a subsidiary, Will No-No, Inc., a Florida
          corporation, formed for the purpose to own, maintain and dispose of the
          Banks foreclosed assets (collectively the Company). The Bank
          provides a variety of community banking services to small and middle-market
          businesses and individuals through its 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. has had only minimal activity.

In 2000, the Company formed Pointe Capital, an investment banking joint venture with First
Integrated Capital Corporation, a subsidiary of McGinn, Smith & Company, Inc., a
related party. The Company owned 50% of Pointe Capital. Pointe Capital offered investment
banking services to small and medium-size businesses in South Florida. During 2003, Pointe
Capital discontinued operating activities and in 2004 net assets of Pointe Capital were
liquidated and the partnership was dissolved.

Basis of Presentation. The accompanying consolidated financial statements include
the accounts of the Holding Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accounting and reporting policies of the Company conform to U.S. generally accepted
accounting principles and to general practices within the banking industry. The following
summarizes the more significant of these policies and practices.

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

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

The Bank is required under Federal Reserve Board regulations to maintain reserves, generally
consisting of cash or noninterest-earning accounts, against its transaction accounts. At
December 31, 2004 and 2003, balances maintained as reserves were approximately $5.7
million and $3.1 million, respectively.

(continued)

F-7

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

# (1) Description of
Business and Summary of Significant Accounting Policies, Continued

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

Loans. Loans that management has the intent and ability to hold for the foreseeable
               future or until maturity or pay-off are reported at their outstanding principal
               adjusted for any charge-offs, the allowance for loan losses, and any deferred
               fees or costs on originated loans.
Loan origination fees are deferred and certain direct origination costs are capitalized. Both
are recognized as an adjustment of the yield of the related loan.

The accrual of interest on loans is discontinued at the time the loan is ninety days
delinquent unless the loan is well-collateralized and in process of collection. In all
cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged-off
is reversed against interest income. The interest on these loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured.

Loans Held for Sale. Loans held for sale are carried at the lower of cost or
estimated fair value in the aggregate. Net unrealized losses are recognized through a
valuation allowance by charges to earnings. At December 31, 2004 and 2003, the book value
of loans held for sale approximated fair value in the aggregate.
Loan origination fees are deferred and direct loan origination costs are capitalized until the
related loan is sold, at which time the net fees are included in the gain on sale of loans
in the consolidated statements of earnings.

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

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

(continued)

F-8

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

# (1) Description of
Business and Summary of Significant Accounting Policies, Continued

Allowance for Loan Losses, Continued.The allowance consists of specific and general
components. The specific component relates to loans that are classified as either loss,
doubtful, substandard or special mention. For such loans that are also classified as
impaired, an allowance is established when the discounted cash flows (or collateral value
or observable market price) of the impaired loan is lower than the carrying value of that
loan. The general component covers nonclassified loans and is based on historical industry
loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including
the length of the delay, the reasons for the delay, the borrowers prior payment
record, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial and commercial real estate
loans by either the present value of expected future cash flows discounted at the
loans effective interest rate, the loans obtainable market price, or the fair
value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer and residential
real estate loans for impairment disclosures.

Foreclosed Real Estate. Real estate acquired through, or in lieu of, foreclosure is
initially recorded at the lower of fair value or the loan balance plus acquisition costs
at the date of foreclosure. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of carrying amount or fair value
less cost to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in earnings.

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

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

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

F-9

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

# (1) Description of
Business and Summary of Significant Accounting Policies, Continued

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

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

|                                                     | Year Ended December 31,
|---------------------------------------------------- | -----------------------
|                                                     |                        
|                                                     |                        
|Net earnings, as reported                            |                        
|                                                    
|Deduct:  Total stock-based employee compensation     |                        
|determined under the fair value based method for all |                        
|awards, net of taxes                                 |                        
|                                                     |                        
|                                                     |                        
|Pro forma net earnings                               |                        
|                                                     |                        
|                                                     |                        
|Basic earnings per share:                            |                        
|As reported                                          |                        
|                                                     |                        
|                                                     |                        
|                                                     |                        
|Pro forma                                            |                        
|                                                     |                        
|                                                     |                        
|Diluted earnings per share:                          |                        
|As reported                                          |                        
|                                                     |                        
|                                                     |                        
|                                                     |                        
|Pro forma                                            |                        
|                                                     |                        

(continued)

F-10

---

POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

Notes to Consolidated
Financial Statements, Continued

(1)   Description of
Business and Summary of Significant Accounting Policies, Continued


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


|                                                            | Year Ended December 31,
|----------------------------------------------------------- | -----------------------
|
|Risk-free interest rate                                     |                        
|Dividend yield                                              |                        
|Expected volatility                                         |                        
|Expected life in years                                      |                        
|                                                            |                        
|Per share weighted-average grant date fair value of options |                        
|issued during the year                                      |                        

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

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

Fair Values of Financial Instruments. The fair value of a financial instrument
is the current amount that would be exchanged between willing parties, other than in a
forced liquidation. Fair value is best determined based upon quoted market prices.
However, in many instances, there are no quoted market prices for the Companys
various financial instruments. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the fair value estimates may not be
realized in an immediate settlement of the instrument. Certain financial instruments and
all nonfinancial instruments are excluded from these disclosure requirements. Accordingly,
the aggregate fair value amounts presented may not necessarily represent the underlying
fair value of the Company. The following methods and assumptions were used by the Company
in estimating fair values of financial instruments:

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

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

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

(continued)

F-11

---

POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

Notes to Consolidated
Financial Statements, Continued

(1)   Description of
Business and Summary of Significant Accounting Policies, Continued


Fair Values of Financial Instruments, Continued.


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

| |  | Accrued Interest.
 Carrying value approximates fair value.
| |  | ----------------------------------------------------------

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

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

| | Off-Balance-Sheet
Financial Instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the counterparties credit
standing.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Advertising.The Company expenses all advertising as incurred.

Recent Pronouncements. In December 2003, the American Institute of Certified
Public Accountants issued Statement of Position 03-3, Accounting for Certain
Loans and Debt Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 addresses
accounting for differences between contractual cash flows expected to be collected and an
investors initial investment in loans or debt securities acquired in a transfer if
those differences are attributable, at least in part, to credit quality. SOP 03-3 also
prohibits carrying over or creation of valuation allowances in the initial
accounting of all loans acquired in a transfer that are within the scope of SOP 03-3. The
prohibition of the valuation allowance carryover applies to the purchase of an individual
loan, a pool of loans, a group of loans, and loans acquired in a purchase business
combination. SOP 03-3 is effective for loans acquired in fiscal years beginning after
December 15, 2004. The Company does not anticipate that the adoption of SOP 03-3 will have
a material impact on its consolidated financial condition or results of operations.

| | In
March 2004, the Emerging Issues Task Force reached a consensus on Issue 03-1,
Meaning of Other Than Temporary Impairment (Issue 03-1). The
Task Force reached a consensus on an other-than-temporary impairment model for debt and
equity securities accounted for under Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities and
cost method investments, and required certain additional financial statement disclosures.
The implementation of the Other-Than-Temporary Impairment component of
this consensus has been postponed. Management cannot determine the effect of the adoption
of this guidance on the Companys consolidated financial condition or results of
operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (revised 2004),Share Based Payment. This Statement
requires a public entity to measure the cost of employee services received in exchange for
an award of equity instruments, which includes stock options and warrants, based on the
grant-date fair value of the award.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-12

---

POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

Notes to Consolidated
Financial Statements, Continued

(1)  Description of
Business and Summary of Significant Accounting Policies, Continued

Recent Pronouncements, Continued.That cost will be recognized over the period
during which an employee is required to provide service in exchange for the award. Public
entities will adopt this Statement using a modified version of prospective application.
Under this application, this Statement will apply to new awards and to awards modified,
repurchased, or cancelled after the required effective date and to awards not yet vested
that exist as of the effective date. This Statement is effective for the Company as of the
beginning of the first interim or annual reporting period that begins after December 15,
2005. Management has not yet determined what effect this Statement will have on the
Companys 2006 consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets-an
Amendment to APB opinion No. 29. This Statement addresses the
measurement of exchanges of nonmonetary assets. The Statement is effective for fiscal
periods beginning after June 15, 2005. Management believes this Statement will not have a
material effect on the Companys consolidated financial statements.

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

|                                               | Before Tax |  | Tax Effect |       | After Tax
|---------------------------------------------- | ---------- |  | ---------- | ----- | ---------
|Year Ended December 31, 2004:                  |            |  |            |       |          
|                                               |            | 
|Unrealized holding losses                      |            |  | $          | (541  | )        
|Reclassification adjustment for gains included |            | 
|in net earnings                                |            |  |            | (62   | )        
|                                               |            | 
|                                               |            |  | $          | (603  | )        
|Year Ended December 31, 2003:                  |            | 
|                                               |            | 
|Unrealized holding losses                      |            |  |            | (151  | )        
|Reclassification adjustment for gains included |            | 
|in net earnings                                |            |  |            | (436  | )        
|                                               |            | 
|                                               |            |  | $          | (587  | )        
|Year Ended December 31, 2002:                  |            | 
|                                               |            | 
|Unrealized holding gains                       |            |  |            | 1,886 |          
|Reclassification adjustment for gains included |            | 
|in net earnings                                |            |  |            | (342  | )        
|                                               |            |  | $          | 1,544 |          

(continued)

F-13

---

POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

Notes to Consolidated
Financial Statements, Continued

(2) Securities Available
for Sale


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




|                                  | AmortizedCost |  | GrossUnrealizedGains |         | GrossUnrealizedLosses |  | FairValue
|--------------------------------- | ------------- |  | -------------------- | ------- | --------------------- |  | ---------
|At December 31, 2004:             |               |  |                      |         |                       |  |          
|U.S. Treasury securities          |               |  | $                    | 3,709   |                       |  | 18       
|U.S. Government agency securities |               |  |                      | 78,047  |                       |  | 21       
|Tax-exempt securities             |               |  |                      | 17,707  |                       |  | 517      
|Mortgage-backed securities        |               |  |                      | 1,204   |                       |  | 20       
|Mutual funds                      |               |  |                      | 2,000   |                       |  | -        
|Equity securities                 |               |  |                      | 129     |                       |  | -        
|Other                             |               |  |                      | 500     |                       |  | -        
|                                  |               | 
|Total                             |               |  | $                    | 103,296 |                       |  | 576      
|                                  |               | 
|At December 31, 2003:             |               | 
|U.S. Treasury securities          |               |  |                      | 7,921   |                       |  | 277      
|U.S. Government agency securities |               |  |                      | 41,671  |                       |  | 251      
|Tax-exempt securities             |               |  |                      | 14,773  |                       |  | 420      
|Mortgage-backed securities        |               |  |                      | 1,624   |                       |  | 29       
|Mutual funds                      |               |  |                      | 2,000   |                       |  | -        
|Other                             |               |  |                      | 425     |                       |  | -        
|                                  |               | 
|Total                             |               |  | $                    | 68,414  |                       |  | 977      

At December 31, 2004 and 2003, approximately $539,000 and $566,000 respectively, of
securities were pledged for the Companys treasury tax and loan account,
approximately $36,768,000 and $20,854,000, respectively, were pledged as collateral for
investment repurchase agreements and approximately $11,962,000 and $8,430,000,
respectively, were pledged for public deposits.

The
following summarizes sales of securities (in thousands):

|                                     | Year Ended December 31,
|------------------------------------ | -----------------------
|
|                                     |                        
|Proceeds from sale of securities     |                        
|                                     |                        
|Gross gains from sale of securities  |                        
|Gross losses from sale of securities |                        
|                                     |                        
|Net gains                            |                        

(continued)

F-14

---

POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

Notes to Consolidated
Financial Statements, Continued

(2) Securities Available
for Sale, Continued

Securities with gross unrealized losses at December 31, 2004, aggregated by investment category and
length of time that individual securities have been in a continuous loss position, is as
follows (in thousands):

|                                    | Less Than Twelve Months |  | Over Twelve Months
|----------------------------------- | ----------------------- |  | ------------------
|
|Securities available for sale:      |                         |  |                   
|U.S. Treasury securities            |                         |  | $                 
|U.S. Government agency securities   |                         |  |                   
|Tax exempt securities               |                         |  |                   
|Mortgage-backed securities          |                         |  |                   
|Mutual fund                         |                         |  |                   
|Equity securities                   |                         |  |                   
|Other securities                    |                         |  |                   
|Total securities available for sale |                         |  | $                 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis,
and more frequently when economic or market concerns warrant such evaluation.
Consideration is given to (1) the length of time and the extent to which the fair value
has been less than cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in fair
value.

The unrealized losses on investment securities available for sale were caused by interest rate
changes. It is expected that the securities would not be settled at a price less than the
par value of the investments. Because the decline in fair value is attributable to changes
in interest rates and not credit quality, and because the Company has the ability and
intent to hold these investments until a market price recovery or maturity, these
investments are not considered other-than-temporarily impaired.

The
scheduled maturities of securities available for sale at December 31, 2004 are as follows
(in thousands):

|                           | Amortized Cost |  | FairValue
|-------------------------- | -------------- |  | ---------
|                           |                |  |          
|Due in less than one year  |                |  | $        
|Due from one to five years |                |  |          
|Due from five to ten years |                |  |          
|Due in over ten years      |                |  |          
|Mortgage-backed securities |                |  |          
|Mutual funds               |                |  |          
|Equity securities          |                |  |          
|                           |                | 
|                           |                |  | $        

F-15

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

# (3) Loans

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

|                          | At December 31,
|------------------------- | ---------------
|
|Residential real estate   |                
|Commercial real estate    |                
|Commercial                |                
|Consumer                  |                
|                          |                
|                         
|Total loans               |                
|                         
|Deduct:                   |                
|Net deferred loan fees    |                
|Allowance for loan losses |                
|                          |                
|                          |                
|                          |                

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

|                                   | Year Ended December 31,
|---------------------------------- | -----------------------
|
|Balance at beginning of year       |                        
|                                   |                        
|                                  
|Loans charged-off                  |                        
|Recoveries                         |                        
|                                   |                        
|                                   |                        
|Net loans (charged-off) recovered  |                        
|                                   |                        
|                                   |                        
|Provision (credit) for loan losses |                        
|                                   |                        
|                                   |                        
|Balance at end of year             |                        
|                                   |                        
|                                   |                        

| | At December 31, 2004 and 2003 and for the years ending December 31, 2004, 2003 and 2002 there
were no impaired loans outstanding.
| | ---------------------------------------------------------------------------------------------------------------------------------

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

|                                                 | At December 31,
|------------------------------------------------ | ---------------
|
|                                                
|Nonaccrual loans                                 |                
|Past due ninety days or more, but still accruing |                
|                                                 |                
|                                                 |                
|                                                 |                
|                                                 |                

(continued)

F-16

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

# (4) Premises and
Equipment

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

|                                               | At December 31,
|---------------------------------------------- | ---------------
|
|                                              
|Land                                           |                
|Building                                       |                
|Leasehold improvements                         |                
|Furniture, fixtures and equipment              |                
|                                               |                
|                                              
|Total, at cost                                 |                
|                                              
|Less accumulated depreciation and amortization |                
|                                               |                
|                                              
|Net book value                                 |                
|                                               |                

The Company  leases certain  banking  offices.  The lease terms range up to ten years.  Some of the leases contain
         escalation  clauses  providing for increased rent expense based primarily on increases in the average consumer
         index or  percentages  stipulated  in the lease  agreements.  Rental  expense  was  approximately  $1,478,000,
         $1,451,000  and $1,304,000 for the years ended  December 31, 2004,  2003 and 2002,  respectively.  Approximate
         future minimum annual rental payments under noncancellable leases are as follows (in thousands):

|Year EndingDecember 31, |  |  | Amount
|----------------------- |  |  | ------
|                       
|2005                    |  |  | $     
|2006                    |  |  |       
|2007                    |  |  |       
|2008                    |  |  |       
|2009                    |  |  |       
|Thereafter              |  |  |       
|                        |  |  |       
|                       
|Total                   |  |  | $     
|                        |  |  |       

(5)  Deposits




At December 31, 2004, the scheduled maturities of all time deposits are as follows (in thousands):

|Year EndingDecember 31, |  |       | Amount
|----------------------- |  | ----- | ------
|                       
|2005                    |  |       | $     
|2006                    |  |       |       
|2007                    |  |       |       
|2008                    |  |       |       
|2009 and thereafter     |  | 1,187 |       
|                        |  |       |       
|                       
|                        |  |       | $     
|                        |  |       |       

(6) Other Borrowings




(continued)

F-17

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

(7) Federal Home Loan
Bank Advances


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


|      |  |  | 
|----- |  |  | 
|
|
|     
|2005  |  |  | 
|2008  |  |  | 
|2010  |  |  | 
|      |  |  | 
|     
|Total |  |  | 
|      |  |  | 

At December 31, 2004, the FHLB has the option to call $20.0 million of the above advances at
an earlier date than the maturity date. At December 31, 2004 and 2003, pursuant to the
collateral agreement with the FHLB, advances are collateralized by the Companys FHLB
stock and a blanket lien on the Companys qualifying first mortgage, one-to-four
family residential loans.

(8) Contingencies




(9) Financial Instruments


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


|                                | At December 31, 2004 |  | At December 31, 2003
|------------------------------- | -------------------- |  | --------------------
|
|Financial assets:               |                      |  |                     
|Cash and cash equivalents       |                      |  | $                   
|Securities available for sale   |                      |  |                     
|Loans, net                      |                      |  |                     
|Loans held for sale             |                      |  |                     
|Accrued interest receivable     |                      |  |                     
|Other securities                |                      |  |                     
|                               
|Financial liabilities:          |                      | 
|Deposit liabilities             |                      |  |                     
|Other borrowings                |                      |  |                     
|Federal Home Loan Bank advances |                      |  |                     
|Accrued Interest                |                      |  |                     

(continued)

F-18

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

Notes to Consolidated
Financial Statements, Continued


(9) Financial
Instruments, Continued




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

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

Standby letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to customers. All
outstanding letters of credit at December 31, 2004 expire in 2005 and the Company has not
recorded a liability for these letters of credit. The Company has collateral securing
these agreements or guarantees, which in the event that the Company is required to fund
the letters of credit, will result in no loss to the Company.

Unused lines of credit and commitments to extend credit typically result in loans with a market
interest rate when funded. A summary of the contractual amounts of the Companys
financial instruments, which approximate fair value, with off- balance sheet risk at
December 31, 2004 follows (in thousands):

|                                            | ContractualAmount |  | CarryingAmount |        | FairValue
|------------------------------------------- | ----------------- |  | -------------- | ------ | ---------
|                                           
|Unfunded loan commitments at fixed rates    |                   |  | $              | 720    |          
|                                            |                   |  |                |        |          
|Unfunded loan commitments at variable rates |                   |  | $              | 4,915  |          
|                                            |                   |  |                |        |          
|Available lines of credit                   |                   |  | $              | 51,349 |          
|                                            |                   |  |                |        |          
|Standby letters of credit                   |                   |  | $              | 3,299  |          
|                                            |                   |  |                |        |          

(10) Credit Risk




(continued)

F-19

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

(11) Income Taxes


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


|Year Ended December 31, 2004: |  |  | Current |       | Deferred |  | Total |  
|----------------------------- |  |  | ------- | ----- | -------- |  | ----- | -
|Federal                       |  |  | $       | 1,230 |          |  | (61   | )
|State                         |  |  | $       | 263   |          |  | (11   | )
|                              |  |  |         |       |          |  |       |  
|Total                         |  |  | $       | 1,493 |          |  | (72   | )
|                              |  |  |         |       |          |  |       |  
|Year Ended December 31, 2003: |  | 
|Federal                       |  |  |         | 914   |          |  | 48    |  
|State                         |  |  |         | 208   |          |  | 8     |  
|                              |  |  |         |       |          |  |       |  
|Total                         |  |  | $       | 1,122 |          |  | 56    |  
|                              |  |  |         |       |          |  |       |  
|                             
|Year Ended December 31, 2002: |  | 
|Federal                       |  |  |         | 1,001 |          |  | (307  | )
|State                         |  |  |         | 187   |          |  | (52   | )
|                              |  |  |         |       |          |  |       |  
|Total                         |  |  | $       | 1,188 |          |  | (359  | )
|                              |  |  |         |       |          |  |       |  

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

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

(continued)

F-20

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

(11)  Income Taxes, Continued


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


| | At December 31,                      | 
| | ------------------------------------ | 
|
| | Deferred tax assets:                 | 
| | Allowance for loan losses            | 
| | Accumulated depreciation             | 
| | Stock incentive plan                 | 
| | Other                                | 
| |                                      | 
| | Deferred tax assets                  | 
| |                                      | 
| | Deferred tax liabilities:            | 
| | Intangible asset                     | 
| | Accrued dividends                    | 
| |                                      | 
| | Total gross deferred tax liabilities | 
| |                                      | 
| | Net deferred tax assets              | 

(12)  Related Parties


The Company has entered into transactions with officers, directors and principal stockholders
in the ordinary course of business. Loans to such related parties amounted to
approximately $1,968,000 and $2,466,000 at December 31, 2004 and 2003, respectively.
During the year ended December 31, 2004, total principal additions were approximately
$135,000 and total principal payments were approximately $633,000. Deposits from such
related parties at December 31, 2004 and 2003 were approximately $5,241,000 and
$3,979,000, respectively.


(13)  Profit Sharing Plan


The Company sponsors a 401(k) profit sharing plan (the Plan). The Plan is
available to all employees electing to participate after meeting certain length-of-service
requirements. The Companys contributions to the Plan are discretionary and are
determined annually. Expense relating to the Companys contributions to the Plan was
approximately $118,000, $92,000 and $79,000 for 2004, 2003 and 2002, respectively.


(14)  Deferred Compensation Plans


The Company had a deferred compensation plan for members of the Board of Directors. The plan
permitted the directors to receive the Companys common stock in lieu of cash as
payment of their annual directors retainer. During the year ending December 31,
2004, the Company elected to terminate the Directors Deferred Compensation Plan.


(continued)

F-21

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

(15)  Stock Award Plans


Certain key employees and the Companys directors have options to purchase shares of the
Companys common stock under a nonqualified stock option plan adopted in 1994. In
1998, a new Incentive Compensation and Stock Award Plan (1998 Plan) was
adopted under which both qualified and nonqualified options can be granted and stock can
be awarded to employees as compensation. The Companys Board of Directors in 2001
determined that all new options would be granted under the 1998 Plan. Directors options
vest immediately and officers and employees vest over three or five years. A total of
400,000 options or shares can be granted to directors and employees of the Company under
the 1998 plan. As of December 31, 2004, 4,130 options or shares remain available for
grant. A summary of stock option transactions follows ($ in thousands, except per share
amounts):


|                                 |  | Number of
  Shares |          | Range of Per
  Share Option
  Price |   | Weighted-
  Average
  Per Share
  Price |  | AggregateOption
  Price |      
|-------------------------------- |  | ------------------ | -------- | ----------------------------------- | - | --------------------------------------- |  | ----------------------- | -----
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|Outstanding at December 31, 2001 |  |                    | 359,052  |                                     | $ | 8.62 - 15.38                            |  |                         | 10.07
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|Options granted                  |  |                    | 113,334  |                                     |   | 11.95 - 14.75                           |  |                         | 12.47
|Options exercised                |  |                    | (129,540 | )                                   |   | 9.00 - 11.25                            |  |                         | 9.61 
|Options forfeited                |  |                    | (31,319  | )                                   |   | 9.00 - 15.38                            |  |                         | 11.22
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|Outstanding at December 31, 2002 |  |                    | 311,527  |                                     |   | 8.62 - 15.38                            |  |                         | 11.02
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|Options granted                  |  |                    | 82,605   |                                     |   | 15.15 - 24.15                           |  |                         | 16.74
|Options exercised                |  |                    | (70,884  | )                                   |   | 8.62 - 16.30                            |  |                         | 11.34
|Options forfeited                |  |                    | (13,162  | )                                   |   | 9.00 - 15.15                            |  |                         | 12.71
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|Outstanding at December 31, 2003 |  |                    | 310,086  |                                     |   | 8.62 - 24.15                            |  |                         | 12.40
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|Options granted                  |  |                    | 14,000   |                                     |   | 28.00                                   |  |                         | 28.00
|Options exercised                |  |                    | (30,569  | )                                   |   | 9.00-28.00                              |  |                         | 12.16
|Options forfeited                |  |                    | (2,282   | )                                   |   | 11.95-13.10                             |  |                         | 12.29
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|                                 |  |                    |          |                                     |   |                                         |  |                         |      
|Outstanding at December 31, 2004 |  |                    | 291,235  |                                     | $ | 9.00-28.00                              |  | $                       | 12.40
|                                 |  |                    |          |                                     |   |                                         |  |                         |      

The weighted-average remaining contractual life of the outstanding stock options at December
31, 2004, 2003 and 2002 was eighty-three months, eighty-six months and seventy-eight
months, respectively.

These options are exercisable as
follows:

| | Year Ending | Number ofShares |  | Weighted-AverageExercise Price |        
| | ----------- | --------------- |  | ------------------------------ | -------
|
| | Currently   |                 |  |                                | 221,160
| | 2005        |                 |  |                                | 48,849 
| | 2006        |                 |  |                                | 21,226 
|
| |             |                 |  |                                | 291,235

(continued)

F-22

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

(15)  Stock Award Plans,
Continued


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


|                                        | Shares
|--------------------------------------- | ------
|                                       
|Shares outstanding at December 31, 2001 |       
|Shares forfeited                        |       
|                                       
|Shares outstanding at December 31, 2002 |       
|Shares granted                          |       
|Shares vested                           |       
|Shares forfeited                        |       
|                                       
|Shares outstanding at December 31, 2003 |       
|Shares granted                          |       
|Shares forfeited                        |       
|                                       
|Shares outstanding at December 31, 2004 |       

(16)  Regulatory Matters


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


Quantitative measures established by regulation to ensure capital adequacy require the Company and the
Bank to maintain minimum amounts and percentages (set forth in the following table) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined) and of Tier 1 capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2004 and 2003, that the Company and the Bank met all capital
adequacy requirements to which they are subject.

(continued)

F-23

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

(16)  Regulatory Matters,
Continued


As of December 31, 2004, the most recent notification from the regulatory authorities
categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, an institution must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth
in the following tables. There are no conditions or events since that notification that
management believes have changed the Banks category. The Company and the Banks
actual capital amounts and percentages are also presented in the table ($ in thousands).


|                         | Actual |  | Minimum CapitalRequirement |        | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | 
|------------------------ | ------ |  | -------------------------- | ------ | ------------------------------------------------------------------------ | 
|
|As of December 31, 2004: |        |  |                            |        |                                                                          | 
|Total capital to Risk-   |        | 
|Weighted Assets:         |        | 
|Consolidated             |        |  | $                          | 37,818 |                                                                          | 
|Bank                     |        |  |                            | 35,835 |                                                                          | 
|Tier I Capital to Risk-  |        | 
|Weighted Assets:         |        | 
|Consolidated             |        |  |                            | 34,469 |                                                                          | 
|Bank                     |        |  |                            | 32,485 |                                                                          | 
|Tier I Capital           |        | 
|to Average Assets        |        | 
|Consolidated             |        |  |                            | 34,469 |                                                                          | 
|Bank                     |        |  |                            | 32,485 |                                                                          | 
|                        
|As of December 31, 2003: |        | 
|Total capital to Risk-   |        | 
|Weighted Assets:         |        | 
|Consolidated             |        |  |                            | 34,556 |                                                                          | 
|Bank                     |        |  |                            | 31,619 |                                                                          | 
|Tier I Capital to Risk-  |        | 
|Weighted Assets:         |        | 
|Consolidated             |        |  |                            | 31,331 |                                                                          | 
|Bank                     |        |  |                            | 28,406 |                                                                          | 
|Tier I Capital           |        | 
|to Average Assets        |        | 
|Consolidated             |        |  |                            | 31,331 |                                                                          | 
|Bank                     |        |  |                            | 28,406 |                                                                          | 

(continued)

F-24

---

# POINTE FINANCIAL
CORPORATION AND SUBSIDIARIES

# Notes to Consolidated
Financial Statements, Continued

(17) StockholdersEquity


In 1999, the Companys Board of Directors approved a stock repurchase program. The
program was initially allocated $3.0 million and in 2000, the Board authorized up to an
additional $3.0 million to be used to repurchase Company stock. As of December 31, 2004,
the Company has repurchased 297,000 shares in treasury stock at a net cost of
approximately $3.0 million.


The Companys ability to pay cash dividends on its common stock is limited to the amount
of dividends it could receive from the Bank plus its own cash and cash equivalents, which
amounted to $861,000 at December 31, 2004. The amount of dividends the Bank is permitted
to pay to the Company is restricted to 100% of its calendar year-to-date net earnings plus
retained earnings for the preceding two years. Twenty percent of the net earnings in the
preceding two-year period may not be paid in dividends, but must be retained to increase
capital surplus until such surplus equals the amount of the Banks common stock then
outstanding. In addition, no bank may pay a dividend at any time that net earnings in the
current year when combined with retained earnings from the preceding two years produce a
loss. Under Florida law, a Florida chartered commercial bank may not pay cash dividends
that would cause the Banks capital to fall below the minimum amount required by
Federal or Florida law.

(18)  Earnings Per Share


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


| | Year Ended December 31,                                  
| | ---------------------------------------------------------
|
|
| | Weighted-average number of common shares outstanding     
| | Effect of dilutive options                               
|
| | Weighted-average number of common shares outstanding used
| | to calculate diluted earnings per common share           

(19)  Investment in Joint Venture


The Company was a joint venture partner in Pointe Capital, which was accounted for using the
equity method of accounting. During 2003, Pointe Capital discontinued operating activities
and in 2004 net assets of Pointe Capital were liquidated and the partnership was
dissolved.


(continued)

F-25

---

POINTE
FINANCIAL CORPORATION AND SUBSIDIARIES

Notes
to Consolidated Financial Statements, Continued



(20) Holding Company Financial Information

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

Condensed Balance Sheets

| |                                              |  | At December 31, |       
| | -------------------------------------------- |  | --------------- | ------
| |                                              |  |                 |       
| |                                              |  | 2004            |       
| |                                              |  |                 |       
| |                                              |  |                 |       
| | Assets                                       |  |                 |       
| |                                              |  |                 |       
| | Cash and cash equivalents                    |  | $               | 861   
| | Investment in subsidiaries                   |  |                 | 35,465
| | Other assets                                 |  |                 | 1,117 
| |                                              |  |                 |       
| |                                              |  |                 |       
| |                                              |  |                 |       
| | Total
assets                                 |  | $               | 37,443
| |                                              |  |                 |       
| |                                              |  |                 |       
| |                                              |  |                 |       
| | Liabilities
  and Stockholders Equity       |  |                 |       
| |                                              |  |                 |       
| |                                              |  |                 |       
| | Other liabilities                            |  |                 | 2     
| | Stockholders equity                         |  |                 | 37,441
| |                                              |  |                 |       
| |                                              |  |                 |       
| |                                              |  |                 |       
| | Total
  liabilities and stockholders equity |  | $               | 37,443
| |                                              |  |                 |       

Condensed
Statements of Earnings

| |                                        |  | Year Ended December 31, |      
| | -------------------------------------- |  | ----------------------- | -----
| |                                        |  |                         |      
| |                                        |  | 2004                    |      
| |                                        |  |                         |      
| |                                        |  |                         |      
| | Revenues                               |  | $                       | (72  
| | Expenses                               |  |                         | (718 
| |                                        |  |                         |      
| |                                        |  |                         |      
| |                                        |  |                         |      
| | Loss before
  earnings of subsidiaries |  |                         | (790 
| | Earnings of
  subsidiaries             |  |                         | 3,839
| |                                        |  |                         |      
| |                                        |  |                         |      
| |                                        |  |                         |      
| | Net
earnings                           |  | $                       | 3,049
| |                                        |  |                         |      

(continued)

F-26

---

POINTE FINANCIAL CORPORATION
AND SUBSIDIARIES

Notes
to Consolidated Financial Statements, Continued

(20) Holding Company Financial Information,
Continued

Condensed
Statements of Cash Flows

|                                                           |  | Year Ended December 31, |       
|---------------------------------------------------------- |  | ----------------------- | ------
|                                                           |  |                         |       
|                                                           |  | 2004                    |       
|                                                           |  |                         |       
|                                                           |  |                         |       
|Cash flows from operating activities:                      |  |                         |       
|Net
earnings                                               |  | $                       | 3,049 
|Adjustments to
  reconcile net earnings to net cash        |  |                         |       
|used in
  operating activities:                            |  |                         |       
|Undistributed
  earnings of subsidiaries                   |  |                         | (3,839
|Shares
  committed to participants in incentive stock plan |  |                         | 65    
|Decrease
  (increase) in other assets                      |  |                         | 367   
|(Decrease)
  increase in other liabilities                 |  |                         | (2    
|                                                           |  |                         |       
|                                                           |  |                         |       
|                                                           |  |                         |       
|Net cash used
  in operating activities                    |  |                         | (360  
|                                                           |  |                         |       
|                                                           |  |                         |       
|                                                           |  |                         |       
|Cash flows from financing activities:                      |  |                         |       
|Cash dividends
  paid on common stock                      |  |                         | (817  
|Proceeds from
  exercise of stock options                  |  |                         | 372   
|                                                           |  |                         |       
|                                                           |  |                         |       
|                                                           |  |                         |       
|Net cash (used
  in) provided by financing activities      |  |                         | (445  
|                                                           |  |                         |       
|                                                           |  |                         |       
|                                                           |  |                         |       
|Net (decrease) increase in cash and cash
  equivalents     |  |                         | (805  
|                                                           |  |                         |       
|                                                           |  |                         |       
|                                                           |  |                         |       
|Cash and cash equivalents at beginning
  of the year       |  |                         | 1,666 
|                                                           |  |                         |       
|                                                           |  |                         |       
|                                                           |  |                         |       
|Cash and cash equivalents at end of year                   |  | $                       | 861   
|                                                           |  |                         |       

(21) Definitive Agreement

On October 27, 2004 Pointe Financial
Corporation (NASDAQ: PNTE) and its subsidiaries entered into a definitive   agreement to be acquired by The
South Financial Group, Inc. (NASDAQ: TSFG), a bank
holding company   incorporated in South
Carolina. Pointes operations will be
conducted through TSFGs Florida banking
subsidiary, Mercantile Bank.
Under the terms of the agreement, which has ben unanimously approved by
both   boards of directors, TSFG will
issue fixed consideration of 2,554,022 shares of TSFG common stock and     $24,493,075 in cash for all
outstanding
PNTE shares, calculated on a fully diluted basis. PNTE shareholders    will
have the right to elect to receive cash, TSFG common stock, or a mixture of
cash and TSFG stock. Without   giving effect to any elections, this
equates to $9.50 and 0.9906 TSFG shares for each fully diluted PNTE share.

F-27

---

Report ofIndependent
Registered Public Accounting Firm on Supplementary Information

Pointe Financial Corporation Boca Raton, Florida

We
have audited the accompanying consolidated financial statements of Pointe
Financial Corporation and Subsidiaries at and for the year ended December 31,
2004, and have issued our report thereon dated February 23, 2005. Our audit was conducted for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The consolidating information in
the accompanying schedules is presented for purposes of additional analysis of
the consolidated financial statements rather than to present the financial
position and results of operations of the individual companies. The consolidating information has been
subjected to the auditing procedures applied in the audit of the consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the consolidated financial statements taken as a whole.

HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
February 23, 2005

F-28

---

POINTE FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidating Balance Sheet
December 31, 2004(in thousands)



|                                          |  | Pointe
  Financial
  Corporation |        | Pointe
  Bank |  | Pointe
  Financial
  Services |  | Eliminations |      | Consolidated | 
|----------------------------------------- |  | -------------------------------- | ------ | ------------- |  | ----------------------------- |  | ------------ | ---- | ------------ | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|Assets                                    |  |                                  |        |               |  |                               |  |              |      |              | 
|                                         
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|Cash and cash equivalents                 |  | $                                | 861    |               |  | 12,734                        |  |              | 7    |              | 
|Securities available for sale             |  |                                  | 128    |               |  | 103,494                       |  |              | -    |              | 
|Loans, net                                |  |                                  | -      |               |  | 281,519                       |  |              | -    |              | 
|Loans held for sale                       |  |                                  | -      |               |  | 2,545                         |  |              | -    |              | 
|Accrued interest receivable               |  |                                  | -      |               |  | 2,322                         |  |              | -    |              | 
|Premises and equipment, net               |  |                                  | -      |               |  | 3,026                         |  |              | -    |              | 
|Other securities                          |  |                                  | -      |               |  | 2,685                         |  |              | -    |              | 
|Investment in subsidiaries                |  |                                  | 35,465 |               |  | -                             |  |              | -    |              | 
|Branch acquisition intangible asset       |  |                                  | -      |               |  | 2,732                         |  |              | -    |              | 
|Deferred income tax asset                 |  |                                  | 29     |               |  | 829                           |  |              | -    |              | 
|Other assets                              |  |                                  | 960    |               |  | 209                           |  |              | -    |              | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|                                         
|Total                                     |  | $                                | 37,443 |               |  | 412,095                       |  |              | 7    |              | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|                                         
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|Liabilities and
  Stockholders Equity    |  |                                  |        |               |  |                               |  |              |      |              | 
|                                         
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|Liabilities:                              |  |                                  |        |               |  |                               |  |              |      |              | 
|Deposits                                  |  |                                  | -      |               |  | 311,906                       |  |              | -    |              | 
|Official
checks                           |  |                                  | -      |               |  | 1,941                         |  |              | -    |              | 
|Federal Home
  Loan Bank advances         |  |                                  | -      |               |  | 33,555                        |  |              | -    |              | 
|Other
borrowings                          |  |                                  | -      |               |  | 28,001                        |  |              | -    |              | 
|Accrued
  interest payable                |  |                                  | -      |               |  | 397                           |  |              | -    |              | 
|Advance
  payments by borrowers for taxes |  |                                  |        |               |  |                               |  |              |      |              | 
|and insurance                             |  |                                  | -      |               |  | 181                           |  |              | -    |              | 
|Other
  liabilities                       |  |                                  | 2      |               |  | 656                           |  |              | -    |              | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|                                         
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|Total
  liabilities                       |  |                                  | 2      |               |  | 376,637                       |  |              | -    |              | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|                                         
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|Stockholders equity:                     |  |                                  |        |               |  |                               |  |              |      |              | 
|Common
stock                              |  |                                  | 26     |               |  | 306                           |  |              | 1    |              | 
|Additional
  paid-in capital              |  |                                  | 27,362 |               |  | 15,662                        |  |              | 220  |              | 
|Retained
  earnings (accumulated deficit) |  |                                  | 13,067 |               |  | 19,289                        |  |              | (214 | )            | 
|Accumulated
  other comprehensive income  |  |                                  | 202    |               |  | 201                           |  |              | -    |              | 
|Treasury
stock                            |  |                                  | (3,000 | )             |  | -                             |  |              | -    |              | 
|Stock incentive
  plan                    |  |                                  | (216   | )             |  | -                             |  |              | -    |              | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|                                         
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|Total
  stockholders equity              |  |                                  | 37,441 |               |  | 35,458                        |  |              | 7    |              | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|                                         
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 
|Total                                     |  |                                  | 37,443 |               |  | 412,095                       |  |              | 7    |              | 
|                                          |  |                                  |        |               |  |                               |  |              |      |              | 

|(a) | to eliminate intercompany cash         
|--- | ---------------------------------------
|(b) | to eliminate investment in subsidiaries

(continued)

F-29

---

POINTE
FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidating
Statement of Earnings
Year Ended December 31, 2004(in
thousands)

|                                                   |  | PointeFinancialCorporation |       | PointeBank |  | PointeFinancialServices |  | Eliminations |   | Consolidated | 
|-------------------------------------------------- |  | -------------------------- | ----- | ---------- |  | ----------------------- |  | ------------ | - | ------------ | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|Interest
  income:                                 |  |                            |       |            |  |                         |  |              |   |              | 
|Loans                                              |  | $                          | -     |            |  | 17,192                  |  |              | - |              | 
|Securities available for sale                      |  |                            | -     |            |  | 3,189                   |  |              | - |              | 
|Other                                              |  |                            |       |            |  | 256                     |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|Total interest income                              |  |                            | -     |            |  | 20,637                  |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|Interest
  expense:                                |  |                            |       |            |  |                         |  |              |   |              | 
|Deposits                                           |  |                            | -     |            |  | 2,900                   |  |              | - |              | 
|Borrowings                                         |  |                            | -     |            |  | 1,924                   |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|Total interest expense                             |  |                            | -     |            |  | 4,824                   |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|Net
  interest income                              |  |                            | -     |            |  | 15,813                  |  |              | - |              | 
|                                                  
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|Provision for loan losses                          |  |                            | -     |            |  | 215                     |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|Net
  interest income after credit for loan losses |  |                            | -     |            |  | 15,598                  |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|Noninterest
  income:                              |  |                            |       |            |  |                         |  |              |   |              | 
|Service charges on deposit
  accounts              |  |                            | -     |            |  | 2,077                   |  |              | - |              | 
|Net realized gain on sale of
  securities          |  |                            | (72   | )          |  | 134                     |  |              | - |              | 
|Earnings of subsidiaries                           |  |                            | 3,839 |            |  | -                       |  |              | - |              | 
|Loan correspondent fees                            |  |                            | -     |            |  | 143                     |  |              | - |              | 
|Other                                              |  |                            | 1     |            |  | 1,082                   |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|Total noninterest income                           |  |                            | 3,768 |            |  | 3,436                   |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|Noninterest
  expenses:                            |  |                            |       |            |  |                         |  |              |   |              | 
|Salaries and employee benefits                     |  |                            | 458   |            |  | 7,218                   |  |              | - |              | 
|Occupancy and equipment                            |  |                            | -     |            |  | 2,524                   |  |              | - |              | 
|Advertising and promotion                          |  |                            | 53    |            |  | 124                     |  |              | - |              | 
|Professional fees                                  |  |                            | 559   |            |  | 334                     |  |              | - |              | 
|Data processing                                    |  |                            | 8     |            |  | 689                     |  |              | - |              | 
|Amortization of intangible asset                   |  |                            | -     |            |  | 242                     |  |              | - |              | 
|Other                                              |  |                            | 109   |            |  | 2,175                   |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|Total noninterest expenses                         |  |                            | 1,187 |            |  | 13,306                  |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|Earnings before income taxes                       |  |                            | 2,581 |            |  | 5,728                   |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|Income taxes (benefit)                             |  |                            | (468  | )          |  | 1,889                   |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 
|                                                  
|Net earnings                                       |  | $                          | 3,049 |            |  | 3,839                   |  |              | - |              | 
|                                                   |  |                            |       |            |  |                         |  |              |   |              | 

(a)to
eliminate subsidiary earnings

F-30

---

Item  9.  Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

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

No
change in internal control over financial reporting occurred during the quarter ended
December 31, 2004 that has materially affected, or is reasonably likely to materially
affect, such internal control over financial reporting.

Item 9B. Other Information

None.

27

---

# PART III

# Item 10. Directors and
Executive Officers of the Company.

The
information contained under the caption Election of Directors to appear in
the Companys definitive proxy statement relating to the Companys 2005 Annual
Meeting of Stockholders (hereinafter referred to as the Annual Meeting Proxy
Statement) or an amendment to this Form 10-K, which Annual Meeting Proxy Statement
or amendment will be filed with the Securities and Exchange Commission not later than 120
days after the end of the Companys fiscal year covered by this report on Form 10-K,
is incorporated herein by reference. Information concerning the executive officers of the
Company is included in Part III of this Report on Form 10-K.

The
following table sets forth information concerning the executive officers of the Company
and the Bank. The officers of the Company are elected annually by the board of directors.

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

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

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

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

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

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

28

---

Item 11. Executive Compensation.

The
information contained under the caption Executive Compensation to appear in
the Annual Meeting Proxy Statement or an amendment to this Form 10-K is incorporated
herein by reference.

Item 12.   Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters.

The
information contained under the caption Security Ownership of Certain Beneficial
Owners and Management to appear in the Annual Meeting Proxy Statement or an
amendment to this Form 10-K is incorporated herein by reference.

# Existing Stock
Compensation Plans

Heretofore,
the Company has adopted, and the shareholders of the Company have approved, three equity
compensation plans: (i) the 1998 Directors Deferred Compensation Plan (the Directors
Plan); (ii) the 1998 Incentive Compensation and Stock Award Plan (the Incentive
Stock Plan); and (iii) the 1994 Non-Statutory Stock Option Plan. During the year
ending December 31, 2004, the Company elected to terminate the Directors Deferred
Compensation Plan. The purpose of the Incentive Stock Plan, amended at the 2001 annual
meeting to increase the number of shares of common stock available for grant and issuance
under the plan to 400,000 shares, is to attract, motivate, retain and reward high quality
executives and other employees, officers, directors and affiliates by enabling such
persons to acquire or increase a proprietary interest in the Company in order to
strengthen the mutuality of interests between such persons and the Companys
shareholders and providing such persons with annual and long-term performance incentives
to expend their maximum efforts in the creation of shareholder value. In conjunction with
the amendment of the Incentive Stock Plan, the Companys Board has determined that
no further options will be granted under the 1994 Non-Statutory Stock Option Plan.

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

|                                                 | (a)                                                                                         | (b)                                                                          | (c)                                                                                                                                         
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------
|Plan category                                    | Number of securities to be issued upon exercise of outstanding options, warrants
and rights | Weighted-average exercise  price of outstanding options, warrants and rights | Number of securities remaining available for future issuance  under equity compensation plans (excluding securities reflected in column (a))
|1998 Incentive Compensation and Stock Award Plan | 291,235*                                                                                    | $               13.17                                                        | 4,130                                                                                                                                       
|Total                                            | 291,235                                                                                     | $               13.17                                                        | 4,130                                                                                                                                       

*The
291,235 of securities to be issued upon exercise of outstanding options, warrants and
rights associated with the 1998 Incentive Compensation and Stock Award Plan is
net of 82,246 options previously exercised and 20,089 of stock grants previously issued.

29

---

Item 13. Certain Relationships and
Related Transactions.

The
information contained under the captions Compensation Committee Interlocks and
Insider Participation and Certain Relationships and Related Transactionsto
appear in the Annual Meeting Proxy Statement or an amendment to this Form 10-K is
incorporated herein by reference.

Item 14. Principal Accounting Fees
and Services.

# INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FEES

Aggregate
fees billed to the Company for the fiscal years ended December 31, 2004 and December 31,
2003 by the Companys independent registered public accounting firm are as follows:

|Type of Fees          |  | 2004 |   | 2003   | 
|--------------------- |  | ---- | - | ------ | 
|Audit Fees(1)         |  |      | $ | 64,000 | 
|Audit-Related Fees(2) |  |      |   |       | 
|Tax Fees(3)           |  |     
|                      |  |      |   | 5,500  | 
|All Other Fees(4)     |  |     
|                      |  |      |   | 6,000  | 
|                      |  |      |   |       
|Total                 |  |      | $ | 75,500 | 
|                      |  |     

___________

(1)          The services provided
in exchange for these fees consisted of our annual audit           and review of interim
financial statements.


(2) We did not incur any
          audit-related fees during 2003 or 2004.


(3) The services provided in
exchange           for these fees consisted of the preparation of federal and state tax
returns and           tax consultations.


(4)          In 2004, we engaged
Hacker, Johnson & Smith, P.A. to perform a limited-scope           audit of the
Companys 401(k) plan.


# Audit Committee
Pre-Approval Policies and Procedures

The
Audit Committee has established a policy and procedure to require the Audit Committees
pre-approval before the independent auditor is engaged to render any audit or non-audit
service to the Company. All of the fees paid to the Companys independent auditor
during 2004 and 2003 were approved by the Audit Committee.

# PART IV

Item 15. Exhibits and Financial
Statement Schedules.

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

| | (1) | Financial
Statements.
| | --- | ---------------------

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

| | Report
of Independent Registered Public Accounting Firm (Hacker, Johnson & Smith, P.A.)
| | ---------------------------------------------------------------------------------------

| | Consolidated
Balance Sheets as of December 31, 2004 and 2003
| | ------------------------------------------------------------

| | Consolidated
Statements of Earnings for the years ended December 31, 2004, 2003 and 2002.
| | -----------------------------------------------------------------------------------------

| | Consolidated
Statements of Stockholders Equity for the years ended December 31, 2004, 2003
and 2002. Consolidated Statements of Cash Flows for the years ended December 31,
2004, 2003 and 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Notes
to Consolidated Financial Statements.
| | -------------------------------------------

| | (2) | Financial
Statement Schedules.
| | --- | ------------------------------

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

| | (3) | Exhibits.*
| | --- | ----------

30

---

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

| |  | 2.2 |  | Agreement and Plan of Merger dated as of October 27, 2004 between The South Financial
Group, Inc. and Pointe Financial Corporation (Exhibit 2.1 to the Form 8-K filed with the
SEC on October 29, 2004).
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.1 |  | Articles
of Incorporation of the Registrant (Exhibit 3.1 to the Registration Statement).
| |  | --- |  | ----------------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

| |  | 10.13*** |  | Employment
 agreement between the company and R. Carl Palmer,  Jr. dated August 16, 1999 (Exhibit
10.13 to the                          1999 Form 10-K filed with the SEC on February 23,
2000).
| |  | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.15*** |  | Employment agreement between the company and Bradley R. Meredith dated August 16, 1999
(Exhibit 10.15 to the 1999 Form 10-K filed with the SEC on February 23, 2000).
| |  | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | 10.17*** |  | Employment
agreement between the Company and Jean Murphy-Engler dated June 24, 2002 (Exhibit 10.17
to the Form 10-QSB filed with the SEC on August 9, 2002).
| |  | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.18*** |  | Employment
agreement between the Company and John P. Dover dated June 24, 2002 (Exhibit 10.18 to the
Form 10-QSB filed with the SEC on August 9, 2002).
| |  | -------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.19 |  | Amended
and restated lease agreement dated May 13, 2002, by and between 21845 Powerline Road,
Ltd. and Pointe Bank (Exhibit 10.19 to the Form 10-QSB filed with the SEC on November 13,
2002).
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.20 |  | Standard
Retail Lease Agreement dated June 25, 2002 between Marquesa,  Inc. and Pointe Bank.
(Exhibit 10.20 to                          the 2002 Form 10-K filed with the SEC on March
18, 2003).
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.21*** |  | Employment Protection Agreement by and among John P. Dover, Pointe Bank and Pointe
Financial Corporation, dated as of July 23, 2004 (Exhibit 10.1 to the Form 10-Q filed with
the SEC on August 16, 2004).
| |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.22*** |  | Employment
Protection Agreement by and among John W. Lowery, Jr., Pointe Bank and Pointe Financial
Corporation, dated as of July 23, 2004 (Exhibit 10.2 to the Form 10-Q filed with the SEC
on August 16, 2004).
| |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.23*** |  | Employment
Protection Agreement by and among Bradley R. Meredith, Pointe Bank and Pointe Financial
Corporation, dated as of July 23, 2004 (Exhibit 10.3 to the Form 10-Q filed with the SEC
on August 16, 2004).
| |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

31

---

| |  | 10.24*** |  | Employment
Protection Agreement by and among Jean Murphy-Engler, Pointe Bank and Pointe Financial
Corporation, dated as of July 23, 2004 (Exhibit 10.4 to the Form 10-Q filed with the SEC
on August 16, 2004).
| |  | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.25*** |  | Employment
Protection Agreement by and among R. Carl Palmer, Jr., Pointe Bank and Pointe Financial
Corporation, dated as of July 23, 2004 (Exhibit 10.5 to the Form 10-Q filed with the SEC
on August 16, 2004).
| |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.26*** |  | Employment
Protection Agreement by and among Charles D. Umberger, Pointe Bank and Pointe Financial
Corporation, dated as of July 23, 2004 (Exhibit 10.6 to the Form 10-Q filed with the SEC
on August 16, 2004).
| |  | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.27 |  | Lease
Agreement  between 4035, Inc. and Pointe Bank,  dated April 6, 2004 (Exhibit 10.7 to the
Form 10-Q filed                          with the SEC on August 16, 2004).
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.28 |  | Commercial
Lease Agreement by and between 3700 Grand Avenue LLC and Pointe Bank, dated as of May 12,
2004 (Exhibit 10.8 to the Form 10-Q filed with the SEC on August 16, 2004).
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 14.1 |  | Code
of Business Conduct and Ethics.
| |  | ---- |  | ------------------------------------

| |  | 21.1 |  | Subsidiaries
of the Registrant.
| |  | ---- |  | -------------------------------

| |  | 23.1 |  | Consent
of Hacker, Johnson & Smith P.A.
| |  | ---- |  | ---------------------------------------

| |  | 31.1 |  | CEO
Certification required under Section 302 of Sarbanes-Oxley Act of 2002.
| |  | ---- |  | ---------------------------------------------------------------------------

| |  | 31.2 |  | CFO
Certification required under Section 302 of Sarbanes-Oxley Act of 2002.
| |  | ---- |  | ---------------------------------------------------------------------------

| |  | 32.1 |  | CEO
Certifications required under Section 906 of Sarbanes-Oxley Act of 2002.
| |  | ---- |  | ----------------------------------------------------------------------------

| |  | 32.2 |  | CFO
Certifications required under Section 906 of Sarbanes-Oxley Act of 2002.
| |  | ---- |  | ----------------------------------------------------------------------------

____________

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


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

***    Contracts with Management.

| | (b)
         Exhibits to this Form 10-K are attached or incorporated herein by reference.
| | -----------------------------------------------------------------------------------------

| | (c)
Not applicable.
| | -------------------

32

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# SIGNATURES

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

|      |  | POINTE FINANCIAL CORPORATION |               
|----- |  | ---------------------------- | --------------
|Date: |  |                              | March 30, 2005
|      |  |                              |               
|      |  |                              |               
|     
|Date: |  |                              | March 30, 2005
|      |  |                              |               
|      |  |                              |               

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

|Name                    |  | Title |                                  | Date | 
|----------------------- |  | ----- | -------------------------------- | ---- | 
|                        |  |       |                                  |      | 
|/s/ R. CARL PALMER, JR  |  |       | Chairman of the Board, President |      | 
|                        |  |       | and Chief Executive Officer      |      | 
|R. Carl Palmer, Jr      |  |       |                                  |      | 
|                       
|/s/ TIMOTHY M. MCGINN   |  |       | Vice Chairman of the Board       |      | 
|                        |  |       |                                  |      | 
|Timothy M. McGinn       |  |      
|                       
|/s/ BRADLEY R. MEREDITH |  |       | Chief Financial Officer,         |      | 
|                        |  |       | Senior Vice President            |      | 
|Bradley R. Meredith     |  |       |                                  |      | 
|                       
|/s/ CLARITA KASSIN      |  |       | Director                         |      | 
|                        |  |       |                                  |      | 
|Clarita Kassin          |  |      
|                       
|/s/ MORRIS MASSRY       |  |       | Director                         |      | 
|                        |  |       |                                  |      | 
|Morris Massry           |  |      
|                       
|/s/ D. RICHARD MEAD, JR |  |       | Director                         |      | 
|                        |  |       |                                  |      | 
|D. Richard Mead, Jr     |  |      
|                       
|/s/ JAMES L. HORAN      |  |       | Director                         |      | 
|                        |  |       |                                  |      | 
|James L. Horan          |  |      

33

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# EXHIBIT INDEX

|14.1 |  | Code of Business Conduct and Ethics                                          |  | 
|---- |  | ---------------------------------------------------------------------------- |  | 
|21.1 |  | Subsidiaries of the Registrant                                               |  | 
|23.1 |  | Consent of Hacker, Johnson & Smith P.A.                                      |  | 
|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. |  | 

34

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