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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number 0-24433
POINTE FINANCIAL CORPORATION
----------------------------
(Exact name of Registrant as specified in its charter)
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 __
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.
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 February 25, 1999, was $17,706,967.*
The Registrant had 2,292,430 shares of Common Stock outstanding on
February 25, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Definitive Proxy Statement for its 1999 Annual Meeting
of Stockholders will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to Rule G(3) of the General Instructions for Form 10-K. Information
from such Definitive Proxy Statement will be incorporated by reference into 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.
1
INDEX
PART I Page
----
Item I. Description of Business
Business 3
Forward-Looking Statements 3
Market Area and Competition 3
Market Risk 4
Employees 4
Year 2000 Compliance 4
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
Item 4a. Executive Officers of the Registrant 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 8-9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-25
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 26
Item 8. Financial Statements and Supplementary Data (See Index - Page 26) 26-57
Item 9. Change In and Disagreements with Accountants on
Accounting and Financial Disclosure 58
PART III
Item 10. Directors and Executive Officers of the Registrant 58
Item 11. Executive Compensation 58
Item 12. Security Ownership of Certain Beneficial Owners and Management 58
Item 13. Certain Relationships and Related Transactions 58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 59-60
Supplemental Information 61
SIGNATURES 62
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business
The registrant, Pointe Financial Corporation ("Pointe" or the "Company"),
completed its initial public offering of 869,565 shares of its common stock on
June 12, 1998. The net offering proceeds totaled $12.076 million of which $6.000
million was invested in its bank subsidiary, Pointe Bank (the "Bank") and $6.076
million was retained by the registrant. At December 31, 1998, the Company has
total assets of $189.275 million and stockholders' equity of $27.035 million.
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. The Company streamlined its operations through the merger in April 1997
of the Thrift into the Bank. After the acquisition of the Bank in mid-1994, the
Company had been both a bank holding company (subject to regulation by the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board") 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. As a result of the merger of the Thrift into the Bank, the Company is
no longer subject to regulation by the OTS, thus the merger allowed the Company
to alleviate some of its regulatory burdens without negatively impacting its
ability to service its customers. At December 31, 1998, the Bank had total
assets of $189.170 million and stockholders' equity of $20.577 million.
The Company's principal business, conducted through Pointe Bank, is making
commercial, consumer and real estate loans. Attracting deposits from the general
public, along with utilizing Federal Home Loan Bank advances and other
borrowings are the primary sources of funds used to make these loans, and to a
lesser extent, purchase security investments. 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.
Forward-Looking Statements
When used in this Form 10-K or future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases or other public or
shareholder communications, or in oral statements made with the approval of an
authorized executive officer, the word or phrases "will likely result",
"expect", "will continue", "anticipate", "estimate", "project", "believe" and
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including general economic factors and conditions,
changes in levels of 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.
Market Area and Competition
The Bank is a community-oriented financial institution offering a variety of
financial services to meet the needs of the communities it serves. The Bank's
deposit gathering and lending markets are primarily concentrated in the
communities surrounding its full service offices located in Miami-Dade, Broward
and Palm Beach counties in south Florida. The Company competes with other
commercial and savings banks, savings and loan associations, credit unions,
finance companies, mutual funds, brokerage and investment banking firms,
asset-based nonbank lenders and certain other nonfinancial institutions,
including certain governmental organizations which may offer subsidized
financing at lower rates than those offered by the Bank.
3
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 10 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 in interest rates may adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
Employees
As of December 31, 1998, the Company employed 66 employees of which 61 were
full-time and 5 were part-time, including four executive officers. The Company's
employees are not represented by a collective bargaining group, and the Company
considers its relations with its employees to be excellent. 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.
Year 2000 Compliance
Management of the Company is acutely aware of the Year 2000 problem and has an
ongoing program designed to ensure that its operational and financial systems,
and those of its commercial bank subsidiary, will not be adversely affected by
Year 2000 software failures, due to processing errors arising from calculations
using the Year 2000 date. The Bank's Data Processing Steering Committee has been
assigned the Year 2000 compliance issue. The committee meets quarterly or as
needed to assess the extent to which the Bank and its outside vendors may be
adversely affected by the Year 2000 problem. The Committee has prepared and is
responsible for monitoring the Vendor Status Report which identifies the vendors
and equipment that have been determined to be Year 2000 sensitive. As of
December 31, 1998, the Bank had received written assurances from all of the
materially significant companies listed on the Vendor Status Report indicating
that their systems are Year 2000 compliant.
Based on current estimates, the Bank does not expect to incur a material amount
of expenses over the next two years on its program to redevelop, replace or
repair its computer applications to make them Year 2000 compliant. It is
recognized that any Year 2000 compliance failures could result in additional
expense to the Bank.
While management is diligently working to assure Year 2000 compliance,
compliance by the Bank is largely dependent upon compliance by vendors,
primarily in the area of on-line data processing. Management is requiring its
computer system and software vendors to represent that the products are, or will
be, Year 2000 compliant, and has planned a program for testing for compliance.
The most significant vendor to the Bank, which provides the software support for
the in-house system, Information Technology, Inc., has completed its testing
process. The Bank has and will continue to participate in the testing and
verification of Year 2000 related changes made by that vendor.
Although management believes that the Bank's system will be Year 2000 compliant,
a written contingency plan has been developed to address problems that might be
caused from Year 2000 system failures.
4
ITEM 2. PROPERTIES
The Bank conducts its business through its main office and three branch offices.
The following table sets forth certain information regarding the Bank's office
properties:
Book Value
Of Leasehold
Improvements
Date Book and Furniture
Acquired/ Lease Expiration Value of Land Fixtures and
Leased and And building at Equipment at Square
Location December 31, 1998 Renewal Terms December 31, 1998 December 31, 1998 Footage
- -------- ----------------- ---------------- ----------------- ----------------- -------
Main Office (1) (Dollars in thousands)
21845 Powerline Road 08/31/2002
Boca Raton, Florida 33433 1992 1 - 5 year period - 748 18,929
Pembroke Pines (1)
Onw S.W. 129th Avenue 02/28/2006
Pembroke Pines, Florida 1994 - - 100 5,719
33027
Aventura (1)
2690 N.E. 203rd Street 02/28/2000
Aventura, Florida 33180 1995 1 - 5 year period - 22 3,050
Boca Raton
19645 State Road 7
Boca Raton, Florida 33498 1998 - 564 144 3,200
(1) Leased branch office
The Bank owns and operates personal computers, teller terminals and associated
equipment. At December 31, 1998, such equipment had a net book value of
$313,000.
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are parties to various legal proceedings in the
ordinary course of business. Management does not believe that there is any
pending or threatened proceeding against the Company and the Bank which, if
determined adversely, would have a material adverse effect on the business,
results of operations, or financial position of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the stockholders during the fourth
quarter of the fiscal year ended December 31, 1998, through the solicitation of
proxies or otherwise.
5
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive officers of
the Company and the Bank.
Name Position Age
- ---- -------- ---
R. Carl Palmer, Jr. Director and President and Chief Executive Officer of the 58
Company and the Bank
Beverly P. Chambers Senior Vice President of the Company and the Bank 48
Bradley R. Meredith Senior Vice President and Chief Financial Officer of the 45
Company and the Bank
Dennis Reed Senior Vice President of the Company and the Bank 55
R. Carl Palmer, Jr. Mr. Palmer joined the Company and Bank in 1995 as Chief
Executive Officer, President and director. 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 Bank Banking Corporation, where he first
became associated with Beverly Chambers and Dennis Reed. During his tenure at
that bank with $17 billion in assets, he had responsibilities for business
development, commercial banking and retail banking. From 1988 to 1991, he was
President, Chief Operating Officer and director of Naples Federal Savings & Loan
and NAFCO Financial Corporation. He became a Senior Associate with Martin W.
Taplin & Associates, Inc., a real estate investment firm, in 1991. Mr. Palmer
received an M.B.A. from Dartmouth College, Amos Tuck School and a J.D. from New
York Law School. Mr. Palmer resides in Palm Beach County.
Beverly P. Chambers. Ms. Chambers joined the Company in 1995 with twenty-five
years of banking experience and manages business banking, loan administration,
marketing and human resources. Prior to joining the Company, she spent three
years as a Senior Vice President and Manager of Private Banking for NationsBank
of Florida. Prior to that position, Ms. Chambers was a Senior Vice President of
Southeast Banking Corporation managing commercial banking, and private banking
departments. Ms. Chambers resides in Broward County.
Bradley R. Meredith. Mr. Meredith joined the Company 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 seventeen 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 resides in Palm
Beach County.
Dennis Reed. Mr. Reed joined the Company in 1996 with twenty-nine years of
banking experience, primarily in operations, retail banking and residential
mortgage lending. His most recent experience was five years as Senior Vice
President of Bank Operations and Retail Lending with BancFlorida, FSB, preceded
by six years as Senior Vice President of Bank Operations with Southeast Bank.
Mr. Reed manages operations, retail banking and residential mortgage lending.
Mr. Reed resides in south Florida.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Since June 12,1998 the Company's common stock has been traded on the Nasdaq
National Market System under the symbol "PNTE". Prior to June 12, 1998 there was
no established public trading market for the Company's common stock. The high
and low bids for the Company's common stock on the Nasdaq National Market System
from June 12, 1998 through December 31,1998 were as follows :
Quarter Ended High Low
------------- ---- ---
March 31, 1998 N/A N/A
June 30, 1998 $ 15.875 14.625
September 30, 1998 $ 15.375 11.375
December 31, 1998 $ 11.000 7.625
7
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share figures)
At December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Cash and cash equivalents........................ $ 3,471 2,575 6,663 10,212 5,857
Securities....................................... 52,989 32,079 42,790 48,542 54,674
Loans............................................ 128,005 105,653 90,973 104,677 123,048
Loans held for sale.............................. 617 4,443 4,396 18,561 6,697
All other assets................................. 4,193 3,090 6,436 11,415 11,357
--------- -------- -------- -------- --------
Total assets................................. $ 189,275 147,840 151,258 193,407 201,633
========= ======== ======== ======== ========
Deposits......................................... 141,212 124,995 112,498 142,673 164,087
Other borrowings................................. 18,446 6,191 23,746 33,215 18,003
All other liabilities............................ 2,582 2,809 2,593 5,005 7,027
Stockholders' equity............................. 27,035 13,845 12,421 12,514 12,516
--------- -------- -------- -------- --------
Total liabilities and stockholders' equity... $ 189,275 147,840 151,258 193,407 201,633
========= ======== ======== ======== ========
Year Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total interest income.............................. $ 13,113 11,932 12,186 14,690 11,966
Total interest expense............................. 6,498 6,329 7,616 9,919 7,282
--------- -------- -------- -------- --------
Net interest income................................ 6,615 5,603 4,570 4,771 4,684
Provision for loan losses.......................... 950 80 185 336 75
--------- -------- -------- -------- --------
Net interest income after provision
for loan losses................................ 5,665 5,523 4,385 4,435 4,609
Noninterest income................................. 1,650 1,412 2,434 1,922 2,887
Noninterest expense................................ 5,631 5,471 6,847 7,360 6,273
SAIF recapitalization assessment (1)............... - - 926 - -
--------- -------- -------- -------- --------
Earnings (loss) before income taxes................ 1,684 1,464 (954) (1,003) 1,223
Income taxes (benefit)............................. 631 550 (355) (376) 458
--------- -------- -------- -------- --------
Net earnings (loss)................................ $ 1,053 914 (599) (627) 765
========= ======== ======== ======== ========
Earnings (loss) per share (2):
Basic ......................................... $ .56 .68 (.52) (.51) .72
========= ======== ======== ======== ========
Diluted........................................ $ .55 .62 (.52) (.51) .72
========= ======== ======== ======== ========
Without SAIF Assessment (1)
Net earnings (loss)................................ $ 1,053 914 (18) (627) 765
========= ======== ======== ======== ========
Earnings (loss) per common share - basic (2)....... $ .56 .68 (.01) (.51) .72
========= ======== ======== ======== ========
Earnings (loss) per common share - diluted (2)..... $ .55 .62 (.01) (.51) .72
========= ======== ======== ======== ========
8
SELECTED FINANCIAL DATA, continued
(Dollars in thousands, except per share figures)
At or For the
Year Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
For the Period:
Return on average assets........................ .61% .60% (.38%) (.31%) .41%
Return on average equity........................ 5.02% 7.04% (5.20%) (5.01%) 6.98%
Average equity to average assets................ 12.19% 8.59% 7.26% 6.23% 5.83%
Interest rate spread during the
period (3).................................. 3.10% 3.30% 2.83% 2.25% 1.98%
Net interest margin............................. 4.05% 3.93% 3.19% 2.53% 2.51%
Noninterest income to average assets............ .96% .93% 1.53% .96% 1.54%
Noninterest expense to average assets........... 3.27% 3.62% 4.90% 3.66% 3.34%
Efficiency ratio................................ 70.68% 78.31% 112.42% 109.98% 82.53%
At the End of the Period:
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 1.24 1.14 1.07 1.05 1.14
Nonperforming loans, and foreclosed real
estate as a percentage of total assets...... 1.60% 1.76% 1.15% 1.15% .54%
Allowance for loan losses as a percentage
of total loans.............................. .83% .80% .85% .79% .42%
Allowance for loan losses as a percentage
of nonperforming loans...................... 40.19% 33.97% 52.97% 37.74% 55.17%
Total number of offices......................... 3 3 3 3 3
Full-service banking offices.................... 3 3 3 3 3
Total shares outstanding at
end of period (2) .......................... 2,266,972 1,247,592 1,219,092 1,219,092 1,219,092
Book value per share (2)........................ $ 11.93 10.23 9.54 10.27 10.27
(1) The Bank was subject to a one-time special assessment that was paid by
all financial institutions insured by the SAIF in 1996. The Bank's
pre-tax assessment was $926,000 ($581,000 after taxes).
(2) All per share information is presented to reflect a three-for-two stock
split effective February 1998. The per share information also reflects
the consumation of an initial public offering issuing 869,565 shares of
common stock on June 12, 1998.
(3) Difference between weighted-average yield on all interest-earning
assets and weighted-average rate on all interest-bearing liabilities.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Pointe Financial Corporation (the "Company") owns 100% of the outstanding stock
of Pointe Bank (the "Bank"). The Bank is a State (Florida) chartered commercial
bank. The Bank, through three banking offices, provides a wide range of banking
services to individuals and businesses located primarily in South Florida. The
Company's only business activities are the operations of the Bank and Pointe
Financial Services, an inactive subsidiary.
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 $12.076
million of which $6.000 million was invested in its bank subsidiary, Pointe
Bank. The remaining proceeds retained by the Company will continue to fund
branch expansion and support growth in the loan and security portfolio.
At December 31, 1998, the Company had total consolidated assets of $189.275
million, an increase of $41.435 million or 28.0% over total assets of $147.840
million at December 31, 1997. The increase was partly due to proceeds of $12.076
million from the issuance of common stock during the period. Also, during the
year ended December 31, 1998, loans receivable increased $22.352 million or
21.2%. The Company's portfolio of securities increased $20.766 million or 68.1%
to $51.275 million as of December 31, 1998 from $30.509 million as of December
31, 1997. The Bank's deposits increased to $141.212 million as of December 31,
1998 from $124.995 million as of December 31, 1997, a 13.0% increase. The
Company had consolidated net earnings of $1.053 million or $.56 basic earnings
per share ($.55 diluted earnings per share) for the year ended December 31, 1998
compared to a consolidated net earnings of $914,000 or $.68 basic earnings per
share ($.62 diluted earnings per share for 1997). The decrease in the earnings
per share for 1997 to 1998 is primarily related to the issuance of 869,565
shares of common stock on June 12,1998, in the Offering.
Regulation and Legislation
As a state-chartered commercial bank, the Bank is subject to extensive
regulation by the Florida Department of Banking and Finance ("Florida DBF"), the
Federal Reserve Board and the Federal Deposit Insurance Corporation ("FDIC").
The Bank files reports with the Florida DBF and the 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 are
performed by the Florida DBF and the Federal Reserve Board to monitor the Bank's
compliance with the various regulatory requirements.
10
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 to protect the Bank from 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,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
Nonaccrual loans:
Residential real estate........................... $ 1,376 1,918 1,282 1,573 932
Commercial real estate............................ - - - 302 -
Commercial........................................ 1,306 577 182 351 25
Consumer and other................................ - 1 3 - -
-------- ------- ------- ------- -------
Total nonaccrual loans........................ 2,682 2,496 1,467 2,226 957
-------- ------- ------- ------- -------
Total nonperforming loans..................... 2,682 2,496 1,467 2,226 957
-------- ------- ------- ------- -------
Total nonperforming loans to total loans...... 2.08% 2.34% 1.60% 2.09% .77%
======== ======= ======= ======= =======
Foreclosed real estate-
Real estate acquired by foreclosure or deed
in lieu of foreclosure.......................... 353 105 270 - 127
-------- ------- ------- ------- -------
Total nonperforming loans and foreclosed
real estate................................... $ 3,035 2,601 1,737 2,226 1,084
======== ======= ======= ======= =======
Total nonperforming and foreclosed real estate
to total assets............................... 1.60% 1.76% 1.15% 1.15% .54%
======== ======= ======= ======= ======
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,
----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
Interest income that would have been recognized.... $ 302 343 200 203 117
Interest income recognized......................... 146 123 3 103 28
----- ---- ---- ---- ----
Interest income forgone............................ $ 156 220 197 100 89
===== ==== ==== ==== ====
11
The following table sets forth information with respect to activity in the
Bank's allowance for loan losses during the periods indicated:
Year Ended December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
Average loans outstanding......................... $ 116,499 102,315 96,307 129,431 125,460
========== ========= ======== ======== ========
Allowance at beginning of year.................... 848 777 840 528 382
---------- --------- -------- -------- --------
Charge-offs:
Residential real estate...................... - - (2) (27) (51)
Commercial................................... (682) (48) (238) - (2)
Consumer and other........................... (40) (10) (8) (2) -
---------- --------- -------- -------- --------
Total loans charged-off.................. (722) (58) (248) (29) (53)
---------- --------- -------- -------- --------
Recoveries........................................ 2 49 - 5 10
---------- --------- -------- -------- --------
Net charge-offs................................... (720) (9) (248) (24) (43)
---------- --------- -------- -------- --------
Provision for loan losses charged
to operating expenses........................ 950 80 185 336 75
---------- --------- -------- -------- --------
Amount attributable to Pointe Bank
at acquisition............................... - - - - 114
---------- --------- -------- -------- --------
Allowance at end of year.......................... $ 1,078 848 777 840 528
========== ========= ======== ======== ========
Net charge-offs to
average loans outstanding.................... .62% .01 .25 .02 .03
========== ========= ======== ======== ========
Allowance as a percent of total
loans........................................ .83% .80 .85 .79 .42
========== ========= ======== ======== ========
Allowance as a percentage of
nonperforming loans.......................... 40.19% 33.97 52.97 37.74 55.17
========== ========= ======== ======== ========
Total loans at end of year........................ $ 129,156 106,659 91,925 106,315 124,634
========== ========= ======== ======== ========
The provision for loan losses increased from $80,000 for the year ended December
31, 1997 to $950,000 for the year ended December 31, 1998. This increase was
primarily related to two commercial loans, one charged-off and the other written
down 50% through the loan loss reserve in which the Company is involved in a
claim against a bankruptcy debtor. The Company has historically had strong asset
quality as evidenced by the low percentage of net charge-offs to average loans
outstanding over the last five years of .19%. Management believes that the
allowance for loan losses of $1.078 million is adequate at December 31, 1998.
12
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,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------- ------------------ ------------------ ------------------ -------------------
% of % of % of % of % of
Amount Loans to Amount Loans to Amount Loans to Amount Loans to Amount Loans to
of Total of Total of Total of Total of Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
(Dollars in thousands)
Commercial loans.......... $ 641 16.64% $ 158 18.59% $ 135 17.35% $ 122 14.49% $ 33 6.26%
Commercial real
estate loans............ 213 16.19 140 16.53 88 11.31 20 2.42 25 4.77
Residential real
estate loans............ 109 59.56 492 57.97 525 67.60 687 81.80 466 88.26
Consumer and other
loans................... 115 7.61 58 6.91 29 3.74 11 1.29 4 .71
-------- ------ ----- ------ ----- ------ ----- ------ ----- ------
Total allowance
for loan
losses............ $ 1,078 100.0% $ 848 100.0% $ 777 100.0% $ 840 100.0% $ 528 100.0%
======== ====== ===== ====== ===== ====== ===== ====== ===== ======
Management evaluates currently available information in order to establish the
allocation of the allowance for loan losses. Future adjustments to the allowance
may be necessary if conditions change in the portfolio. Among these changes are
risk characteristics of the loan portfolio, the quality of specific loans, the
level of nonaccruing loans, current economic conditions, trends in delinquencies
or charge-offs and the value of underlying collateral, all of which are subject
to change.
13
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 ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. The Company's
interest-rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. In addition, the
Company's net earnings are also affected by the level of nonperforming loans and
foreclosed real estate, as well as the level of its noninterest income, and its
noninterest expenses, such as salaries and employee benefits, occupancy and
equipment costs and losses on foreclosed real estate and income taxes.
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,
-----------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------------- ----------------------------- -----------------------------
Interest Average Interest Average Interest Average
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate Balance Dividends Rate
------- --------- ------- ------- --------- ------- ------- --------- -------
(Dollars in thousands)
Interest-earning assets:
Loans ................. $ 116,499 10,459 8.98% $ 102,315 9,427 9.21% $ 96,307 9,001 9.35%
Securities ................. 45,634 2,581 5.66 38,200 2,402 6.29 41,068 2,872 6.99
Other interest-earning
assets (1).............. 1,313 73 5.56 2,085 103 4.94 6,070 313 5.16
--------- -------- --------- ------- --------- -------
Total interest-earning
assets............... 163,446 13,113 8.02 142,600 11,932 8.37 143,445 12,186 8.50
-------- ------- -------
Noninterest-earning
assets (2) ................. 8,642 8,609 15,127
--------- --------- ---------
Total assets............ $ 172,088 $ 151,209 $ 158,572
========= ========= =========
Interest-bearing liabilities:
Savings and NOW deposits.... 11,147 170 1.53 10,278 203 1.98 8,535 180 2.11
Money-market deposits....... 39,822 1,748 4.39 37,457 1,731 4.62 29,683 1,381 4.65
Time deposits............... 67,135 3,841 5.72 60,273 3,434 5.70 67,688 4,253 6.28
Borrowings.................. 14,055 739 5.26 16,879 961 5.69 28,348 1,802 6.36
------- ------- ------- ------- ------- ------
Total interest-bearing
liabilities...... 132,159 6,498 4.92 124,887 6,329 5.07 134,254 7,616 5.67
------- ------- ------
Demand deposits................ 15,730 11,369 9,812
Noninterest-bearing liabilities 3,216 1,971 2,987
Stockholders' equity........... 20,983 12,982 11,519
--------- --------- ---------
Total liabilities and
stockholders'
equity........... $ 172,088 $ 151,209 $ 158,572
========= ========= =========
Net interest income............ $ 6,615 $ 5,603 $ 4,570
======== ======== ========
Interest-rate spread (3)....... 3.10% 3.30% 2.83%
==== ==== ====
Net interest margin (4)........ 4.05% 3.93% 3.19%
==== ==== ====
Ratio of average interest-
earning assets to
average interest-
bearing liabilities......... 1.24 1.14 1.07
==== ==== ====
- ----------------------------------------
(1) Includes interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.
(2) Includes nonaccrual loans.
(3) Interest rate spread represents the difference between the weighted-average
yield on interest-earning assets and the weighted-average cost of interest-
bearing liabilities.
(4) Net interest margin is net interest income dividend by average interest-
earning assets.
14
Rate/Volume Analysis
The following table sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
Year Ended December 31,
1998 vs. 1997
--------------------------------------
Increase (Decrease) Due to
--------------------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
(In thousands)
Interest earning assets:
Loans ................................................................... $(235) 1,306 (39) 1,032
Securities............................................................... (241) 467 (47) 179
Other interest-earning assets............................................ 13 (38) (5) (30)
----- ------ ----- ------
Total.................................................................. (463) 1,735 (91) 1,181
----- ------ ----- ------
Interest-bearing liabilities:
Deposits:
Savings and NOW deposits............................................... (46) 17 (4) (33)
Money-market deposits.................................................. (87) 109 (5) 17
Time deposits.......................................................... 12 391 4 407
Other borrowings......................................................... (73) (161) 12 (222)
----- ------ ----- ------
Total.................................................................. (194) 356 7 169
----- ------ ----- ------
Net change in net interest income............................................ $(269) 1,379 (98) 1,012
===== ====== ===== ======
Year Ended December 31,
1997 vs. 1996
-------------------------------------
Increase (Decrease) Due to
-------------------------------------
Rate/
Rate Volume Volume Total
---- ------ ------ -----
(In thousands)
Interest earning assets:
Loans.................................................................... $ (128) 562 (8) 426
Securities............................................................... (289) (201) 20 (470)
Other interest-earning assets............................................ (13) (206) 9 (210)
------ ----- ----- -----
Total.................................................................. (430) 155 21 (254)
------ ----- ----- -----
Interest-bearing liabilities:
Deposits:
Savings and NOW deposits............................................... (11) 36 (2) 23
Money-market deposits.................................................. (9) 362 (3) 350
Time deposits.......................................................... (397) (466) 44 (819)
Other borrowings......................................................... (188) (729) 76 (841)
------ ----- ----- -----
Total.................................................................. (605) (797) 115 (1,287)
------ ----- ----- -----
Net change in net interest income............................................ $ 175 952 (94) 1,033
====== ===== ===== =====
15
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 the Florida DBF, such as
federal funds sold and United States securities or securities guaranteed by the
United States or agencies thereof. As of December 31, 1998 and December 31,
1997, the Bank had liquidity of approximately $40.332 million and $27.728
million, or approximately 29.31% and 22.41% of total deposits combined with
borrowings, respectively.
During the year ended December 31, 1998, the Company's primary sources of funds
consisted of principal payments on loans and securities, proceeds from sales and
maturities of securities, net increases in deposits, increase in Federal Home
Loan Bank advances, proceeds from sale of stock and net cash flows from
operating activities. The Company used its capital resources principally to
purchase securities and fund existing and continuing loan commitments. At
December 31, 1998, the Company had commitments to originate loans totaling
$9.587 million. Scheduled maturities of certificates of deposit during the 12
months following December 31, 1998 totaled $43.657 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 (dollars in thousands):
After One Year
One Year or Less to Five Year After Five Years Total
---------------- ---------------- ----------------- ------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- ------ ------- ------ -------- ------- -------- -------
At December 31, 1998:
U.S. Government agency
securities.......................... $ 2,008 5.53% $ 7,708 5.84% $ 2,983 5.65% $ 12,699 5.74%
U.S. Treasury securities.............. 11,088 5.27 13,327 4.49 - - 24,415 4.84
Mortgage-backed securities............ - - 3,577 6.11 6,417 4.31 9,994 4.93
Mutual funds.......................... 3,992 5.43 - - - - 3,992 5.43
Other................................. - - 75 8.00 100 6.50 175 7.14
--------- -------- ------- --------
Total............................... $ 17,088 5.34% $ 24,687 5.15% $ 9,500 4.74% $ 51,275 5.14%
========= ==== ======== ==== ======= ==== ======== ====
At December 31, 1997:
U.S. Government agency
securities.......................... $ - -% $ 779 8.45% $ 474 7.91% $ 1,253 8.24%
U.S. Treasury securities.............. - - 9,039 5.93 - - 9,039 5.93
Mortgage-backed securities............ 7,328 6.45 3,080 6.30 4,769 5.92 15,177 6.25
Mutual funds.......................... 4,965 6.94 - - - - 4,965 6.94
Other................................. - - 25 8.00 1,620 7.04 1,645 7.06
--------- -------- ------- --------
Total............................... $ 12,293 6.65% $ 12,923 6.17% $ 6,863 6.12% $ 32,079 6.36%
========= ==== ======== ==== ======= ==== ======== ====
Regulatory Capital Requirements
Under FDIC 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.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and percents (set forth in the
table below) of total and Tier I capital to risk-weighted assets and of Tier I
capital to average assets. Management believes, as of December 31, 1998, that
the Bank meets all capital adequacy requirements to which it is subject.
16
As of December 31, 1998, the most recent notification from the State and Federal
regulators categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage percents as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The following table summarizes the capital requirements for the Bank (dollars in
thousands):
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-------------------- ------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
At December 31, 1998:
Total Capital
(to Risk-Weighted Assets)....... $ 21,916 20.70% $ 8,468 8.00% $ 10,585 10.00%
Tier I Capital
(to Risk-Weighted Assets)....... 20,838 19.69 4,234 4.00 6,351 6.00
Tier I Capital
(to Average Assets)............. 20,838 11.12 7,494 4.00 9,368 5.00
At December 31, 1997:
Total Capital
(to Risk-Weighted Assets)....... $ 14,529 16.00% $ 7,264 8.00% $ 9,080 10.00%
Tier I Capital
(to Risk-Weighted Assets)....... 13,681 15.06 3,632 4.00 5,448 6.00
Tier I Capital
(to Average Assets)............. 13,681 8.95 6,117 4.00 7,646 5.00
Asset - Liability Structure
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).
17
The following table sets forth certain information relating to the Company's
interest-earning assets and interest-bearing liabilities at December 31, 1998
that are estimated to mature or are scheduled to reprice within the period
shown.
More
Than More
Three Than Six More
Months Months Than One
Three to Six to One Year to More Than
Months Months Year Five Years Five Years Total
------ ------ ---- ---------- ---------- -----
($ in thousands)
Loans (1),(2)............................ $ 39,333 6,421 9,678 22,083 52,258 129,773
Securities (3)........................... 14,849 5,458 5,125 22,705 4,852 52,989
Interest bearing deposits................ 605 - - - - 605
-------- --------- --------- ---------- --------- ---------
Total rate-sensitive assets......... 54,787 11,879 14,803 44,788 57,110 183,367
-------- --------- --------- ---------- --------- ---------
Deposit accounts (4):
Savings and NOW........................ 12,940 - - - - 12,940
Money market........................... 38,721 - - - - 38,721
Time deposits.......................... 18,877 10,989 13,791 27,578 - 71,235
-------- --------- --------- ---------- --------- ---------
Total deposit accounts................... 70,538 10,989 13,791 27,578 - 122,896
Borrowings ............................ 3,446 - - 15,000 - 18,446
-------- --------- --------- ---------- --------- ---------
Total rate-sensitive
liabilities..................... 73,984 10,989 13,791 42,578 - 141,342
-------- --------- --------- ---------- --------- ---------
Gap (repricing differences).............. $(19,197) 890 1,012 2,210 57,110 42,025
======== ========= ========= ========== ========= =========
Cumulative GAP........................... $(19,197) (18,307) (17,295) (15,085) 42,025
======== ========= ========= ========== =========
Cumulative GAP/total assets.............. (10.14)% (9.67)% (9.14)% (7.97)% 22.20%
======== ========= ========= ========== ========
- -------------------------
(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 and
maturity dates, includes Federal Home Loan Bank stock and Federal
Reserve Bank stock.
(4) Savings, NOW and money-market accounts are regarded as ready accessible
withdrawable accounts. All other time accounts are scheduled according
to their respective maturity dates.
18
The following table reflects the contractual principal repayments of the
Company's loan portfolio at December 31, 1998:
Commercial Residential
Commercial Real Estate Mortgage Consumer
Loans Loans Loans Loans Total
----- ----- ----- ----- -----
(In thousands)
Due within one year....................... $ 12,405 7,900 2,533 3,236 26,074
Due after one through five years.......... 7,071 8,869 3,694 4,863 24,497
Due after five years...................... 2,011 4,135 70,711 1,728 78,585
--------- ------ ------ ----- -------
Total.............................. $ 21,487 20,904 76,938 9,827 129,156
========= ====== ====== ===== =======
Of the $103.1 million in loans due after one year, 60.3% of such loans have
fixed rates of interest and 39.7% have adjustable rates.
The following table displays loan originations by type of loan and principal
reductions during the periods indicated.
Year Ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
Originations:
Commercial loans..................... $ 13,854 19,720 1,085 676 1,610
Commercial real estate loans......... 7,020 8,360 3,205 1,214 -
Residential real estate.............. 33,498 10,507 7,480 5,528 35,436
Consumer loans....................... 2,959 3,564 1,497 553 293
-------- -------- ------- -------- --------
Total loans originated............... 57,331 42,151 13,267 7,971 37,339
Principal reductions................... (34,834) (27,417) (27,657) (26,290) (13,283)
-------- -------- ------- -------- --------
Increase (decrease) in gross
loans.............................. $ 22,497 14,734 (14,390) (18,319) 24,056
======== ======== ======= ======== ========
The originations noted in the table above exclude originations of loans held for
sale of $1.994 million, $9.005 million, $51.533 million and $55.650 million for
periods ended December 31, 1998, 1997, 1996 and 1995, respectively.
19
The following table summarizes the loan portfolio of the Company by type of loan
as of December 31, 1998, 1997, 1996, 1995 and 1994.
At December 31,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- --------------- ------------------- -------------- -----------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Commercial............. $ 21,487 16.64% $ 19,832 18.59% $ 16,711 18.18% $ 15,401 14.49% $ 11,645 9.34%
Commercial
real estate.......... 20,904 16.19 17,628 16.53 10,894 11.85 2,572 2.42 2,097 1.69
Residential
real estate.......... 76,938 59.56 61,827 57.97 60,716 66.05 86,971 81.80 110,005 88.26
Consumer............... 9,827 7.61 7,372 6.91 3,604 3.92 1,371 1.29 887 .71
--------- ------ -------- ------ -------- ------ --------- ------ --------- ------
Total loans........ 129,156 100.00% 106,659 100.00% 91,925 100.00% 106,315 100.00% 124,634 100.00%
========= ====== ======== ====== ======== ====== ========= ====== ========= ======
Less:
Deferred loan
fees............... (73) (158) (175) (71) (109)
Undisbursed portion
of loans in
process............ - - - (727) (949)
Allowance for
loan losses........ (1,078) (848) (777) (840) (528)
--------- --------- -------- --------- ---------
Loans, net......... $ 128,005 $ 105,653 $ 90,973 $ 104,677 $ 123,048
========= ========= ======== ========= =========
The following table shows the distribution of, and certain other information
relating to, deposit accounts by type:
At December 31,
------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------- --------------------
% of % of % of
Balance Total Balance Total Balance Total
------- ----- ------- ----- ------- -----
(Dollars in thousands)
Demand deposits...................... $ 18,316 12.97% $ 12,136 9.71% $ 9,386 8.34%
Savings and NOW deposits............. 12,940 9.16 9,834 7.87 11,324 10.07
Money-market deposits................ 38,721 27.42 38,326 30.66 34,803 30.94
Time deposits........................ 71,235 50,45 64,699 51.76 56,985 50.65
--------- ------ --------- ------ --------- ------
Total deposits....................... $ 141,212 100.00% $ 124,995 100.00% $ 112,498 100.00%
========= ====== ========= ====== ========= ======
Jumbo certificates ($100,000 and over) included above mature as follows:
At December 31,
---------------
1998
----
(In thousands)
Due three months or less................................................................ $ 4,300
Due over three months to six months..................................................... 1,888
Due over six months to one year......................................................... 2,241
Due over one year....................................................................... 14,304
--------
Total................................................................................. $ 22,733
========
20
The scheduled maturities of time deposits are as follows:
At December 31,
--------------
1998
----
(In thousands)
Due in one year or less................................................................ $ 43,657
Due in more than one but less than three years......................................... 18,421
Due in more than three but less than five years........................................ 9,157
--------
Total................................................................................ $ 71,235
========
The following table sets forth the net deposit flows of the Company during the
period indicated:
Year Ended December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Net increase (decrease) before interest credited.......................... $ 10,344 6,849 (37,026)
Net credited.............................................................. 5,873 5,648 6,851
-------- ------ ------
Net deposit increase (decrease)........................................... $ 16,217 12,497 (30,175)
======== ====== ======
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, 1998, 1997 and 1996:
Years Ended December 31,
------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ---------------------------- -----------------------------
Average % of Average Average % of Average Average % of Average
Balance Total Yield Balance Total Yield Balance Total Yield
------- ----- ----- ------- ----- ----- ------- ----- -----
(Dollars in thousands)
Savings and NOW
deposits.................$ 11,147 8.33% 1.53% $ 10,278 8.61% 1.98% $ 8,535 7.38% 2.11%
Money-market
deposits................. 39,822 29.76 4.39 37,457 31.38 4.62 29,683 25.65 4.65
Time deposits............... 67,135 50.16 5.72 60,273 50.49 5.70 67,688 58.49 6.28
--------- ------ --------- ------ --------- ------
Total interest-bearing
deposits................. 118,104 88.25 4.88 108,008 90.48 4.97 105,906 91.52 5.49
Noninterest bearing......... 15,730 11.75 11,369 9.52 9,812 8.48
--------- ------ --------- ------ --------- ------
Total.......................$ 133,834 100.00% $ 119,377 100.00% $ 115,718 100.00%
========= ====== ========= ====== ========= ======
21
Comparison of Year Ended December 31, 1998 and 1997
General
Net earnings for the year ended December 31, 1998 were $1.053 million or $.56
per basic share ($.55 per diluted share) compared to net earnings of $914,000 or
$.68 per basic share ($.62 per diluted share) for the year ended December 31,
1997. This decrease in the earnings per share was due to the issuance of 869,565
shares of common stock on June 12, 1998. The increase in income was primarily
due to an increase in interest income and noninterest income partially offset by
increases in the provision for loan losses and noninterest expenses.
Interest Income and Expense
Interest income increased from $11.932 million for the year ended December 31,
1997 to $13.113 million for the year ended December 31, 1998. Interest income on
loans increased $1.032 million due to an increase in the average loan portfolio
balance from $102.315 million for the year ended December 31, 1997 to $116.499
million for the year ended December 31, 1998, partially offset by a decrease in
the weighted-average yield earned on the portfolio from 9.21% to 8.98%. Interest
on securities increased $179,000 due to an increase in the average securities
portfolio to $45.634 million in 1998 from $38.200 million in 1997, partially
offset by a decrease in the weighted average yield from 6.29% to 5.66%. Interest
on other interest-earning assets decreased $30,000 due to a decrease in average
other interest-earning assets from $2.085 million in 1997 to $1.313 million in
1998.
Interest expense increased to $6.498 million for the year ended December 31,
1998 from $6.329 million for the year ended December 31, 1997. Interest expense
on deposit accounts increased $391,000 from $5.368 million in 1997 to $5.759
million in 1998 primarily due to an increase in average interest-bearing deposit
balances from $108.008 million during the year ended December 31, 1997 to
$118.104 million for 1998. Interest expense on other borrowings decreased
$222,000 from $961,000 to $739,000 primarily due to a decrease in average
borrowings from $16.879 million in 1997 to $14.055 million in 1998. The average
cost of all interest-bearing liabilities decreased from 5.07% for the year ended
December 31, 1997 to 4.92% for the year ended December 31, 1998.
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 collectability of the Bank's loan portfolio. The
provision increased from $80,000 for the year ended December 31, 1997 to
$950,000 for the year ended December 31, 1998. The increase was primarily
related to two commercial loans, one whose balance was charged-off and the
other's balance written down to management's estimation of value. Management
believes that the allowance for loan losses of $1.078 million is adequate at
December 31, 1998.
Noninterest Income
Total noninterest income increased $238,000 to $1.650 million for the year ended
December 31, 1998 from $1.412 million reported in 1997, principally from
increases in service charges on deposits, gains on sales of securities and other
noninterest income partially offset by a decrease in net gains from sale of
loans.
Noninterest Expenses
Total noninterest expenses increased $160,000 to $5.631 million for the year
ended December 31, 1998 from $5.471 million for the year ended December 31,
1997, primarily due to an increase in salaries and employee benefits and other
noninterest expenses, partially offset by decreases in occupancy expense and
data processing.
Provision for Income Taxes
The provision for income taxes increased from $550,000 (an effective rate at
37.6%) during the year ended December 31, 1997 to $631,000 (an effective rate at
37.5%) during the year ended December 31, 1998.
Comparison of Year Ended December 31, 1997 and 1996
General
Net earnings for the year ended December 31, 1997 were $914,000 or $.68 basic
earnings per share ($.62 diluted earnings per share) compared to a net loss of
$599,000 or $.52 basic and diluted loss per share for the year ended December
31, 1996. This increase in the Company's net earnings was primarily due to an
increase in net interest income, a decrease in noninterest expense due to the
one-time SAIF recapitalization assessment in 1996, partially offset by a
decrease in noninterest income and an increase in income taxes.
22
Interest Income and Expense
Interest income decreased from $12.186 million for the year ended December 31,
1996 to $11.932 million for the year ended December 31, 1997. Interest income on
loans increased $426,000 due an increase in the average loan portfolio balance
from $96.307 million for the year ended December 31, 1996 to $102.315 million
for the year ended December 31, 1997. Interest on securities decreased $470,000
due to a decrease in the average yield earned from 6.99% in 1996 to 6.29% in
1997, as well as a decrease in the average securities portfolio to $38.200
million in 1997 from $41.068 million in 1996. Interest on other interest-earning
assets decreased $210,000 due to a decrease in average other interest-earning
assets from $6.070 million in 1996 to $2.085 million in 1997.
Interest expense decreased to $6.329 million for the year ended December 31,
1997 from $7.616 million for the year ended December 31, 1996. Interest expense
on deposit accounts decreased $446,000 primarily due to a decrease in the
weighted average rate paid on deposits from 5.49% during the year ended December
31, 1996 to 4.97% during the year ended December 31, 1997, partially offset by
an increase in average interest-bearing deposit balances from $105.906 million
during the year ended December 31, 1996 to $108.008 million for the comparable
period in 1997. Interest expense on other borrowings decreased $841,000 from
$1.802 million to $961,000 primarily due to a decrease in average borrowings
from $28.348 million in 1996 to $16.879 million in 1997 as well as a decrease in
average rates. The average cost of all interest-bearing liabilities decreased
from 5.67% for the year ended December 31, 1996 to 5.07% for the year ended
December 31, 1997.
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
provision decreased from $185,000 for the year ended December 31, 1996 to
$80,000 for the year ended December 31, 1997. Management believes that the
allowance for loan losses of $848,000 is adequate at December 31, 1997.
Noninterest Income
Total noninterest income decreased $1.022 million to $1.412 million for the year
ended December 31, 1997 from $2.434 million reported in 1996, principally due to
a decrease on net gain on sale of loans and loan servicing rights from $1.179
million in 1996 to $508,000 during 1997 and $365,000 in earnings from limited
partnership during 1996, compared to no such amounts during the comparable
period in 1997.
Noninterest Expense
Total noninterest expense decreased $2.302 million to $5.471 million for the
year ended December 31, 1997 from $7.773 million for the year ended December 31,
1996, primarily due to the one-time effect of the SAIF recapitalization
assessment of $926,000 during 1996, a decrease of $201,000 in federal deposit
insurance premiums and a $512,000 decrease in salaries and employee benefits.
The remaining items in noninterest expenses decreased $663,000 during the year
ended December 31, 1997 compared to the year ended December 31, 1996.
Provision for Income Taxes
The provision for income taxes increased from a $355,000 credit during the year
ended December 31, 1996 to a provision for income taxes of $550,000 during the
year ended December 31, 1997. The effective tax rate increased from 37.2% for
the year ended December 31, 1996 to 37.6% during the year ended December 31,
1997.
23
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in
accordance with GAAP, which requires the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services, since
such prices are affected by inflation to a larger extent than interest rates.
Future Accounting Requirements
Financial Accounting Standards 133 - Accounting for Derivative Investments and
Hedging Activities requires companies to record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivatives and whether they qualify for hedge accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
The Company will be required to adopt this Statement effective January 1, 2000.
Management does not anticipate that this Statement will have a material impact
on the Company.
24
The following table presents summarized quarterly data (in thousands, except per
share amounts):
Year Ended December 31, 1998
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income............................................. $ 3,022 3,261 3,412 3,418
Interest expense............................................ 1,541 1,617 1,689 1,651
------- ------ ------ ------
Net interest income.................................... 1,481 1,644 1,723 1,767
Provision for loan losses................................... 65 100 630 155
------- ------ ------ ------
Net interest income after provision
for loan losses.................................... 1,416 1,544 1,093 1,612
------- ------ ------ ------
Noninterest income.......................................... 364 357 483 446
Noninterest expense......................................... 1,308 1,409 1,404 1,510
------- ------ ------ ------
Net earnings before income taxes............................ 472 492 172 548
Income taxes................................................ 171 180 65 215
------- ------ ------ ------
Net earnings................................................ $ 301 312 107 333
======= ====== ====== ======
Basic earnings per common share............................. $ .22 .21 .05 .15
======= ====== ====== ======
Diluted earnings per common share........................... $ .20 .20 .05 .15
======= ====== ====== ======
Year Ended December 31, 1997
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income............................................. $ 2,965 2,964 2,926 3,077
Interest expense............................................ 1,579 1,604 1,574 1,572
------- ------- ------- ------
Net interest income.................................... 1,386 1,360 1,352 1,505
Provision for loan losses................................... 11 - 17 52
------- ------- ------- ------
Net interest income after provision
for loan losses.................................... 1,375 1,360 1,335 1,453
------- ------- ------- ------
Noninterest income.......................................... 324 330 352 406
Noninterest expense......................................... 1,328 1,392 1,325 1,426
------- ------- ------- ------
Net earnings before income taxes............................ 371 298 362 433
Income taxes ............................................... 139 113 133 165
------- ------- ------- ------
Net earnings................................................ $ 232 185 229 268
======= ======= ======= ======
Basic earnings per common share............................. $ .19 .12 .17 .20
======= ======= ======= ======
Diluted earnings per comm share............................. $ .18 .11 .15 .18
======= ======= ======= ======
25
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
See Part I, Item 1. DESCRIPTION OF BUSINESS, Market Risk.
Item 8. Financial Statements and Supplementary Data.
Pointe Financial Corporation
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants................................................ 27
Accountants' Consent.............................................................................. 28
Consolidated Balance Sheets for the Year Ended December 31, 1998,
1997 and 1996................................................................................. 29
Consolidated Statements of Operations for the Year Ended
December 31, 1998, 1997 and 1996................................................................. 30
Consolidated Statements of Stockholders' Equity for the Year Ended
December 31, 1998, 1997 and 1996.............................................................. 31-32
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1998, 1997 and 1996.............................................................. 33-34
Notes to Consolidated Financial Statements for the Year Ended
December 31,1998, 1997 and 1996............................................................... 35-54
Independent Auditors' Report on Supplementary Information......................................... 55
Consolidating Balance Sheet for Year Ended December 31, 1998,
1997 and 1996................................................................................. 56
Consolidating Statement of Operations for Year Ended December 31, 1998,
1997 and 1996................................................................................. 57
26
Independent Auditors' Report
Board of Directors
Pointe Financial Corporation
Boca Raton, Florida:
We have audited the consolidated balance sheets of Pointe Financial Corporation
and Subsidiaries (the "Company") at December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 22, 1999
27
Accountants' Consent
The Board of Directors
Pointe Financial Corporation
Boca Raton, Florida:
We consent to the use of our report dated January 22, 1999 relating to the
consolidated balance sheets as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998 of Pointe
Financial Corporation in the 1998 Form 10-K of Pointe Financial Corporation.
/s/ Hacker, Johnson, Cohen & Grieb PA
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
March 2, 1999
28
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands, except share amounts)
At December 31,
------------------------------
Assets 1998 1997
---- ----
Cash and due from banks............................................................. $ 2,866 2,272
Interest-bearing deposits with banks................................................ 605 303
---------- ---------
Total cash and cash equivalents.............................................. 3,471 2,575
Securities available for sale....................................................... 51,275 22,745
Securities held to maturity......................................................... - 7,764
Loans receivable, net of allowance for loan losses of $1,078
in 1998 and $848 in 1997......................................................... 128,005 105,653
Loans held for sale................................................................. 617 4,443
Accrued interest receivable......................................................... 1,270 1,027
Premises and equipment, net......................................................... 1,760 1,225
Restricted securities:
Federal Home Loan Bank stock .................................................... 1,235 1,271
Federal Reserve Bank stock....................................................... 479 299
Foreclosed real estate.............................................................. 353 105
Deferred income tax asset........................................................... 221 224
Other assets........................................................................ 589 509
---------- ---------
Total........................................................................ $ 189,275 147,840
========== =========
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits.................................................................. 18,316 12,136
Savings and NOW deposits......................................................... 12,940 9,834
Money-market deposits............................................................ 38,721 38,326
Time deposits.................................................................... 71,235 64,699
---------- ---------
Total deposits............................................................... 141,212 124,995
Official checks.................................................................. 1,248 1,320
Other borrowings................................................................. 3,446 1,791
Advances from Federal Home Loan Bank............................................. 15,000 4,400
Accrued interest payable......................................................... 695 673
Advance payments by borrowers for taxes and insurance............................ 411 333
Other liabilities................................................................ 228 483
---------- ---------
Total liabilities............................................................ 162,240 133,995
---------- ---------
Commitments and contingencies (Notes 5, 9, 10 and 24)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, 60,000 shares
designated as Series A, convertible and cumulative, 54,116 shares
issued and outstanding in 1997 (aggregate liquidation value $1,082)............ - 1
Common stock, $.01 par value, 5,000,000 shares authorized; 2,266,972
and 831,728 shares issued and outstanding...................................... 23 8
Additional paid-in capital....................................................... 23,324 10,935
Retained earnings................................................................ 4,065 3,039
Accumulated other comprehensive income, unrealized loss on securities
available for sale, net of taxes of $227 in 1998 and $83 in 1997............... (377) (138)
---------- ---------
Total stockholders' equity................................................... 27,035 13,845
---------- ---------
Total........................................................................ $ 189,275 147,840
========== =========
See Accompanying Notes to Consolidated Financial Statements.
29
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
($ in thousands except per share amounts)
Year Ended December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
Interest income:
Loans receivable....................................................... $ 10,459 9,427 9,001
Securities available for sale.......................................... 2,311 1,892 2,330
Securities held to maturity............................................ 270 510 542
Other interest earning assets.......................................... 73 103 313
-------- ------- -------
Total interest income.............................................. 13,113 11,932 12,186
-------- ------- -------
Interest expense:
Deposits............................................................... 5,759 5,368 5,814
Borrowings............................................................. 739 961 1,802
-------- ------- -------
Total interest expense............................................. 6,498 6,329 7,616
-------- ------- -------
Net interest income....................................................... 6,615 5,603 4,570
Provision for loan losses.......................................... 950 80 185
-------- ------- -------
Net interest income after provision for loan losses....................... 5,665 5,523 4,385
-------- ------- -------
Noninterest income:
Service charges on deposit accounts.................................... 729 502 364
Gain on sale of loan servicing rights.................................. - 29 131
Loan servicing fees.................................................... 61 70 170
Net gains from sale of loans........................................... 158 479 1,048
Net realized gains on sale of securities............................... 298 29 91
Equity in earnings of limited partnership.............................. - - 365
Other.................................................................. 404 303 265
-------- ------- -------
Total noninterest income........................................... 1,650 1,412 2,434
-------- ------- -------
Noninterest expenses:
Salaries and employee benefits......................................... 2,858 2,657 3,169
Occupancy expense...................................................... 992 1,100 1,251
Advertising and promotion.............................................. 297 257 142
Loan servicing expense................................................. 1 36 150
Professional fees...................................................... 191 157 286
Federal deposit insurance premiums..................................... 94 82 283
Data processing........................................................ 287 403 428
Other.................................................................. 911 779 1,138
-------- ------- -------
Noninterest expenses before SAIF recapitalization assessment...... 5,631 5,471 6,847
SAIF recapitalization assessment....................................... - - 926
-------- ------- -------
Total noninterest expenses......................................... 5,631 5,471 7,773
-------- ------- -------
Earnings (loss) before income taxes (benefit)...................... 1,684 1,464 (954)
Income taxes (benefit).................................................... 631 550 (355)
-------- ------- -------
Net earnings (loss)................................................ $ 1,053 914 (599)
======== ======= ======
Earnings (loss) per share:
Basic ................................................................. $ .56 .68 (.52)
======== ======= ======
Diluted................................................................ $ .55 .62 (.52)
======== ======= ======
See Accompanying Notes to Consolidated Financial Statements
30
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
($ In thousands)
Accumulated
Other
Additional Compre- Total
Preferred Common Paid-In Retained hensive Stockholders'
Stock Stock Capital Earnings Income Equity
----- ----- ------- -------- ------ ------
Balance at December 31, 1995......... $ - 8 9,716 2,840 (50) 12,514
----- ------- -------- -------- ----- --------
Comprehensive income (loss):
Net loss.......................... - - - (599) - (599)
Net change in unrealized
loss on available-for-
sale securities, net of taxes... - - - - (196) (196)
-------- ----- --------
Comprehensive income (loss).......... - - - (599) (196) (795)
-------- ----- --------
Sale of preferred stock
net of offering costs............. 1 - 736 - - 737
Cash dividends declared on
preferred stock................... - - - (35) - (35)
----- ------- -------- -------- ----- --------
Balance at December 31, 1996......... 1 8 10,452 2,206 (246) 12,421
-------- ----- --------
Comprehensive income:
Net earnings...................... - - - 914 - 914
Net change in unrealized
loss on available-for-
sale securities, net of taxes... - - - - 108 108
-------- ----- --------
Comprehensive income................. - - - 914 108 1,022
-------- ----- --------
To adjust 1996 preferred dividend
for portion paid in preferred
stock (1,398 shares).............. - - 27 - - 27
Cash dividends on preferred
stock............................. - - - (16) - (16)
Stock dividends on preferred
stock (3,218 shares).............. - - 65 (65) - -
Proceeds from issuance of preferred
stock, net of offering costs
(10,250 shares)................... - - 201 - - 201
Common stock options exercised
(19,000 shares)................... - - 190 - - 190
----- ------- -------- -------- ----- --------
Balance at December 31, 1997......... 1 8 10,935 3,039 (138) 13,845
-------- ----- --------
(continued)
31
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity, Continued
($ In thousands)
Accumulated
Other
Additional Compre- Total
Preferred Common Paid-In Retained hensive Stockholders'
Stock Stock Capital Earnings Income Equity
----- ----- ------- -------- ------ ------
Comprehensive income:
Net earnings .................... - - - 1,053 - 1,053
Net change in unrealized
loss on available-for-sale
securities, net of taxes....... - - - - (239) (239)
------ ----- ---------
Comprehensive income................ - - - 1,053 (239) 814
------ ----- ---------
Three-for-two stock split
(416,626 shares) ................ - 4 (4) - - -
Stock dividends on preferred
stock (1,410 shares)............. - - 27 (27) - -
Proceeds from issuance of
preferred stock, net of
offering costs (500 shares)...... - - 10 - - 10
Conversion of preferred stock
(56,026 shares) to common
stock (126,026 shares) .......... (1) 1 - - - -
Proceeds from issuance of
common stock, net of offering
costs (869,565 shares)........... - 8 12,068 - - 12,076
Common stock options exercised
(11,982 shares) ................. - 1 119 - - 120
Issuance of common stock to
directors as compensation
(11,045 shares).................. - 1 169 - - 170
----- ------ ------- ------ ----- ---------
Balance at December 31, 1998 $ - 23 23,324 4,065 (377) 27,035
===== ====== ======= ====== ===== =========
See Accompanying Notes to Consolidated Financial Statements
32
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
------------------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net earnings (loss).......................................................... $ 1,053 914 (599)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Provision for loan losses................................................. 950 80 185
Depreciation and amortization............................................. 389 414 555
Net amortization of fees, premiums, discounts and other................... 101 (134) 156
Provision (credit) for deferred income taxes.............................. 3 334 (355)
Common stock issued as compensation for services.......................... 170 - -
Equity in earnings of limited partnership................................. - - (365)
Gain on sale of securities available for sale............................. (298) (29) (91)
Gain on sale of loans and loan servicing rights........................... (158) (508) (1,179)
Originations of loans held for sale....................................... (1,994) (9,005) (51,533)
Proceeds from sale of loans held for sale................................. 5,978 9,437 66,746
Decrease (increase) in other assets....................................... 64 2,580 (224)
(Increase) decrease in accrued interest receivable........................ (243) 154 1
(Decrease) increase in official checks.................................... (72) 57 (755)
Increase (decrease) in accrued interest payable........................... 22 (280) (1,037)
(Decrease) increase in other liabilities.................................. (255) 132 (215)
-------- --------- --------
Net cash provided by operating activities.............................. 5,710 4,146 11,290
-------- --------- --------
Cash flows from investing activities:
Purchase of securities available for sale.................................... (61,703) (5,098) (19,539)
Proceeds from sale of securities............................................. 34,225 13,578 20,157
Maturities of securities available for sale.................................. 7,950 1,000 2,264
Purchase of securities held to maturity...................................... (2,100) - -
Principal repayments on securities available for sale........................ 632 1,029 2,036
Principal repayments on securities held to maturity.......................... 259 440 608
Proceeds from sale of limited partnership.................................... - - 5,872
Net (increase) decrease in loans............................................. (24,213) (14,816) 13,331
Purchase of premises and equipment, net...................................... (924) (364) (221)
Proceeds from sale of foreclosed real estate................................. 448 253 -
Net (increase) decrease in restricted securities............................. (144) 96 -
-------- --------- --------
Net cash (used in) provided by investing activities.................... (45,570) (3,882) 24,508
-------- --------- --------
Cash flows from financing activities:
Net increase in demand, savings, NOW and money-market deposits............... 9,681 4,783 12,879
Net increase (decrease) in time deposits..................................... 6,536 7,714 (43,054)
Net increase (decrease) in Federal Home Loan Bank advances................... 10,600 (18,572) (4,218)
Net increase (decrease) in other borrowings.................................. 1,655 1,017 (5,251)
Increase (decrease) in advance payments for taxes and insurance.............. 78 303 (440)
Net proceeds from issuance of preferred stock, net of offering costs......... 10 201 737
Net proceeds from issuance of common stock, net of offering costs............ 12,076 - -
Cash dividends paid on preferred stock....................................... - 12 -
Proceeds from exercise of stock options...................................... 120 190 -
-------- --------- --------
Net cash provided by (used in) financing activities................... 40,756 (4,352) (39,347)
-------- --------- --------
(continued)
33
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(In thousands)
Year Ended December 31,
----------------------------------
1998 1997 1996
---- ---- ----
Net increase (decrease) in cash and cash equivalents................... 896 (4,088) (3,549)
Cash and cash equivalents at beginning of year.................................... 2,575 6,663 10,212
--------- -------- --------
Cash and cash equivalents at end of year.......................................... $ 3,471 2,575 6,663
========= ======== ========
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest.................................................................. $ 6,476 6,609 8,653
========= ======== ========
Income taxes.............................................................. $ 650 160 200
========= ======== ========
Noncash transactions:
Reclassification of loans receivable to foreclosed real estate............ $ 725 156 270
========= ======== ========
Reclassification of foreclosed real estate to loans receivable............ $ 29 68 -
========= ======== ========
Accumulated other comprehensive income, change in unrealized
loss on securities available for sale.................................. $ (239) 108 (196)
========= ======== ========
Dividend payable on preferred stock....................................... $ - 4 35
========= ======== ========
Stock dividends paid on preferred stock................................... $ 27 65 -
========= ======== ========
Transfer of securities from held to maturity to available for sale
category............................................................... $ 8,456 - -
========= ======== ========
See Accompanying Notes to Consolidated Financial Statements.
34
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1998, 1997 and 1996
(1) Description of Business and Summary of Significant Accounting Policies
General. Pointe Financial Corporation (the "Holding Company") was formed
in September 1993 and received approval from the appropriate
authorities to become both a savings and loan holding company and a
bank holding company. Prior to April 14, 1997, the Holding Company
owned 100% of Pointe Federal Savings Bank ("Pointe Federal"), a
federally-chartered thrift, Pointe Bank (the "Bank"), a
state-chartered commercial bank and Pointe Financial Services, Inc.,
(collectively the "Company"). On April 14, 1997, Pointe Federal was
merged into the Bank. The Bank provides a wide range of community
banking services to small and middle-market businesses and
individuals through its three banking offices located in Broward,
Miami-Dade and Palm Beach counties, Florida. Pointe Financial
Services, Inc. is an inactive subsidiary.
Basis of Presentation. The accompanying consolidated financial statements
include 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
generally accepted accounting principles and to general practices
within the banking industry. The following summarizes the more
significant of these policies and practices.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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 reported as a net
amount in a separate component of stockholders' equity until
realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method.
Premiums and discounts on securities available for sale and held to
maturity are recognized in interest income using the interest method
over the period to maturity.
Loans Held for Sale. Loans held for sale are carried at the lower of cost
or estimated market value in the aggregate. Net unrealized losses
are recognized through a valuation allowance by charges to earnings.
At December 31, 1998 and 1997 the book value of loans held for sale
approximated market value in the aggregate.
Loan origination fees and direct loan origination costs are deferred
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 operations.
Loans Receivable. Loans receivable 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 and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the
related loan.
(continued)
35
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Description of Business and Summary of Significant Accounting Policies,
Continued
Loans Receivable, Continued. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower
may be unable to meet payments as they become due. When interest
accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash
payments are received.
The allowance for loan losses is increased by charges to earnings
and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on the
Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability
to repay, the estimated value of any underlying collateral, and
current economic conditions.
Investment in Limited Partnership. The Company accounted for its
investment in a limited partnership by the equity method. In
accordance with this method, the Company included its share of
partnership's earnings or losses in the determination of the
Company's net earnings or loss and adjusted its recorded investment
in the partnership by a corresponding amount. Distributions from the
partnership reduced the Company's recorded investment. This
investment was sold in 1996.
Foreclosed Real Estate. Real estate properties acquired through, or in
lieu of, loan foreclosure are to be sold and are initially recorded
at fair value at the date of foreclosure establishing a new cost
basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in
the consolidated statements of operations.
Premises and Equipment. Premises, furniture, fixtures, equipment and
leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed by the straight-line method.
Income Taxes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which
the deferred tax assets or liabilities are expected to be realized
or settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for
income taxes.
Stock-Based Compensation. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("Statement 123")
establishes a "fair value" based method of accounting for
stock-based compensation plans and encourages all entities to adopt
that method of accounting for all of their employee stock
compensation plans. 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 APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"). The
Company has elected to follow Opinion 25 and related interpretations
in accounting for its employee stock options. Statement 123 requires
the disclosure of proforma net earnings and earnings per share
determined as if the Company accounted for its employee stock
options under the fair value method of that Statement.
Earnings (Loss) Per Share. Basic earnings (loss) 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 or related fees are received.
(continued)
36
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. 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 Available for Sale and Held to Maturity. Fair values for
securities 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.
Restricted Securities. Book value for these securities approximates
their fair value.
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.
Accrued Interest Receivable. Book 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 certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on 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 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.
Comprehensive Income. On January 1, 1998, the Company adopted Statement of
Financial Accounting Standards 130 Reporting Comprehensive Income.
This Statement establishes rules for the reporting of comprehensive
income and its components. Comprehensive income consists of net
earnings (loss) and net change in unrealized loss on
available-for-sale securities, net of taxes and is presented in the
consolidated statements of stockholders' equity. The adoption of
SFAS 130 had no impact on total stockholders' equity. Prior year
financial statements have been reclassified to conform to the SFAS
130 requirements.
Future Accounting Requirements. Financial Accounting Standards 133 -
Accounting for Derivative Investments and Hedging Activities
requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivatives and whether
they qualify for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective
in achieving offsetting changes in fair value or cash flows. The
Company will be required to adopt this Statement January 1, 2000.
Management does not anticipate that this Statement will have a
material impact on the Company.
Reclassification. Certain amounts in the 1997 and 1996 financial
statements have been reclassified to conform with the 1998
presentation.
(continued)
37
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Securities
Securities have been classified according to management's intent. The
carrying amount of securities and their approximate fair values are
summarized as follows (in thousands):
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Available for Sale:
At December 31, 1998:
U.S. Treasury securities............................. $ 24,475 38 (97) 24,416
Mortgage-backed securities........................... 10,414 19 (439) 9,994
Mutual funds......................................... 4,108 - (116) 3,992
U.S. Government agency securities.................... 12,707 15 (24) 12,698
Other................................................ 175 - - 175
-------- ----- ----- --------
Total ............................................ $ 51,879 72 (676) 51,275
======== ===== ===== ========
At December 31, 1997:
U.S. Treasury securities............................. 9,003 36 - 9,039
Mortgage-backed securities........................... 8,826 45 (130) 8,741
Mutual funds......................................... 5,137 - (172) 4,965
-------- ----- ----- --------
Total ............................................ $ 22,966 81 (302) 22,745
======== ===== ===== ========
Held to Maturity:
At December 31, 1997:
U.S. Government agency securities.................... 1,253 11 - 1,264
Mortgage-backed securities........................... 6,436 7 (304) 6,139
Other................................................ 75 - - 75
-------- ----- ----- --------
Total ............................................ $ 7,764 18 (304) 7,478
======== ===== ===== ========
The Company currently invests in one mutual fund consisting of a Short U.S.
Government Securities Portfolio. The Short U.S. Government Securities
Portfolio pursues its investment objective by investing in high-quality
assets, primarily in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalties with remaining maturities of
5 years or less that qualify as "liquid assets."
During the quarter ended September 30, 1998, the Company sold $1.2 million
of securities from the held to maturity category. As required by
Statement of Financial Accounting Standards No. 115- Accounting for
Certain Investments in Debt and Equity Securities, all the remaining
securities classified as held to maturity totaling $8.5 million were
transferred to the available for sale category. Furthermore, the
Company's management intends to classify all securities purchased through
July 1, 2000 as either available for sale or trading.
At December 31, 1998 and 1997, approximately $500,000 and $711,000
respectively, of securities were pledged for the Company's treasury tax
and loan account, approximately $4,057,000 and $3,011,000 were pledged as
collateral for investment repurchase agreements and approximately
$9,828,000 and $7,270,000 were pledged for public deposits.
Also, at December 31, 1997, approximately $277,000 were pledged as
collateral for Federal Home Loan Bank advances. There were no securities
pledged for Federal Home Loan Bank advances at December 31, 1998.
(continued)
38
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Securities, Continued
The following summarizes sales of securities (in thousands):
Year Ended December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Proceeds from sale of securities....................................... $ 34,225 13,578 20,157
======== ======== ========
Gross gains from sale of securities.................................... 376 95 92
Gross losses from sale of securities................................... (78) (66) (1)
-------- -------- --------
Net gains.............................................................. $ 298 29 91
======== ======== ========
The scheduled maturities of securities at December 31, 1998 are as follows
(in thousands):
Available-for-
Sale Securities
------------------------
Amortized Fair
Cost Value
---- -----
Due less than one year............................................................ $ 13,106 13,096
Due from one to five years........................................................ 21,152 21,110
Due from five to ten years........................................................ 3,099 3,083
Mortgage-backed securities........................................................ 10,414 9,994
Mutual funds...................................................................... 4,108 3,992
-------- ------
$ 51,879 51,275
======== ======
(3) Loans Receivable
The components of loans are summarized as follows (in thousands):
At December 31,
------------------------------
1998 1997
---- ----
Residential real estate................................................. $ 76,938 61,827
Commercial real estate.................................................. 20,904 17,628
Commercial loans........................................................ 21,487 19,832
Consumer loans.......................................................... 9,827 7,372
--------- --------
129,156 106,659
Deferred loan fees...................................................... (73) (158)
Allowance for loan losses............................................... (1,078) (848)
--------- --------
$ 128,005 105,653
========= ========
(continued)
39
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Loans Receivable, Continued
An analysis of the change in the allowance for loan losses follows (in
thousands):
Year Ended December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Balance at beginning of year.................................... $ 848 777 840
-------- ------- -------
Loans charged-off............................................... (722) (58) (248)
Recoveries ................................................... 2 49 -
-------- ------- -------
Net loans charged-off....................................... (720) (9) (248)
-------- ------- -------
Provision for loan losses....................................... 950 80 185
-------- ------- -------
Balance at end of year.......................................... $ 1,078 848 777
======== ======= =======
The following summarizes the amounts of impaired loans, a majority of which
are collateral dependent (in thousands):
At December 31,
---------------------
1998 1997
---- ----
Loans identified as impaired:
Gross loans with no related allowance for losses.............................. $ - -
Gross loans with related allowance for losses recorded........................ 2,473 1,428
Less: Allowances on these loans.............................................. (407) (163)
--------- --------
Net investment in impaired loans.................................................. $ 2,066 1,265
========= ========
The average net investment in impaired loans and interest income recognized
and received on impaired loans is as follows (in thousands):
Year Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Average investment in impaired loans.................................. $ 1,665 392 111
======= ===== =====
Interest income recognized on impaired loans.......................... $ 157 - 32
======= ===== =====
Interest income received on impaired loans............................ $ 157 - 32
======= ===== =====
(continued)
40
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Investment in Limited Partnership
In late 1994 and early 1995, the Company invested a total of $5,000,000 to
acquire a 12.5% limited partner interest in Tranche VII of Dovenmuehle
Mortgage Company, L.P., a partnership whose primary asset is mortgage
servicing rights. The servicing rights in Tranche VII, acquired during
the latter months of 1994 and early 1995, were being amortized in
proportion to and over the period of estimated net servicing income and
were subjected to an independent valuation each calendar quarter.
During 1995, the Company recorded $507,000 as its share of partnership
earnings and received no cash distributions from the partnership. In
1996, the Company recorded $365,000 as its share of partnership
earnings and sold its interest in the partnership for book value.
(5) Premises and Equipment
Premises and equipment is summarized as follows (in thousands):
At December 31,
------------------------
1998 1997
---- ----
Land....................................................................... $ 383 -
Building................................................................... 180 -
Leasehold improvements..................................................... 1,023 1,000
Furniture, fixtures and equipment.......................................... 3,446 3,108
-------- -------
Total, at cost........................................................... 5,032 4,108
Less accumulated depreciation and amortization............................. (3,272) (2,883)
-------- -------
Net book value........................................................... $ 1,760 1,225
======== =======
The Company leases three of its banking offices and has purchased a branch
facility in Boca Raton which will open in the first quarter of 1999.
Rental expense was approximately $434,000, $420,000 and $314,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
Approximate future minimum annual rental payments under these
noncancellable leases are as follows (in thousands):
Year Ending
December 31, Amount
------------ ------
1999.................................................................................. $ 568
2000.................................................................................. 517
2001.................................................................................. 524
2002.................................................................................. 369
2003.................................................................................. 126
Thereafter............................................................................ 279
-------
Total................................................................................. $ 2,383
=======
(6) Deposits
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000, was approximately $22.7 million and $11.1
million at December 31, 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of certificates of deposit are
as follows (in thousands):
Year Ending
December 31, Amount
------------ ------
1999.................................................................................. $ 43,657
2000.................................................................................. 17,396
2001.................................................................................. 1,025
2002.................................................................................. 7,212
2003 and thereafter................................................................... 1,945
---------
$ 71,235
=========
(continued)
41
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Other Borrowings
In 1996, the Company began entering into investment repurchase agreements.
These agreements require the Company to pledge securities as collateral
for the balance in the accounts. At December 31, 1998 and 1997 the
balance totaled $3,446,000 and $1,791,000, respectively and the Company
pledged securities as collateral for these agreements with a book value
of approximately $4,057,000 and $3,011,000, respectively.
During 1996, the Company also entered into sales of securities under
agreements to repurchase ("reverse repurchase agreements").
Fixed-coupon reverse repurchase agreements are treated as financings.
The securities underlying the reverse repurchase agreements and the
obligations to repurchase securities sold are reflected as assets and
liabilities, respectively, in the consolidated balance sheets. During
the year ended December 31, 1996 all of the Company's transactions were
fixed-coupon reverse repurchase agreements. At December 31, 1998 and
1997 there were no securities sold under reverse repurchase agreements.
Year Ended December 31,
-----------------------
1996
----
(Dollars in thousands)
Maximum borrowing at any month-end
within the year......................................................... $ 1,385
Average borrowing during the year........................................... 803
Average interest cost during the year....................................... 5.17%
Average interest cost at end of the year.................................... 5.08%
(8) Advances from Federal Home Loan Bank
Maturities and interest rates of advances from the Federal Home Loan Bank
("FHLB") were as follows (dollars in thousands):
Year Ending At December 31,
Interest -----------------------
December 31, Rate 1998 1997
------------ --------- ---- ----
1998....................................................... 6.50% $ - 4,400
2007....................................................... 5.47% 5,000 -
2008....................................................... 5.09% 10,000 -
---------- --------
Total.................................................. $ 15,000 4,400
========== ========
At December 31, 1998 and 1997, 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.
(continued)
42
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements.
(10) Financial Instruments
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 are commitments to extend credit
and standby letters of credit and may involve, to varying degrees,
elements of credit and interest-rate risk in excess of the amount
recognized in the consolidated balance sheet. The contract amounts of
these instruments reflect the extent of involvement the Company has in
these 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 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.
(continued)
43
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Financial Instruments, Continued
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
At December 31, 1998 At December 31, 1997
----------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
Cash and cash equivalents.............................. $ 3,471 3,471 2,575 2,575
Securities available for sale.......................... 51,275 51,275 22,745 22,745
Securities held to maturity............................ - - 7,764 7,478
Loans receivable, net.................................. 128,005 129,986 105,653 107,076
Loans held for sale.................................... 617 617 4,443 4,443
Accrued interest receivable............................ 1,270 1,270 1,027 1,027
Restricted securities.................................. 1,714 1,714 1,570 1,570
Financial liabilities:
Deposit liabilities.................................... 141,212 145,329 124,995 126,537
Other borrowings....................................... 3,446 3,446 1,791 1,791
Advances from Federal Home Loan Bank................... 15,000 14,751 4,400 4,400
A summary of the notional amounts of the Company's financial
instruments, which approximate fair value, with off balance sheet risk
at December 31, 1998 follows (in thousands):
Unfunded loan commitments at fixed rates..................................... $ 1,592
=======
Unfunded loan commitments at variable rates.................................. $ 7,995
=======
Available lines of credit.................................................... $ 8,496
=======
Standby letters of credit.................................................... $ 875
=======
(11) Credit Risk
The Company grants a majority of its loans to borrowers primarily in Palm
Beach, Broward and Miami-Dade Counties, Florida. Although the
Company has a diversified loan portfolio, a significant
portion of its borrowers' ability to honor their contracts is
dependent upon the economy of these counties in Florida. The
contractual amounts of credit-related financial instruments
such as commitments to extend credit and standby letters of
credit represent the amounts of potential accounting loss
should the contract be fully drawn upon, the customer default
and the value of any existing collateral become worthless.
(continued)
44
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Income Taxes
The income taxes (benefit) consisted of the following (in thousands):
Year Ended December 31, 1998: Current Deferred Total
----------------------------- ------- -------- -----
Federal....................................................... $ 566 3 569
State......................................................... 62 - 62
----- ----- ---
Total..................................................... $ 628 3 631
===== ===== ===
Year Ended December 31, 1997:
-----------------------------
Federal....................................................... 199 277 476
State......................................................... 17 57 74
----- ----- ---
Total..................................................... $ 216 334 550
===== ===== ===
Year Ended December 31, 1996:
-----------------------------
Federal....................................................... - (295) (295)
State......................................................... - (60) (60)
----- ----- ---
Total..................................................... $ - (355) (355)
===== ===== ===
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,
------------------------------------
1998 1997 1996
---- ---- ----
Tax provision at statutory rate............................... 34% 34% (34)%
Increase (decrease) in taxes resulting from:..................
State taxes............................................... 3 3 (4)
Other..................................................... - 1 1
---- --- --
Income taxes (benefit) ....................................... 37% 38% (37)%
==== === ==
(continued)
45
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) 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,
-----------------------
1998 1997
---- ----
Deferred tax assets:
Allowance for loan losses................................................ $ 348 241
Depreciation............................................................. 115 145
Interest income from impaired loans...................................... 45 34
Purchase accounting adjustments.......................................... - 43
Other.................................................................... 37 140
------ ------
Total gross deferred tax assets....................................... 545 603
------ ------
Deferred tax liabilities:
FHLB stock............................................................... 35 27
Deferred loan fees....................................................... 279 349
Other.................................................................... 10 3
------ ------
Total gross deferred tax liabilities.................................. 324 379
------ ------
Net deferred tax asset................................................ $ 221 224
====== ======
(13) 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 $2,480,000 and $546,000
at December 31, 1998 and 1997, respectively and deposits from such
related parties were approximately $4,218,000 and $3,043,000,
respectively.
(14) 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 included in the
accompanying consolidated financial statements was $19,000, $1,000 and
$4,400 for 1998, 1997 and 1996, respectively.
(15) Deferred Compensation Plans
In 1998 a new directors deferred compensation plan was adopted by the
Board of Directors. The plan permits the directors to receive common
stock of the Company in lieu of cash as payment of their annual
retainer fee for being directors and provides the directors the
opportunity to defer portions of these retainers. The total number of
shares available under this plan is 22,500. For the year ended December
31, 1998, a total of 6,924 shares was paid in lieu of cash of $106,456
to the directors.
In addition in 1998 certain directors received a total of 1,595 shares of
common stock in payment for director fees totaling $23,821 that were
accrued at December 31, 1997.
In 1997, the Company had deferred compensation plans for certain directors
that allowed for a portion of the participants earned compensation to
be deferred and paid upon retirement, disability, death or termination
of service at which time accrued benefits were payable in a lump-sum
payment or in monthly installments for a period of 10 years. At
December 31, 1997, approximately $118,000 was deferred and included in
other liabilities on the consolidated balance sheet for the Company's
obligations under these agreements. During 1997, certain directors
received lump-sum payments under these plans. During 1998, the deferred
compensation plans were terminated and all related obligations were
paid in cash or through the issuance of 2,526 shares of common stock in
lieu of cash of $38,837.
(continued)
46
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Stock Options
Certain key employees and directors of the Company have options to purchase
shares of the Company's common stock under a nonqualified stock option
plan adopted in 1994. Under the plan, the total number of shares which
may be issued is 300,000. At December 31, 1998, one share remains
available for grant. All per share amounts reflect the three-for-two
stock split declared in February, 1998. In addition, in 1998 a new
stock option plan was adopted under which both qualified and
unqualified options can be granted. A total of 200,000 options can be
granted to directors and employees of the Company under this plan. As
of December 31, 1998, 8,433 unqualified options had been granted under
this plan. A summary of stock option transactions follows ($ in
thousands, except per share amounts):
Range
of Per Weighted-
Share Average Aggregate
Number of Option Per Share Option
Shares Price Price Price
------ ----- ----- -----
Outstanding at December 31, 1995.................. 60,000 $ 6.67-10.52 8.50 510
Options granted................................... 50,451 9.67-10.45 10.14 512
Expired options................................... (2,100) 8.67 8.67 (18)
-------- ------------ -------
Outstanding at December 31, 1996.................. 108,351 6.67-10.45 9.27 1,004
Options granted................................... 135,963 9.55-10.03 9.61 1,307
Options exercised................................. (28,500) 6.67 6.67 (190)
Options forfeited................................. (10,233) 6.67-10.52 9.69 (99)
-------- ------------ -------
Outstanding at December 31, 1997.................. 205,581 9.55-10.52 9.84 2,022
Options granted................................... 75,551 10.03-15.38 12.21 923
Options exercised................................. (11,982) 9.55-10.52 10.02 (120)
Options forfeited................................. (1,200) 9.55 9.55 (11)
-------- ------------ ------- -------
Outstanding at December 31, 1998.................. 267,950 $ 9.55-15.38 10.50 $ 2,814
======== ============ ======= =======
The weighted-average remaining contractual life of the outstanding stock
options at December 31, 1998, 1997 and 1996 was forty months,
forty-nine months and thirty-five months, respectively.
These options are exercisable as follows:
Number Weighted-Average
Year Ending of Shares Exercise Price
----------- --------- --------------
1998................................................... 176,260 $ 10.42
1999................................................... 35,470 10.37
2000................................................... 32,470 10.45
2001................................................... 15,250 10.71
2002................................................... 7,000 11.98
2003................................................... 1,500 15.38
------- --------
267,950 $ 10.50
======= ========
(continued)
47
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Stock Options, Continued
FASB Statement 123 requires proforma information regarding net earnings
(loss) and earnings (loss) per share. This proforma information has been
determined as if the Company had accounted for its stock options under
the fair value method of that Statement and is as follows:
Year Ended December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
Net earnings (loss):
As reported................................................$ 1,053 914 (599)
======== === ===
Proforma...................................................$ 771 767 (732)
======== === ===
Basic earnings (loss) per share:
As reported................................................$ .56 .68 (.52)
========= === ===
Proforma ..................................................$ .41 .56 (.60)
========= === ===
Diluted earnings (loss) per share:
As reported................................................$ .55 .62 (.52)
========= === ===
Proforma...................................................$ .40 .51 (.60)
========= === ===
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,
-------------------------------------
1998 1997 1996
---- ---- ----
Risk-free interest rate........................................... 6.0% 6.0% 6.0%
Dividend yield.................................................... -% -% -%
Expected volatility............................................... 20% -%* -%*
Expected life in years............................................ 5 or 10 5 5
- -----------------------------
* There was no active market in 1997 or 1996.
(17) Preferred Stock
At December 31, 1997, the Company had 54,116 outstanding shares of
convertible, redeemable, cumulative preferred stock Series A, $.01 par
value ("preferred stock"). During the first quarter of 1998 an additional
500 shares were sold by the Company and 1,410 shares were issued in the
form of a stock dividend. In the second quarter of 1998 all outstanding
preferred shares were converted by the shareholders into 126,026 shares
of common stock.
In 1997, the Company paid dividends on preferred stock in a combination of
both preferred stock and cash based on the preference of the individual
stockholders. The total preferred stock issued was 3,218 shares and the
total cash was approximately $16,000. A preferred stock dividend was
declared in 1996 of approximately $35,000 which was initially recorded as
a cash dividend. Subsequently, it was decided to pay the dividend in a
combination of preferred stock and cash, based on the preference of the
individual stockholder. The total preferred stock issued was 1,398 shares
and the total cash was $8,000.
(continued)
48
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(18) Regulatory Matters
The Bank is subject to restrictions on the amount of dividends that it may
declare without prior regulatory approval.
The Bank is subject to various regulatory capital requirements administered
by the regulatory 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 financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
tables below). Management believes, as of December 31, 1998, that the
Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, 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 the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that management
believes have changed the Bank's category. The Bank's actual capital
amounts and percents are also presented in the table (dollars in
thousands).
For Well
For Capital Capitalized
Actual Adequacy Purposes: Purposes:
------------------------- ---------------------- -----------------------
Amount % Amount % Amount %
------ - ------ - ------ -
As of December 31, 1998:
Total capital (to Risk-
Weighted Assets)........... $ 21,916 20.70% $ 8,468 8.00% $ 10,585 10.00%
Tier I Capital (to Risk-
Weighted Assets)...... 20,838 19.69 4,234 4.00 6,351 6.00
Tier I Capital
(to Average Assets)........ 20,838 11.12 7,494 4.00 9,368 5.00
As of December 31, 1997:
Total capital (to Risk-
Weighted Assets)........... $ 14,529 16.00% $ 7,264 8.00% $ 9,080 10.00%
Tier I Capital (to Risk-
Weighted Assets)...... 13,681 15.06 3,632 4.00 5,448 6.00
Tier I Capital
(to Average Assets)........ 13,681 8.95 6,117 4.00 7,646 5.00
(19) SAIF Recapitalization Assessment
On September 30, 1996, a law was enacted which imposed a one-time
assessment on all SAIF insured deposits as of March 31, 1995. The
effect on the Company was a pretax charge in 1996 of $926,000.
(continued)
49
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(20) Stockholders' Equity
The Board of Directors voted to split the common shares on a three-for-two
basis effective in February, 1998. All per share amounts reflect this
split.
(21) Earnings (Loss) Per Share
Basic earnings (loss) per share ("EPS") of common stock has been computed
on the basis of the weighted-average number of shares of common stock
outstanding. For purposes of calculating diluted EPS in 1997 and 1996,
because there was no active trading market for the Company's common
stock, the average book value per share was used. For 1996, outstanding
stock options were not dilutive due to the net loss incurred by the
Company. The weighted-average number of shares outstanding for 1996
were 1,219,092 shares and the net loss used in the computation of basic
EPS was $634,000 which takes into effect the dividend declared on the
preferred stock. All per share amounts reflect the three-for-two stock
split declared in February, 1998 ($ in thousands, except per share
amounts).
For the Year Ended December 31,
------------------------------------------------------------------
1998 1997
------------------------------------------------------------------
Weighted- Per Weighted- Per
Average Share Average Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
Basic EPS:
Net earnings...................... $ 1,053 $ 914
Less preferred stock dividends.... (27) (81)
------- -----
Net earnings available to
common stockholders........... 1,026 1,826,613 $ .56 833 1,224,441 $ .68
===== =====
Effect of dilutive securities-
Incremental shares from
assumed exercise of options... - 27,998 - 435
Incremental shares from
assumed conversion of
preferred stock............... - - - 121,761
------- ---------- ----- ----------
Diluted EPS:
Net earnings available to
common stockholders
and assumed
conversions................... $ 1,026 1,854,611 $ .55 $ 833 1,346,637 $ .62
======= ========== ===== ===== ========== =====
(continued)
50
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(22) Comprehensive Income
During the years ended December 31, 1998, 1997 and 1996, the Company held
securities classified as available-for-sale, which has unrealized
(losses) gains of $(239,000), $108,000 and $(196,000) after tax,
respectively. The before tax and after tax amount of these (losses)
gains, as well as the tax benefit (expense) is summarized below (in
thousands).
Tax
Before (Expense) After
Tax Benefit Tax
--- ------- ---
For the Year Ended December 31, 1998:
Unrealized holding losses.................................... $ (85) 32 (53)
Reclassification adjustment for gains included
in net earnings............................................ (298) 112 (186)
----- ----- -----
$(383) 144 (239)
===== ===== =====
For the Year Ended December 31, 1997:
Unrealized holding gains..................................... 200 (74) 126
Reclassification adjustment for gains included
in net earnings............................................ (29) 11 (18)
----- ----- -----
$ 171 (63) 108
===== ===== =====
For the Year Ended December 31, 1996:
Unrealized holding losses.................................... (227) 88 (139)
Reclassification adjustment for gains included
in net losses.............................................. (91) 34 (57)
----- ----- -----
$(318) 122 (196)
===== ===== =====
(continued)
51
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(23) Holding Company Financial Information
The Holding Company's unconsolidated financial information is as follows (in
thousands):
Condensed Balance Sheets
At December 31,
----------------------
1998 1997
---- ----
Assets
Cash and cash equivalents...................................................... $ 6,351 127
Investment in subsidiaries..................................................... 20,585 13,722
Other assets................................................................... 105 94
--------- -------
Total assets............................................................... $ 27,041 13,943
========= =======
Liabilities and Stockholders' Equity
Other liabilities.............................................................. 6 98
Stockholders' equity........................................................... 27,035 13,845
--------- -------
Total liabilities and stockholders' equity................................. $ 27,041 13,943
========= =======
Condensed Statements of Operations
For the Year Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
Revenues................................................................ $ 16 665 2,101
Expenses................................................................ 64 752 2,182
-------- ------ -----
Loss before earnings (loss) of subsidiaries........................ (48) (87) (81)
Earnings (loss) of subsidiaries.................................... 1,101 1,001 (518)
-------- ------ -----
Net earnings (loss)................................................ $ 1,053 914 (599)
======== ====== =====
(continued)
52
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(23) Holding Company Financial Information, Continued
Condensed Statements of Cash Flows
For the Year Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net earnings (loss)................................................ $ 1,053 914 (599)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Common stock issued as compensation for services............... 170 - -
(Increase) decrease in other assets............................ (11) 54 7
Decrease in due to subsidiaries................................ - - (295)
(Decrease) increase in other liabilities....................... (92) (143) 14
-------- ------ -----
Net cash provided by (used in)
operating activities...................................... 1,120 825 (873)
-------- ------ -----
Cash flows (used in) provided by investing activities-
Net (increase) decrease in investment in subsidiaries.............. (7,102) (1,187) 217
-------- ------ -----
Cash flows from financing activities:
Proceeds from issuance of preferred stock.......................... 10 201 737
Proceeds from issuance of common stock............................. 12,076 190 -
Cash dividends paid in preferred stock............................. - (12) -
Proceeds from exercise of stock options............................ 120 - -
-------- ------ -----
Net cash provided by investing activities................... 12,206 379 737
-------- ------ -----
Net increase in cash and cash equivalents............................... 6,224 17 81
Cash and cash equivalents at beginning of the year...................... 127 110 29
-------- ------ -----
Cash and cash equivalents at end of year................................ $ 6,351 127 110
======== ====== =====
Noncash transactions:
Change in investment in subsidiaries due to accumulated other
comprehensive income, change in securities available
for sale....................................................... $ (239) 108 (196)
======== ====== =====
Dividends payable on preferred stock............................... $ - 4 35
======== ====== =====
Stock dividends paid on preferred stock............................ $ 27 65 -
======== ====== =====
(continued)
53
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(24) Year 2000 Issues
Management of the Company is acutely aware of the Year 2000 problem and has
an ongoing program designed to ensure that its operational and
financial systems, and those of its commercial bank subsidiary, will
not be adversely affected by Year 2000 software failures, due to
processing errors arising from calculations using the Year 2000 date.
The Bank's Data Processing Steering Committee has been assigned the
Year 2000 compliance topic. The committee meets quarterly or as needed
to assess the extent to which the Bank and its outside vendors may be
adversely affected by the Year 2000 problem. The Committee has prepared
and is responsible for monitoring the Vendor Status Report which
identifies the vendors and equipment that have been determined to be
Year 2000 sensitive. As of September 30, 1998, the Bank had received
written assurances from all of the materially significant companies
listed on the Vendor Status Report indicating that their systems are
Year 2000 compliant.
The most significant vendor to the Bank, which provides the software
support for the in-house system, Information Technology, Inc., has
completed their testing process. The Bank has and will continue to
participate in the testing and verification of Year 2000 related
changes made by that vendor.
Based on current estimates, the Bank does not expect to incur a material
amount of expenses over the next two years on its program to redevelop,
replace or repair its computer applications to make them "Year 2000
compliant." It is recognized that any Year 2000 compliance failures
could result in additional expense to the Bank.
While management is diligently working to assure Year 2000 compliance,
compliance by the Bank is largely dependent upon compliance by vendors,
primarily in the area of on-line data processing. Management is
requiring its computer system and software vendors to represent that
the products are, or will be, Year 2000 compliant, and has planned a
program for testing for compliance.
Although management believes that the Bank's system will be Year 2000
compliant, a written contingency plan has been developed to address
problems that might be caused from Year 2000 system failures.
54
Independent Auditors' Report on Supplementary Information
Board of Directors
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,
1998, and have issued our report thereon dated January 22, 1999. 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, COHEN & GRIEB PA
Tampa, Florida
January 22, 1999
55
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidating Balance Sheet
December 31, 1998
(In thousands)
Pointe Pointe
Financial Pointe Financial Consolidated
Corporation Bank Services Eliminations Total
----------- ---- -------- ------------ -----
Assets
Cash and due from banks................................. $ 6,351 2,866 8 (6,359) 2,866
Interest bearing deposits with banks.................... - 605 - - 605
--------- -------- ----- --------- -------
Total cash and cash equivalents................ 6,351 3,471 8 (6,359) 3,471
Securities available for sale........................... - 51,275 - - 51,275
Loans receivable........................................ - 128,005 - - 128,005
Loans held for sale..................................... - 617 - - 617
Accrued interest receivable............................. - 1,270 - - 1,270
Premises and equipment, net............................. - 1,760 - - 1,760
Restricted securities................................... - 1,714 - - 1,714
Foreclosed real estate.................................. - 353 - - 353
Investment in subsidiaries.............................. 20,585 - - (20,585) -
Deferred income tax asset............................... (4) 225 - - 221
Other assets............................................ 109 480 - - 589
-------- -------- ----- --------- --------
Total.......................................... $ 27,041 189,170 8 (26,944) 189,275
======== ======== ===== ========= ========
Liabilities and Stockholders' Equity
Liabilities:
Deposits............................................ - 147,571 - (6,359) 141,212
Official checks..................................... - 1,248 - - 1,248
Other borrowings ................................... - 3,446 - - 3,446
Advances from the Federal Home
Loan Bank...................................... - 15,000 - - 15,000
Accrued interest payable............................ - 695 - - 695
Advance payments for taxes and insurance............ - 411 - - 411
Other liabilities................................... 6 222 - - 228
-------- -------- ----- --------- --------
Total liabilities.............................. 6 168,593 - (6,359) 162,240
-------- -------- ----- --------- --------
Stockholders' equity:
Common stock........................................ 23 3,006 1 (3,007) 23
Additional paid-in capital.......................... 23,324 12,962 220 (13,182) 23,324
Retained earnings (accumulated deficit)............. 4,065 4,986 (213) (4,773) 4,065
Accumulated other comprehensive income.............. (377) (377) - 377 (377)
-------- -------- ----- --------- --------
Total stockholders' equity..................... 27,035 20,577 8 (20,585) 27,035
-------- -------- ----- --------- --------
Total.......................................... $ 27,041 189,170 8 (26,944) 189,275
======== ======== ===== ========= ========
(continued)
56
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidating Statement of Operations
Year Ended December 31, 1998
(In thousands)
Pointe Pointe
Financial Pointe Financial Consolidated
Corporation Bank Services Eliminations Total
----------- ---- -------- ------------ -----
Interest income:
Loans receivable....................................$ - 10,459 - - 10,459
Securities available for sale....................... - 2,311 - - 2,311
Securities held to maturity......................... - 270 - - 270
Other interest earning assets....................... - 73 - - 73
------- -------- --- ------- -------
Total interest income.......................... - 13,113 - - 13,113
------- -------- --- ------- -------
Interest expense:
Deposits............................................ - 5,759 - - 5,759
Borrowings.......................................... - 739 - - 739
------- -------- --- ------- -------
Total interest expense......................... - 6,498 - - 6,498
------- -------- --- ------- -------
Net interest income..................................... - 6,615 - - 6,615
Provision for loan losses............................... - 950 - - 950
------- -------- --- ------- -------
Net interest income after provision
for loan losses................................ - 5,665 - - 5,665
------- -------- --- ------- -------
Noninterest income:
Loan servicing fees................................. - 61 - - 61
Net gains from sale of loans........................ - 158 - - 158
Net realized gains on sales of securities........... - 298 - - 298
Service charges on deposit accounts................. - 729 - - 729
Earnings of subsidiaries............................ 1,101 - - (1,101) -
Other............................................... 16 388 - - 404
------- -------- --- ------- -------
Total noninterest income....................... 1,117 1,634 - (1,101) 1,650
------- -------- --- ------- -------
Noninterest expenses:
Salaries and employee benefits...................... - 2,858 - - 2,858
Occupancy expense................................... - 992 - - 992
Advertising and promotion........................... 27 270 - - 297
Loan servicing expense.............................. - 1 - - 1
Federal deposit insurance premiums.................. - 94 - - 94
Professional fees................................... 19 172 - - 191
Data processing..................................... 1 286 - - 287
Other............................................... 46 864 1 - 911
------- -------- --- ------- -------
Total noninterest expenses..................... 93 5,537 1 - 5,631
------- -------- --- ------- -------
Earnings before income taxes............................ 1,024 1,762 (1) (1,101) 1,684
Income taxes (benefit).................................. (29) 660 - - 631
------- -------- --- ------- -------
Net earnings............................................ $ 1,053 1,102 (1) (1,101) 1,053
======= ======== === ======= =======
57
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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 1999 Annual
Meeting of Stockholders, which definitive proxy statement 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 (hereinafter referred
to as the "Annual Meeting Proxy Statement"), is incorporated herein by
reference. Information concerning the executive officers of the Company is
included in Part I of this Report on Form 10-K.
Item 11. Executive Compensation.
The information contained under the caption "Executive Compensation" to appear
in the Annual Meeting Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" to appear in the Annual Meeting Proxy
Statement is incorporated herein by reference.
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 is incorporated herein by
reference.
58
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(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 Certified Public Accountants
(Hacker, Johnson, Cohen & Grieb, P.A.)
Consolidated Statements of Financial Condition as of
December 31, 1998 and 1997.
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
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.*
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 on April 9, 1998 [the "Registration
Statement"]).
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).
10.5 Lease Agreement dated January 23, 1995 by and between
Hollywood Associates VI and Pointe Bank (Exhibit 10.5 to
the Registration Statement).
10.6 Credit Agreement dated August 18, 1997 between
Independent Bankers' Bank of Florida and Pointe
59
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.
11.1 Statement regarding calculation of earnings per common
share.
12.1 Statement regarding calculation of ratio of earnings
to fixed charges.
21.1 Subsidiaries of the Registrant
23.1 Consent of Hacker, Johnson, Cohen & Grieb, P.A.
24.1 Power of Attorney
27.1 Financial Data Schedule
- -------------------------
* Exhibits followed by a parenthetical reference are incorporated herein by
reference from the documents described therein.
** Exhibits 10.1, 10.2, 10.11 and 10.12 are compensatory plans or
arrangements.
*** Contracts with Management.
(b) Reports of Form 8-K.
During the quarter ended December 31, 1998, no Current Reports on
Form 8-K were filed by the Company.
60
Supplemental Information.
As of the date of filing of this report on Form 10-K no annual report or proxy
material has been sent to security holders. Such material will be furnished to
security holders and the Securities and Exchange Commission subsequent to the
filing of this report on Form 10-K.
61
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
By: /s/ R. Carl Palmer, Jr.
------------------------
R. Carl Palmer, Jr.
Chief Executive Officer and President
Dated: March 10, 1999
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/ Roberto Kassin Chairman of the Board March 10, 1999
- ------------------
Roberto Kassin
/s/ Timothy McGinn Vice Chairman of the Board March 10, 1999
- ------------------
Timothy McGinn
/s/ R. Carl Palmer, Jr. Chief Executive Officer,
- ----------------------- President and Director March 10, 1999
R. Carl Palmer, Jr.
/s/ Bradley R. Meredith Chief Financial Officer, March 10, 1999
- ----------------------- Senior Vice President
Bradley R. Meredith
/s/ Steven Elias Director March 10, 1999
- ----------------
Steven Elias
/s/ Morris Massry Director March 10, 1999
- -----------------
Morris Massry
/s/ D. Richard Mead, Jr. Director March 10, 1999
- ------------------------
D. Richard Mead, Jr.
/s/ Parker D. Thomson Director March 10, 1999
- ---------------------
Parker D. Thomson
62