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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-24433
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POINTE FINANCIAL CORPORATION
----------------------------
(Exact Name of Registrant as Specified in Its Charter)
Florida 65-0451402
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(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
21845 Powerline Road
Boca Raton, Florida 33433 33433
------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(561) 368-6300
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date;
Common stock, par value $.01 per share 2,262,123 shares
- -------------------------------------- ----------------
(class) Outstanding at May 5, 2004
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POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Condensed Consolidated Balance Sheets -
at March 31, 2004 (unaudited) and at December 31, 2003..................2
Condensed Consolidated Statements of Earnings -
Three Months ended March 31, 2004 and 2003 (unaudited)..................3
Condensed Consolidated Statements of Changes in Stockholders' Equity -
Three Months ended March 31, 2004 and 2003 (unaudited)..................4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 2004 and 2003 (unaudited)................5-6
Notes to Condensed Consolidated Financial Statements (unaudited).......7-11
Review by Independent Accountants........................................12
Independent Accountants' Report..........................................13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................14-17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSOURES ABOUT MARKET RISK.......18
ITEM 4. CONTROLS AND PROCEDURES...........................................18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................19-20
SIGNATURES....................................................................21
1
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
ASSETS 2004 2003
--------- ------------
(UNAUDITED)
Cash and due from banks .................................................... $ 9,859 12,341
Interest-bearing deposits with banks ....................................... 27,066 602
--------- --------
Total cash and cash equivalents ..................................... 36,925 12,943
Securities available for sale .............................................. 68,532 69,344
Loans, net of allowance for loan losses of $3,550 and $3,441 ............... 254,091 250,331
Loans held for sale ........................................................ 2,998 3,084
Accrued interest receivable ................................................ 1,930 2,072
Premises and equipment, net ................................................ 2,867 3,482
Federal Home Loan Bank stock, at cost ...................................... 1,500 1,915
Federal Reserve Bank stock, at cost ........................................ 479 479
Branch acquisition intangible asset ........................................ 2,914 2,974
Deferred income tax asset .................................................. 786 786
Other assets ............................................................... 868 1,304
--------- --------
Total ............................................................... $ 373,890 348,714
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits ..................................... 76,041 71,326
Savings and NOW deposits ................................................ 48,098 32,562
Money-market deposits ................................................... 85,329 84,443
Time deposits ........................................................... 77,298 75,535
--------- --------
Total deposits ...................................................... 286,766 263,866
Official checks ......................................................... 2,701 2,143
Federal Home Loan Bank advances ......................................... 30,000 30,875
Other borrowings ........................................................ 16,971 15,050
Accrued interest payable ................................................ 366 393
Advance payments by borrowers for taxes and insurance ................... 486 260
Other liabilities ....................................................... 594 1,210
--------- --------
Total liabilities ................................................... 337,884 313,797
--------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued -- --
Common stock, $.01 par value, 5,000,000 shares authorized; 2,557,855 and
2,549,028 shares issued ............................................... 26 25
Additional paid-in capital .............................................. 26,767 26,617
Retained earnings ....................................................... 11,495 10,835
Accumulated other comprehensive income .................................. 837 576
Treasury stock, at cost (297,000 shares) ................................ (3,000) (3,000)
Stock incentive plan .................................................... (119) (136)
--------- --------
Total stockholders' equity .......................................... 36,006 34,917
--------- --------
Total ............................................................... $ 373,890 348,714
========= ========
See Accompanying Notes to Condensed Consolidated Financial Statements.
2
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2004 2003
---------- ----------
(UNAUDITED)
Interest income:
Loans .................................................. $ 4,072 3,700
Securities available for sale .......................... 663 704
Other .................................................. 28 97
---------- ----------
Total interest income ............................. 4,763 4,501
---------- ----------
Interest expense:
Deposits ............................................... 647 938
Borrowings ............................................. 440 509
---------- ----------
Total interest expense ............................ 1,087 1,447
---------- ----------
Net interest income ........................................ 3,676 3,054
Provision (credit) for loan losses ................ 100 (100)
---------- ----------
Net interest income after provision (credit) for loan losses 3,576 3,154
---------- ----------
Noninterest income:
Service charges and fees on deposit accounts ........... 484 450
Gain on sale of premises and equipment ................. 320 --
Loan correspondent fees ................................ 36 89
Other .................................................. 165 194
---------- ----------
Total noninterest income .......................... 1,005 733
---------- ----------
Noninterest expenses:
Salaries and employee benefits ......................... 1,894 1,662
Occupancy and equipment ................................ 594 630
Advertising and promotion .............................. 50 85
Professional fees ...................................... 68 76
Data processing ........................................ 171 208
Amortization of intangible asset ....................... 60 61
Other .................................................. 493 508
---------- ----------
Total noninterest expenses ........................ 3,330 3,230
---------- ----------
Earnings before income taxes ...................... 1,251 657
Income taxes ............................................... 388 196
---------- ----------
Net earnings ...................................... $ 863 461
========== ==========
Earnings per share:
Basic .................................................. $ .38 .21
========== ==========
Diluted ................................................ $ .37 .21
========== ==========
Weighted-average shares outstanding for basic .............. 2,258,786 2,196,227
========== ==========
Weighted-average shares outstanding for diluted ............ 2,359,725 2,239,684
========== ==========
Dividends per share ........................................ $ .09 .05
========== ==========
See Accompanying Notes to Condensed Consolidated Financial Statements
3
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
($ IN THOUSANDS)
ACCUMULATED
OTHER
ADDITIONAL STOCK COMPRE- TOTAL
COMMON STOCK PAID-IN INCENTIVE TREASURY RETAINED HENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL PLAN STOCK EARNINGS INCOME EQUITY
--------- ---------- ------------------- -------- -------- ---------- -------------
Balance at December 31, 2002 ........ 2,471,668 $ 25 25,540 (52) (3,000) 8,878 940 32,331
------
Comprehensive income:
Net earnings (unaudited) ....... -- -- -- -- -- 461 -- 461
Net change in unrealized
gain on securities available
for sale, net of taxes
(unaudited) ................ -- -- -- -- -- -- 49 49
------
Comprehensive income (unaudited) .... 510
------
Common stock options exercised
(unaudited) .................... 43,633 -- 518 -- -- -- -- 518
Shares issued in stock incentive
plan (unaudited) ............... 10,891 -- 165 (165) -- -- -- --
Shares committed to participants
in stock incentive plan
(unaudited) .................... -- -- -- (2) -- -- -- (2)
Shares cancelled in stock
incentive plan (unaudited) ..... (1,337) -- (14) 14 -- -- -- --
Cash dividends paid (unaudited) ..... -- -- -- -- -- (109) -- (109)
--------- ---------- ------ ---- ------ ------ --- ------
Balance at March 31, 2003
(unaudited) .................... 2,524,855 $ 25 26,209 (205) (3,000) 9,230 989 33,248
========= ========== ====== ==== ====== ====== === ======
Balance at December 31, 2003 ........ 2,549,028 $ 25 26,617 (136) (3,000) 10,835 576 34,917
------
Comprehensive income:
Net earnings (unaudited) ....... -- -- -- -- -- 863 -- 863
Net change in unrealized
gain on securities
available for sale,
net of taxes (unaudited) ... -- -- -- -- -- -- 261 261
------
Comprehensive income (unaudited) .... 1,124
------
Common stock options exercised
(unaudited) .................... 9,167 1 155 -- -- -- -- 156
Shares committed to participants
in stock incentive plan
(unaudited) .................... -- -- -- 12 -- -- -- 12
Shares cancelled in stock
incentive plan (unaudited) ..... (340) -- (5) 5 -- -- -- --
Cash dividends paid (unaudited) ..... -- -- -- -- -- (203) -- (203)
--------- ---------- ------ ---- ------ ------ --- ------
Balance at March 31, 2004
(unaudited) .................... 2,557,855 $ 26 26,767 (119) (3,000) 11,495 837 36,006
========= ========== ====== ==== ====== ====== === ======
See Accompanying Notes to Condensed Consolidated Financial Statements
4
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2004 2003
-------- -------
(UNAUDITED)
Cash flows from operating activities:
Net earnings ....................................................... $ 863 461
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision (credit) for loan losses .......................... 100 (100)
Depreciation and amortization ............................... 154 168
Net amortization of fees, premiums, discounts and other ..... 292 283
Shares committed to participants in stock incentive plan .... 12 (2)
Gain on sale of premises and equipment ...................... (320) --
Gain on sale of foreclosed real estate ...................... -- (12)
Repayments of loans held for sale ........................... 86 32
Decrease in accrued interest receivable ..................... 142 115
Decrease (increase) in other assets ......................... 323 (176)
Increase in official checks ................................. 558 1,785
Decrease in accrued interest payable ........................ (27) (76)
Decrease in other liabilities ............................... (616) (251)
-------- -------
Net cash provided by operating activities ............... 1,567 2,227
-------- -------
Cash flows from investing activities:
Purchase of securities available for sale ....................... (27,507) (24,287)
Maturities and calls of securities available for sale ........... 28,505 11,057
Principal repayments on securities available for sale ........... 159 513
Net increase in loans ........................................... (4,016) (1,311)
Proceeds from sale of premises and equipment .................... 856 --
Net decrease in Federal Home Loan Bank stock .................... 415 500
Purchase of premises and equipment, net ......................... (75) (309)
Proceeds from sale of foreclosed real estate .................... -- 129
-------- -------
Net cash used in investing activities ................... (1,663) (13,708)
-------- -------
Cash flows from financing activities:
Net increase in deposits ........................................ 22,900 15,460
Net increase in other borrowings ................................ 1,921 2,382
Net decrease in Federal Home Loan Bank advances ................. (875) (15,000)
Increase in advance payments by borrowers for taxes and insurance 226 259
Cash dividends paid on common stock ............................. (203) (109)
-------
Proceeds from exercise of common stock options .................. 109 431
-------- -------
Net cash provided by financing activities ............... 24,078 3,423
-------- -------
Net increase (decrease) in cash and cash equivalents .... 23,982 (8,058)
Cash and cash equivalents at beginning of period .................... 12,943 35,648
-------- -------
Cash and cash equivalents at end of period .......................... $ 36,925 27,590
======== =======
(continued)
5
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------
2004 2003
--------- -----
(UNAUDITED)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ....................................................... $ 1,114 1,523
========= ======
Income taxes ................................................... $ -- 315
========= ======
Noncash transactions:
Accumulated other comprehensive income, net change in unrealized
gain on securities available for sale, net ................. $ 261 49
========= ======
Tax benefit related to exercise of common stock options ....... $ 47 87
========= ======
Activity in stock incentive plan, net ......................... $ 17 (153)
========= ======
See Accompanying Notes to Condensed Consolidated Financial Statements.
6
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL. In the opinion of the management of Pointe Financial
Corporation, the accompanying condensed consolidated financial
statements contain all adjustments (consisting principally of normal
recurring accruals) necessary to present fairly the financial position
at March 31, 2004 and the results of operations and cash flows for the
three-month periods ended March 31, 2004 and 2003. The results of
operations for the three months ended March 31, 2004 are not
necessarily indicative of the results to be expected for the year
ending December 31, 2004.
Pointe Financial Corporation (the "Holding Company") owns 100% of
Pointe Bank (the "Bank"), a state-chartered commercial bank, and Pointe
Financial Services, Inc. On February 12, 2002, the Bank incorporated an
additional subsidiary, Will No-No, Inc., a Florida Corporation, which
owns, maintains, and disposes of the Bank's foreclosed assets
(collectively, the "Company"). The Bank provides a variety of community
banking services to small and middle-market businesses and individuals
through its nine banking offices located in Broward, Miami-Dade and
Palm Beach counties, Florida. Pointe Financial Services, Inc. is an
inactive subsidiary and Will No-No, Inc. had no activity during the
three months ended March 31, 2004.
2. LOAN LOSSES AND LOAN IMPAIRMENT. The activity in the allowance for loan
losses is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
2004 2003
-------- ------
Balance at beginning of period .................................... $ 3,441 3,519
Provision (credit) for loan losses ................................ 100 (100)
Net loans recovered (charged-off) ................................. 9 (48)
-------- ------
Balance at end of period .......................................... $ 3,550 3,371
======== ======
The following summarizes the amount of impaired loans (in thousands):
AT
MARCH 31, DECEMBER 31,
2004 2003
-------- ------
Loans identified as impaired:
Gross loans with no related allowance for losses recorded ..... $ -- --
Less allowance for losses on these loans ...................... -- --
-------- ------
Net investment in impaired loans .................................. $ -- --
======== ======
The average net investment in impaired loans and interest income
recognized and received on impaired loans is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
2004 2003
-------- ------
Average net investment in impaired loans .......................... $ -- --
======== ======
Interest income recognized on impaired loans ...................... $ -- --
======== ======
Interest income received on impaired loans ........................ $ -- --
======== ======
(continued)
7
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
2. LOAN LOSSES AND LOAN IMPAIRMENT, CONTINUED. Nonaccrual and past due
loans were as follows (in thousands):
AT MARCH 31,
--------------
2004 2003
------ ----
Nonaccrual loans ............................... $ 834 398
Past due ninety days or more, but still accruing 1,724 80
------ ---
$2,558 478
====== ===
3. EARNINGS PER SHARE. Earnings per share ("EPS") of common stock has
been computed on the basis of the weighted-average number of shares of
common stock outstanding. Outstanding stock options are considered
dilutive securities for purposes of calculating diluted EPS which is
computed using the treasury stock method. The following table presents
the calculations of the weighted-average number of shares for diluted
EPS.
THREE MONTHS ENDED
MARCH 31,
-----------------------
2004 2003
--------- ---------
Weighted-average number of common shares outstanding,
for basic EPS .......................................... 2,258,786 2,196,227
Effect of dilutive options ................................. 100,939 43,457
--------- ---------
Weighted-average number of common shares outstanding used to
calculate diluted EPS .................................. 2,359,725 2,239,684
========= =========
4. REGULATORY CAPITAL. The Bank is required to maintain certain minimum
regulatory capital requirements. The following is a summary at March
31, 2004 of the regulatory capital requirements and the Bank's actual
capital on a percentage basis:
REGULATORY
ACTUAL REQUIREMENT
------ -----------
Total capital to risk-weighted assets ................. 12.11% 8.00%
Tier I capital to risk-weighted assets ................ 10.86% 4.00%
Tier I capital to total average assets - leverage ratio 8.53% 4.00%
(continued)
8
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
5. STOCK AWARD PLANS. Certain key employees and directors of the
Company have options to purchase shares of the Company's common stock
under a nonqualified stock option plan adopted in 1994. In 1998, a new
Incentive Compensation and Stock Award Plan ("1998 Plan") was adopted
under which both qualified and nonqualified options can be granted and
common stock can be awarded to employees as compensation. The Company's
Board of Directors in 2001 determined that all new options would be
granted under the 1998 Plan. Directors options vest immediately and
officers and employees vest over three and five years. A total of
400,000 options or shares can be granted to directors and employees of
the Company under the 1998 Plan. As of March 31, 2004, 18,830 options
or shares remain available for grant. 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, 2002.................. 311,527 $ 8.62-15.38 11.02 3,433
Options granted................................... 45,105 15.15 15.15 683
Options exercised................................. (43,633) 8.62-10.03 9.87 (431)
Options forfeited................................. (1,972) 9.00-11.95 11.17 (22)
------- ------
Outstanding at March 31, 2003..................... 311,027 $ 9.00-15.38 11.78 3,663
======= ============ ===== =====
Outstanding at December 31, 2003.................. 310,086 8.62-24.15 12.40 3,845
Options exercised................................. (9,167) 9.00-15.38 11.88 (109)
Options forfeited................................. (966) 11.95 11.95 (11)
------- ------
Outstanding at March 31, 2004..................... 299,953 $ 8.62-24.15 12.42 3,725
======= ============ ===== =====
(continued)
9
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
5. STOCK AWARD PLANS, CONTINUED. The Company accounts for their stock
option plans under the recognition and measurement principles of
Opinion No. 25. No stock option-based employee compensation cost is
reflected in net earnings, as all options granted under those plans had
an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect
on net earnings and earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation ($ in thousands, except per share amounts).
THREE MONTHS ENDED
MARCH 31,
------------------
2004 2003
----- ------
Net earnings, as reported ................................ $ 863 461
Deduct: Total stock-based employee compensation
determined under the fair value based method for all
awards, net of related tax benefit ................. (25) (33)
----- ------
Pro forma net earnings ................................... $ 838 428
===== ======
Basic earnings per share:
As reported ........................................ $ .38 .21
===== ======
Pro forma .......................................... $ .37 .19
===== ======
Diluted earnings per share:
As reported ........................................ $ .37 .21
===== ======
Pro forma .......................................... $ .36 .19
===== ======
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:
THREE MONTHS ENDED
MARCH 31,
2004 2003
---- ----
Risk-free interest rate ......................... --% 4.5%
Dividend yield .................................. --% 4.0%
Expected volatility ............................. --% 13.5%
Expected life in years .......................... -- 5 or 10
Weighted-average grant date fair value of options
issued during the year .................... $ -- 1.95
===== =====
(continued)
10
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
5. STOCK AWARD PLANS, CONTINUED. Also, the Company awarded shares of
restricted common stock to employees under the 1998 Plan. Four years
following the date of grant these restricted stock awards become
entirely vested. The Company is amortizing these restricted stock
awards into salaries and employee benefits over the four-year period.
From the date awarded, the employees are entitled to dividends paid on
common stock and may vote these shares. These restricted shares are as
follows:
SHARES
------
Shares outstanding at December 31, 2002 12,142
Shares granted ........................ 10,891
Shares forfeited ...................... (1,337)
-------
Shares outstanding at March 31, 2003 .. 21,696
=======
Shares outstanding at December 31, 2003 15,663
Shares forfeited ...................... (340)
-------
Shares outstanding at March 31, 2004 .. 15,323
=======
11
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
REVIEW BY INDEPENDENT ACCOUNTANTS
Hacker, Johnson & Smith PA, the Company's independent accountants, have made a
limited review of the interim financial data as of March 31, 2004, and for the
three-month periods ended March 31, 2004 and 2003 presented in this document, in
accordance with standards established by the American Institute of Certified
Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
12
INDEPENDENT ACCOUNTANTS' REPORT
Pointe Financial Corporation
Boca Raton, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of
Pointe Financial Corporation and Subsidiaries (the "Company") as of March 31,
2004, and the related condensed consolidated statements of earnings, changes in
stockholders' equity and cash flows for the three-month periods ended March 31,
2004 and 2003. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2003, and the related consolidated statements of earnings, changes
in stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated January 13, 2004 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2003, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
April 15, 2004
13
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF MARCH 31, 2004 AND DECEMBER 31, 2003
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash during the three months ended March 31,
2004 was from net deposit inflows of $22.9 million and $28.5 million from
maturities and exercised call options by issuers of government securities that
were held in the Company's available for sale portfolio. Cash was used primarily
for net loan originations of $4.0 million and for the purchase of securities
available for sale of $27.5 million. At March 31, 2004, the Company had
outstanding commitments to originate loans of $36.8 million and time deposits of
$71.2 million that mature in one year or less. It is expected that these
requirements will be funded from the sources described above. At March 31, 2004,
the Bank exceeded its regulatory liquidity requirements.
The following table shows selected rates for the periods ended or at the dates
indicated:
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, MARCH 31,
2004 2003 2003
------------ ------------ -------------
Average equity as a percentage
of average assets......................................... 10.13% 10.07% 10.02%
Equity to total assets at end of period...................... 9.63% 10.01% 9.99%
Return on average assets (1)................................. .99% .75% .56%
Return on average equity (1)................................. 9.76% 7.42% 5.63%
Noninterest expense to average assets (1).................... 3.82% 3.92% 3.96%
Nonperforming loans and foreclosed real estate
to total assets at end of period.......................... .22% .21% .07%
(1) Annualized for the three months ended March 31, 2004 and 2003.
OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, unused lines
of credit and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amounts
recognized in the condensed consolidated balance sheet. The contract amounts of
those instruments reflect the extent of the Company's involvement in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit, unused
lines of credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
14
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the counter party.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
A summary of the amounts of the Company's financial instruments, with
off-balance sheet risk at March 31, 2004, follows (in thousands):
CONTRACT
AMOUNT
Commitments to extend credit................. $ 25,476
========
Unused lines of credit....................... $ 36,784
========
Standby letters of credit.................... $ 2,398
========
Management believes that the Company has adequate resources to fund all of its
commitments and that substantially all its existing commitments will be funded
in the next twelve months.
Management believes the Bank was in compliance with all minimum capital
requirements which it was subject to at March 31, 2004. See note 4 to the
condensed consolidated financial statements.
Management is not aware of any trends, known demands, commitments or
uncertainties which are expected to have a material impact on future operating
results, liquidity or capital resources.
15
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest/dividend income; (iv) interest-rate spread; (v)
net interest margin; and (vi) ratio of average interest-earning assets to
average interest-bearing liabilities.
THREE MONTHS ENDED MARCH 31,
2004 2003
---------------------------------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- -------
($ IN THOUSANDS)
Interest-earning assets:
Loans.................................... $ 256,177 4,072 6.36% $ 215,547 3,700 6.87%
Securities (1)........................... 67,794 663 4.19 68,845 704 4.35
Other interest-earning assets (2)........ 4,577 28 2.45 25,484 97 1.52
--------- ------- -------- --------
Total interest-earning assets........ 328,548 4,763 5.86 309,876 4,501 5.87
----- -----
Noninterest-earning assets (3)........... 20,330 16,751
-------- --------
Total assets......................... $ 348,878 $ 326,627
======= =======
Interest-bearing liabilities:
Savings and NOW deposits................. 33,716 36 .43 25,116 40 .64
Money-market deposits.................... 84,408 196 .93 77,828 238 1.22
Time deposits............................ 73,942 415 2.25 88,393 660 2.99
Borrowings (4)........................... 50,393 440 3.49 47,897 509 4.25
------- ------ -------- -------
Total interest-bearing liabilities... 242,459 1,087 1.79 239,234 1,447 2.42
----- -----
Demand deposits.......................... 66,569 51,121
Noninterest-bearing liabilities.......... 4,498 3,542
Stockholders' equity..................... 35,352 32,730
-------- --------
Total liabilities and stockholders'
equity........................... $ 348,878 $ 326,627
======= =======
Net interest income......................... $ 3,676 $ 3,054
===== =====
Interest-rate spread (5).................... 4.07% 3.45%
==== ====
Net interest margin (6)..................... 4.48% 3.94%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities..... 1.36 1.30
==== ====
(1) Yield on securities is stated on a tax equivalent basis.
(2) Includes interest-bearing deposits, Federal Home Loan Bank stock and
Federal Reserve Bank stock.
(3) Includes nonaccrual loans.
(4) Includes advances from Federal Home Loan Bank and other borrowings
which consist of investment repurchase agreements.
(5) Interest-rate spread represents the difference between the
weighted-average yield on interest-earning assets and the
weighted-average cost of interest-bearing liabilities.
(6) Net interest margin is net interest income divided by average
interest-earning assets.
16
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
GENERAL. Net earnings for the three months ended March 31, 2004 were $863,000 or
$.38 basic and $.37 diluted earnings per share compared to net earnings of
$461,000 or $.21 basic and diluted earnings per share for the three months
ended March 31, 2003. The increase in the Company's net earnings was
primarily due to an increase in net interest income and noninterest income.
INTEREST INCOME AND EXPENSE. Interest income increased by $262,000, or 5.8%,
from $4.5 million for the three months ended March 31, 2003 to $4.8 million
for the three months ended March 31, 2004. Interest income on loans
increased $372,000 due to an increase in the average loan portfolio balance
from $215.5 million for the three months ended March 31, 2003 to $256.2
million for the comparable period in 2004 partially offset by a decrease in
the average yield earned from 6.87% in 2003 to 6.36% in 2004. Interest on
securities decreased $41,000 due to a decrease in the weighted-average
yield to 4.19% from 4.35% in the 2003 period and a decrease in the average
securities portfolio balance from $68.8 million in 2003 to $67.8 million in
2004.
Interest expense on deposits decreased to $647,000 for the three months ended
March 31, 2004 from $938,000 for the three months ended March 31, 2003.
Interest expense on deposits decreased due to a decrease in the average
rate paid on deposits from 1.96% in 2003 to 1.35% in 2004.
Interest expense on borrowings decreased $69,000 to $440,000 for the three
months ended March 31, 2004 from $509,000 for the three months ended March
31, 2003. Interest expense on borrowings decreased due to a decrease in the
weighted-average rate paid for the three months ended March 31, 2004 to
3.49% compared to 4.25% for the same period in 2003 partially offset by an
increase in the average balance of borrowings outstanding from $47.9
million in 2003 to $50.4 million in 2004.
PROVISION FOR LOAN LOSSES. The provision for loan losses is charged to earnings
to bring the total allowance to a level deemed appropriate by management
and is based upon historical experience, the volume and type of lending
conducted by the Company, industry standards, the amount of nonperforming
loans, general economic conditions, particularly as they relate to the
Company's market areas, and other factors related to the collectibility of
the Company's loan portfolio. The Company recorded a provision of $100,000
for the three months ended March 31, 2004. Management believes the balance
in the allowance for loan losses of $3.6 million at March 31, 2004 is
adequate.
NONINTEREST INCOME. Noninterest income increased $272,000 primarily due to a
gain on sale of premises and equipment of $320,000, partially offset by a
decrease in loan correspondent fees of $53,000 for the three months ended
March 31, 2004 compared to the same period in 2003.
NONINTEREST EXPENSES. Noninterest expenses increased $100,000 for the three
months ended March 31, 2004 compared to the same period in 2003, primarily
due to increases in salaries and employee benefits of $232,000 which relate
to the Company's overall expansion.
INCOME TAXES. Income taxes for the three months ended March 31, 2004 were
$388,000 (an effective rate of 31.0%) compared to $196,000 (an effective
rate of 29.8%) for the comparable 2003 period.
17
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from the interest-rate risk inherent
in its lending and deposit taking activities. The Company has little or no
risk related to trading accounts, commodities or foreign exchange.
Management actively monitors and manages its interest rate risk exposure. The
primary objective in managing interest-rate risk is to limit, within established
guidelines, the adverse impact of changes in interest rates on the Company's net
interest income and capital, and is effected by adjusting the Company's
asset-liability structure to obtain the maximum yield-cost spread on that
structure. Management relies primarily on its asset-liability structure to
control interest rate risk. However, a sudden and substantial increase in
interest rates could adversely impact the Company's earnings, to the extent that
the interest rates borne by assets and liabilities do not change at the same
speed, to the same extent, or on the same basis. There has been no significant
change in the Company's market risk exposure since December 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
a. Evaluation of disclosure controls and procedures. The Company maintains
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the Chief Executive and Chief Financial officers of the Company
concluded that the Company's disclosure controls and procedures were
adequate.
b. Changes in internal controls. The Company made no significant changes in
its internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of those controls
by the Chief Executive and Chief Financial officers.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Pointe Financial
Corporation or any of its subsidiaries is a party or to which any of their
property is subject.
18
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report.*
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).
10.6 Credit Agreement dated August 18, 1997 between
Independent Bankers' Bank of Florida and Pointe Bank
(Exhibit 10.6 to the Registration Statement).
10.7 Credit Agreement dated October 14, 1997 between SunTrust Bank/Miami, N.A. and Pointe Bank
(Exhibit 10.7 to the Registration Statement).
10.8 Agreement for Advances and Security Agreement with
Blanket Floating Lien dated November 24, 1997 between
Pointe Bank and the Federal Home Loan Bank of Atlanta
(Exhibit 10.8 to the Registration Statement).
10.9 Equipment Sales and Software License Agreements between Information Technology, Inc. and
Pointe Financial Corporation (Exhibit 10.9 to the Registration Statement).
10.10 Master Equipment Lease Agreement dated May 7, 1997
between Leasetec Corporation and Pointe Financial
Corporation (Exhibit 10.10 to the Registration
Statement).
10.11** Letter Agreement dated March 9, 1995 between Pointe
Financial Corporation and R. Carl Palmer, Jr. (Exhibit
10.11 to the Registration Statement).
10.12** 1998 Incentive Compensation and Stock Award Plan (Exhibit 10.12 to the Registration
Statement).
10.13*** Employment agreement between the Company and R. Carl Palmer, Jr. (Exhibit 10.13 to the 1999
Form 10-K filed February 23, 2000).
19
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
10.15*** Employment agreement between the Company and Bradley R.
Meredith (Exhibit 10.15 to the 1999 Form 10-K filed
February 23, 2000).
10.16 Branch Purchase and Deposit Assumption Agreement by and
between Pointe Bank and Republic Bank dated January 4,
2001, Amendment included (Exhibit 10.16 to the Form
10-QSB filed May 8, 2001).
10.17*** Employment agreement between the Company and Jean
Murphy-Engler. (Exhibit 10.17 to the Form 10-QSB filed
August 9, 2002).
10.18*** Employment agreement between the Company and John P. Dover. (Exhibit 10.18 to the Form
10-QSB filed August 9, 2002).
10.19* Amended and restated lease agreement dated May 13, 2002, by and between 21845 Powerline
Road, Ltd. and Pointe Bank.
10.20 Standard Retail Lease Agreement dated June 25, 2002 between Marquesa, Inc. and Pointe Bank.
11.1 Statement regarding calculation of earnings per common share (included in Note 3 to the
Condensed Consolidated Financial Statements).
12.1 Statement regarding calculation of ratio of earnings to
fixed charges (included in Audited Consolidated
Financial Statements in the 2001 Form 10-K).
21.1 Subsidiaries of the Registrant (included in the Audited
Consolidated Financial Statements in the 2002 Form
10-K).
31.1 CEO Certification required under Section 302 of Sarbanes-Oxley Act of 2002.
31.2 CFO Certification required under Section 302 of Sarbanes-Oxley Act of 2002.
32.1 CEO Certifications required under Section 906 of Sarbanes-Oxley Act of 2002.
32.2 CFO Certifications required under Section 906 of Sarbanes-Oxley Act of 2002.
* Exhibits followed by a parenthetical reference are incorporated herein by
reference from the documents described therein.
** Exhibits 10.1, 10.2, 10.11 and 10.12 are compensatory plans or
arrangements.
*** Contracts with Management.
(b) Reports on Form 8-K
During the first quarter, the Company filed a report on Form 8-K dated
January 15, 2004 reporting the press release covering the results for
fourth quarter of 2003.
During the first quarter, the Company filed a report on Form 8-K dated
February 20, 2004 reporting the press release covering the branch sale of
the Company's Boca Greens office.
20
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POINTE FINANCIAL CORPORATION
(Registrant)
Date: May 7, 2004 By: /s/ R. Carl Palmer, Jr.
----------- ----------------------------------------------
R. Carl Palmer, Jr.,
Chairman of the
Board, President
and Chief
Executive Officer
Date: May 7, 2004 By: /s/ Bradley R. Meredith
----------- -----------------------------------------------
Bradley R. Meredith, Senior Vice President
and Chief Financial Officer
21