AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-49835
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POINTE FINANCIAL CORPORATION
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Florida 6712 65-0451402
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
21845 Powerline Road
Boca Raton, Florida 33433
(561) 368-6300
(Address and telephone number of principal executive offices)
21845 Powerline Road
Boca Raton, Florida 33433
(Address of principal place of business or
intended principal place of business)
R. Carl Palmer, Jr.
President
Pointe Financial Corporation
21845 Powerline Road
Boca Raton, Florida 33433
(561) 368-6300
(Name, address, and telephone number,
including area code, of agent for service)
Copies to:
Thomas R. Blake, Esq. Michael T. Kohler, Esq.
Stuzin & Camner, P.A. Brown & Wood LLP
550 Biltmore Way, Suite 700 One World Trade Center
Coral Gables, FL 33134 New York, NY 10048
(305) 442-4994 (212) 839-5300
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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| PROPOSED | PROPOSED |
| MAXIMUM | MAXIMUM |
TITLE OF EACH CLASS OF | OFFERING PRICE | AGGREGATE | AMOUNT OF
SECURITIES TO BE AMOUNT TO BE | PER | OFFERING | REGISTRATION
REGISTERED REGISTERED(1) | UNIT(2) | PRICE(2) | FEE(3)
Common Stock, | | |
$.01 par value.......................... 1,000,000 | $16.00 | $16,000,000 | $4,720.00
</TABLE>
(1) Based upon the maximum number of shares of the Registrant's Common Stock
that may be issued under this Registration Statement, including 130,435
shares of Common Stock that may be issued upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per share.
(3) $1,110 is being paid with this filing. The balance of $3,610 was paid at the
time of the initial filing of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 5, 1998
PRELIMINARY PROSPECTUS
869,565 SHARES
POINTE FINANCIAL CORPORATION
COMMON STOCK
---------------------------
All of the 869,565 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Pointe
Financial Corporation, a Florida corporation (the "Company"), and are being
acquired by the Underwriters from the Company as newly issued shares of Common
Stock. It is currently estimated that the initial offering price for each share
will be between $14.00 and $16.00.
The Company intends to apply for quotation of the Common Stock on The
Nasdaq Stock Market's National Market ("Nasdaq") under the symbol "PNTE." Prior
to this Offering, there has been no public trading market for the Common Stock
and there can be no assurance that an established and liquid market for the
Common Stock will develop. The initial offering price of the Common Stock has
been determined through negotiations between the Company and the Underwriters.
See "Underwriting."
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF SHARES OF COMMON
STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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| PRICE TO | UNDERWRITING | PROCEEDS TO
| PUBLIC | DISCOUNT(1) | COMPANY(2)
Per Share.................. | $ | $ | $
Total(3)................... | $ | $ | $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $295,070.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
130,435 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be approximately $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock to be distributed to the public are offered by
the Underwriters, subject to prior sale, when, as and if received and accepted
by the Underwriters, subject to approval of certain legal matters by counsel for
the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw or cancel such offer and to reject orders in whole or in part.
It is expected that delivery of the certificates for the shares of Common Stock
will be made against payment thereon in New York, New York on or about
, 1998.
KEEFE, BRUYETTE & WOODS, INC. MCGINN, SMITH & CO., INC.
The date of this Prospectus is , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE MARKET PRICE OF
THE COMMON STOCK, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. This summary is provided for convenience; it should not be
considered complete and is qualified in its entirety by reference to the more
detailed information and the Consolidated Financial Statements (including the
notes thereto) contained elsewhere in this Prospectus. Unless otherwise
indicated, all share and per share information has been adjusted to give effect
to (i) a three-for-two Common Stock split effected in the form of a stock
dividend issued to shareholders of record as of February 27, 1998 and (ii) the
conversion of all outstanding shares of the Company's preferred stock into
shares of Common Stock, which conversion occurred on April 3, 1998. Cross
references in this summary are to captions appearing in the body of this
Prospectus. Except as otherwise noted, all information contained in this
Prospectus assumes the underwriters' over-allotment option is not exercised.
THE COMPANY
GENERAL
Pointe Financial Corporation, a Florida corporation (the "Company"), is a
bank holding company headquartered in Boca Raton, Florida. As of March 31, 1998,
the Company had total assets of $163.770 million, net loans of $112.756 million,
total deposits of $136.148 million and total shareholders' equity of $14.107
million. The Company had net income of $301 thousand for the period ended March
31, 1998. All of the Company's net income is derived from the operation of its
bank subsidiary, Pointe Bank, a Florida state-chartered commercial bank (the
"Bank") with three full service banking facilities located in Boca Raton (Palm
Beach County), Pembroke Pines (Broward County) and Aventura (Miami-Dade County),
Florida. The Bank also has two remote ATMs located in Boca Raton and Pembroke
Pines. All of the Bank's ATMs are members of international networks. The Bank
provides a full range of banking services catering to small and middle sized
businesses, professionals, and individuals in Palm Beach, Broward and Miami-Dade
Counties, Florida.
The strategy of the Company is to take advantage of the economic vitality
of its market by providing quality community banking services to its customers.
The market for financial services in south Florida has been robust throughout
the recent past. Based on information provided by the Bureau of Economic and
Business Research, University of Florida, Broward and Palm Beach counties rank
in the top 10 counties in Florida in per capita income and represent 9.66% and
6.81%, respectively, of the population of Florida. Additionally, the Bank is
benefitting from the high degree of merger consolidation in its market.
According to the Florida Bankers Association and other industry sources, at
year-end 1997 over 40% of the deposits in Florida have changed hands through
acquisition during the past five years and 81% of Florida bank deposits were
controlled by bank holding companies headquartered outside of Florida. This has
created a favorable operating environment for community banks that provide
personalized services to local businesses and consumers. Management believes
that the larger banks in the Company's markets have increased the cost of
certain banking services and have not stressed personal service to the small
businesses and professionals who are the Company's targeted clients. The Company
markets its products and services to these customers as a community banking
alternative to the style of banking exhibited by large out of state bank holding
companies that operate in Florida.
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.
In late 1994, the Board of Directors of the Company, assisted by R. Carl
Palmer, Jr. on a consulting basis, adopted a Strategic Plan which called for a
dramatic change in focus, shifting from the transaction orientation of mortgage
banking and SBA lending to the relationship orientation of a community bank.
Implementing the Strategic Plan, the Company sold a significant amount of its
home loans and mortgage-backed securities, using the proceeds to repay Federal
Home Loan Bank borrowings. The Company also restructured its deposit base by
lowering rates paid on its certificates of deposit, resulting in the non-renewal
of higher cost certificates of deposit. These factors resulted in a decrease in
the Company's total assets from $193 million at year end 1995 to $151 million at
year end 1996 and $148 million at year end 1997. R. Carl Palmer, Jr. joined the
Company and the Bank in March of 1995 as President and Chief Executive Officer
and began to assemble the Company's current management team and to implement the
Strategic Plan. Part of the implementation of the Strategic Plan has been
3
<PAGE>
the streamlining of the Company's operations and the transfer in-house of
certain support systems for which the Company had previously relied on external
sources.
For example, in mid-1995 the Company purchased a software system developed
by Information Technology, Inc. ("ITI") that is designed to support the
operations of community banks and is used by more than 300 banks throughout the
United States. This system was initially installed in a service bureau mode, and
was brought in-house by the Company in mid-1997. Similarly, and at the same
time, the Company transferred the servicing of its residential mortgage loan
portfolio back in-house. These two "conversions" have given the Company access
to a state-of-the-art software system to support a full-range of community
banking services. The transfer to an "in-house" mode also gives the Company full
control of the quality of service that it delivers to its customers.
The Company further 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.
This streamlining and the staged conversion to in-house systems has enabled
management of the Bank to concentrate on building a local relationship banking
business. With the addition of seasoned managers with significant lending and
operating experience, the Bank has been very successful in transitioning into
the relationship management orientation called for in the 1994 Strategic Plan.
As of December 31, 1997, the Bank's assets and liabilities were derived almost
entirely from banking relationships. During the three years ended December 31,
1997, the Company's deposit mix has changed significantly. Demand, savings, NOW
and money market accounts grew from 30% of total deposits at December 31, 1995
to 48% of total deposits at December 31, 1997. The emphasis on building customer
relationships has also resulted in a substantial growth in service charge
income, which increased from $315,000 in 1995, to $364,000 in 1996 and $502,000
in 1997. This trend continued in the quarter ended March 31, 1998 with service
charge income of $195,000 compared with service charge income of $112,000 for
the quarter ended March 31, 1997. Since 1995 management developed a successful
expense control program. Operating expenses have been consistently reduced, from
$7.360 million in 1995, to $6.847 million in 1996 and $5.471 million in 1997.
This favorable trend continued during the quarter ended March 31, 1998, with
operating expenses declining to $1.308 million in the quarter compared with
$1.328 million for the quarter ended March 31, 1997.
BUSINESS STRATEGY
GROWTH STRATEGY
Management believes that the Company is now in a position to grow. The
Bank's three banking center locations establish a presence in Miami-Dade,
Broward and Palm Beach Counties. The population of these three counties exceeds
4,000,000 people, and the market continues to experience substantial growth. The
Company's strategy for the next three years is to continue to implement its
Strategic Plan and to build its network of banking center locations into
communities that are consistent with the Bank's focus on small businesses,
professionals and individuals. This expansion will be implemented by the
establishment of new banking centers, most likely in facilities that have
already been constructed by other banks, but have become redundant as a result
of consolidations. The Company may also seek strategic acquisitions of smaller
financial institutions that will complement this growth strategy.
IMPLEMENTATION OF STRATEGIC PLAN
Beginning in 1994, pursuant to the Strategic Plan, major efforts were
undertaken to permit the Bank to become a full-service, community banking
organization. The significant elements of the implementation of the Plan are:
Strengthening of Senior Management Team. The Company has strengthened its
senior management team by supplementing the hiring of Mr. Palmer in 1995 with
the hiring of Senior Vice Presidents Beverly Chambers in 1995, and Dennis Reed
in 1996, both of whom are experienced bankers with whom Mr. Palmer had worked at
Southeast Banking Corporation and Naples Federal. In addition, in 1997, the
Company hired Bradley Meredith to serve as its new Chief Financial Officer and
Senior Vice President. The new management's responsibilities include marketing,
commercial lending, retail banking, operations, mortgage lending, accounting and
finance.
4
<PAGE>
Building Full-Service Banking Relationships with Small Businesses. The
Company's strategy is to aggressively build its number of full-service banking
relationships by providing high quality, personal service. In furtherance of
this strategy, the Company has continued to attract and hire seasoned,
professional bankers with substantial commercial lending and relationship
management experience. The consolidation occurring in the market is having two
positive effects that enhance the Company's implementation of its strategy.
First, a principal result of these consolidations is a steady flow of business
clients who have been alienated from other banks by reduced service levels and
higher prices. Second, seasoned bankers who previously worked for the acquired
banks are released, thus, enabling the Company to hire the experienced
professionals it seeks.
Reducing Focus on Residential Mortgage Lending. In mid-1996, the Company
decided to substantially reduce its focus on the residential mortgage lending
business by limiting its activities to originating residential mortgages through
three specialists, one located in each of its three full service banking
offices. The focus of these specialists is to originate mortgages for
individuals who will become relationship customers of the Company.
Broadening the Offering of Products and Services. The Company has
continued to broaden its offering of products and services. Particular emphasis
has been placed on attracting transaction deposits from all three targeted
business segments: small businesses, professionals and individuals. An example
of the Company's efforts to broaden its offering of products and services
occurred in early 1997 when the Company introduced its own credit card. The
credit card has been marketed only to existing clients and those prospective
clients that have the potential to develop into full service relationships.
Similarly, the merchant processing of credit cards is being offered to business
clients using the same marketing strategy. The back-office support for this
activity has been outsourced to a nationally prominent firm that specializes in
this business. In early 1998, the Company will be introducing its own debit
card, with processing similarly outsourced through the same firm.
Reinvesting in the Company's Communities. The Company is committed to the
communities it serves. As an example of its proactive commitment to be involved
in its communities, the Company was awarded the lead deposit in the Ft.
Lauderdale (Broward County) Enterprise Zone Linked Deposit Program in a 1996
competitive bidding process. Municipal deposits, provided by the State of
Florida, Broward County and the City of Ft. Lauderdale, were placed with three
banks which established programs to match those funds to make loans to small
businesses within the zone, an area targeted by the State of Florida for
economic revitalization. Management of the Company sees this program as
consistent with its mission to actively provide credit and other financial
services to small and medium sized businesses as well as stimulate economic
growth in the zone.
Concentrating on Professionals. The Company has concentrated its marketing
and business development efforts on the professionals who serve both the
businesses and individuals in its markets. The attorneys, accountants and
doctors who are within the geographic reach of the Company's banking center
locations are both good potential customers and excellent sources of business
referrals.
Reducing Expenses. Management has focused on reducing expenses as it seeks
to improve its operating efficiency. During the last three years, operating
expenses have declined from $7.360 million in 1995 to $6.847 million in 1996 to
$5.471 million in 1997.
Converting to New Operating System. Following a full review of operating
and software support systems, a decision was made to convert to the ITI system
throughout the organization, in a two stage process. The Bank and then the
Thrift sequentially converted, in a service bureau mode, to the ITI system in
late 1995 and early 1996. ITI's parent, FiServe, Inc., managed the service
bureau for a planned eighteen month period during which time the Company and its
management became thoroughly familiar and comfortable with the operating system.
Also during this time, the Company was able to hire a number of senior
operations officers to manage the Company's operations, loan administration and
controller responsibilities. Thus, the mid-1997 conversion to bring the ITI
system in-house was successful, due principally to the efforts of the Company's
operating group who had considerable prior experience with the ITI system.
The principal offices of the Company and the Bank are located at 21845
Powerline Road, Boca Raton, Florida 33433 and their telephone number is (561)
368-6300.
THE OFFERING
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Common Stock offered by the Company.................. 869,565 shares
Common Stock outstanding before the Offering......... 1,383,157 shares (1) (2)
5
<PAGE>
Common Stock outstanding after the Offering.......... 2,252,722 shares (1) (2)
Use of Proceeds...................................... The Company intends to contribute the
majority of the net proceeds from the
Offering to the Bank. The Bank expects
to use the net proceeds to fund branch
expansion and to support growth in its
loan and securities portfolios. The
Company intends to retain a portion of
the proceeds for general corporate
purposes, possible future acquisitions
and capital contributions to existing
and possible future subsidiaries of
the Company. See "Use of Proceeds."
Risk Factors......................................... See "Risk Factors" for a discussion of
certain factors that should be
considered by each prospective
investor.
Proposed Nasdaq Symbol............................... "PNTE"
</TABLE>
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(1) Does not include 250,281 shares of Common Stock reserved for issuance upon
the exercise of options granted under the Company's stock option plan as of
February 28, 1998. See "Management -- Employee Stock Option Plans."
(2) Upon consummation of this Offering, 27.70% of the issued and outstanding
shares of Common Stock of the Company will be held by the Company's
executive officers and directors, assuming the exercise of all options held
by the Company's executive officers and directors.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data of the Company is derived
from the Selected Consolidated Financial Data appearing elsewhere in this
Prospectus, and should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
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INCOME STATEMENT DATA:
Total interest income...... $ 3,022 $ 2,965 $ 11,932 $ 12,186 $ 14,690 $ 11,966 $ 9,879
Total interest expense..... 1,541 1,579 6,329 7,616 9,919 7,282 6,207
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income........ 1,481 1,386 5,603 4,570 4,771 4,684 3,672
Provision for loan
losses................... 65 11 80 185 336 75 120
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses................... 1,416 1,375 5,523 4,385 4,435 4,609 3,552
Noninterest income......... 364 324 1,412 2,434 1,922 2,887 4,956
Noninterest expense before
SAIF Recapitalization
Expense (1).............. 1,308 1,328 5,471 6,847 7,360 6,273 5,729
SAIF Recapitalization
Expense (1).............. -- -- -- 926 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
income taxes............. 472 371 1,464 (954) (1,003) 1,223 2,779
Income taxes (benefit)..... 171 139 550 (355) (376) 458 1,021
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)........ $ 301 $ 232 $ 914 $ (599) $ (627) $ 765 $ 1,758
========== ========== ========== ========== ========== ========== ==========
Without SAIF Assessment (1)
Net earnings (loss)........ $ 301 $ 232 $ 914 $ (18) $ (627) $ 765 $ 1,758
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA (2):
Earnings (loss) per share:
Basic...................... $ .22 $ .19 $ .68 $ (.52) $ (.51) $ .72 $ 2.07
========== ========== ========== ========== ========== ========== ==========
Diluted.................... $ .20 $ .18 $ .62 $ (.52) $ (.51) $ .72 $ 2.07
========== ========== ========== ========== ========== ========== ==========
Without SAIF Assessment (1)
Earnings (loss) per share:
Basic...................... $ .22 $ .19 $ .68 $ (.01) $ (.51) $ .72 $ 2.07
========== ========== ========== ========== ========== ========== ==========
Diluted.................... $ .20 $ .18 $ .62 $ (.01) $ (.51) $ .72 $ 2.07
========== ========== ========== ========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic...................... 1,249,949 1,219,050 1,224,441 1,219,092 1,219,092 1,062,500 849,275
Diluted.................... 1,379,048 1,320,428 1,346,637 1,219,092 1,219,092 1,062,500 849,275
Total common shares
outstanding at end of
period (2), (4).......... 1,249,949 1,219,092 1,247,592 1,219,092 1,219,092 1,219,092 849,627
Book value per share (2),
(4)...................... $ 10.39 $ 9.63 $ 10.23 $ 9.54 $ 10.27 $ 10.27 $ 10.36
BALANCE SHEET DATA (6):
Cash and cash
equivalents.............. $ 3,817 $ 7,804 $ 2,575 $ 6,663 $ 10,212 $ 5,857 $ 8,009
Securities................. 39,873 44,726 32,079 42,790 48,542 54,674 32,639
Loans...................... 112,756 94,756 105,653 90,973 104,677 123,048 97,183
Loans held for sale........ 4,134 3,966 4,443 4,396 18,561 6,697 19,329
All other assets........... 3,190 5,896 3,090 6,436 11,415 11,357 5,670
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets........... $ 163,770 $ 157,158 $ 147,840 $ 151,258 $ 193,407 $ 201,633 $ 162,830
========== ========== ========== ========== ========== ========== ==========
Deposits................... $ 136,148 $ 117,130 $ 124,995 $ 112,498 $ 142,673 $ 164,087 $ 107,505
Other borrowings........... 10,082 25,364 6,191 23,746 33,215 18,003 39,867
All other liabilities...... 3,433 2,070 2,809 2,593 5,005 7,027 6,655
Stockholders' equity....... 14,107 12,594 13,845 12,421 12,514 12,516 8,803
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders'
equity............... $ 163,770 $ 157,158 $ 147,840 $ 151,258 $ 193,407 $ 201,633 $ 162,830
========== ========== ========== ========== ========== ========== ==========
</TABLE>
7
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<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
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AVERAGE BALANCE SHEET DATA:
Total assets............... $ 153,617 $ 150,876 $ 151,209 $ 158,572 $ 200,897 $ 188,067 $ 157,221
Securities................. 34,841 43,541 38,200 41,068 52,045 56,840 29,807
Loans...................... 110,839 95,343 102,315 96,307 129,431 125,460 114,552
Total deposits............. 129,725 114,290 119,377 115,718 157,262 135,426 108,066
Other borrowings........... 7,473 21,771 16,879 28,348 25,749 32,685 38,232
Stockholders' equity....... 13,976 12,508 12,982 11,519 12,515 10,963 7,912
PERFORMANCE RATIOS:
Return on average assets... .78% .62% .60% (.38%) (.31%) .41% 1.12%
Return on average equity... 8.61% 7.42% 7.04% (5.20%) (5.01%) 6.98% 22.22%
Return on average equity
(4)...................... 9.35% 7.94% 7.56% (5.37%) (5.01%) 6.98% 22.22%
Interest rate spread during
the period (3)........... 3.26% 3.36% 3.30% 2.83% 2.25% 1.98% 2.07%
Net interest margin........ 4.05% 3.90% 3.93% 3.19% 2.53% 2.51% 2.39%
Noninterest expense to
average assets........... 3.40% 3.53% 3.62% 4.90% 3.66% 3.34% 3.64%
Efficiency ratio (5)....... 70.89% 77.66% 78.31% 112.42% 109.98% 82.53% 69.63%
ASSET QUALITY RATIOS (6):
Nonperforming loans to
total loans.............. 2.06% 1.95% 2.34% 1.60% 2.09% .77% 1.02%
Nonperforming loans, and
foreclosed real estate as
a percentage of total
assets................... 1.51% 1.23% 1.76% 1.15% 1.15% .54% .72%
Allowance for loan losses
as a percentage of total
loans.................... .80% .87% .80% .85% .79% .42% .38%
Allowance for loan losses
as a percentage of
nonperforming loans...... 38.90% 44.36% 33.97% 52.97% 37.74% 55.17% 37.20%
Net charge-offs as a
percentage of average
loans.................... -- (.04%) .01% .25% .02% .03% .05%
CAPITAL RATIOS (6):
Company
Total capital to risk
weighted assets.......... 15.27% 16.87% 16.02% 17.58% 14.09% 13.75% --
Tier I capital to risk
weighted assets.......... 14.34% 15.84% 15.09% 16.52% 13.18% 13.19% --
Tier I capital to average
assets................... 9.38% 8.40% 9.10% 8.04% 6.02% 6.66% --
Bank (7)
Total capital to risk
weighted assets.......... 15.51% 15.66% 16.00% 15.88% 17.53% 22.87% --
Tier I capital to risk
weighted assets.......... 14.56% 14.37% 15.06% 14.67% 15.66% 22.14% --
Tier I capital to average
assets................... 9.05% 8.47% 8.95% 8.69% 10.53% 13.57% --
Savings Bank (8)
Tangible................... -- 8.29% -- 8.25% 6.00% 5.30% 5.39%
Core....................... -- 8.29% -- 8.25% 6.00% 5.30% 5.39%
Risk-based................. -- 17.64% -- 18.32% 12.77% 12.40% 12.26%
OTHERS (6):
Total number of offices.... 3 3 3 3 3 3 1
Full-service banking
offices.................. 3 3 3 3 3 3 1
</TABLE>
- ------------------
(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.
(3) Difference between weighted-average yield on all interest-earning assets and
weighted-average rate on all interest-bearing liabilities.
(4) Excludes the Common Stock into which the preferred stock of the Company was
converted on April 3, 1998.
(5) Calculated by dividing total noninterest expenses by net interest income
plus noninterest income excluding securities gains and losses.
(6) At period end.
(7) The Bank was acquired in 1994.
(8) Represents the capital ratios of the Thrift prior to its merger into the
Bank in 1997.
8
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk, including the risks described below. In addition to the other information
contained herein, the following factors should be considered carefully in
evaluating the Company before purchasing the Common Stock offered hereby.
Information contained in this Prospectus contains "forward-looking statements"
which can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "could," "intent," "estimated,"
"projected," "contemplated" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology. No assurance can be given that the
future results covered by the forward-looking statements will be achieved. These
statements, by their nature, involve substantial risks and uncertainties,
certain of which are beyond the Company's control. The following factors and
other factors described elsewhere in this Prospectus could cause actual
experience to vary materially from the future results covered in such
forward-looking statements. Other factors, such as regional and national
economic conditions, changes in market interest rates, credit risks of lending
activities, and competition and regulatory factors, could also cause actual
experience to vary materially from the matters covered in such forward-looking
statements.
EXPOSURE TO LOCAL AND REGIONAL ECONOMIC CONDITIONS
The Company's success is dependent to a significant extent upon general
economic conditions in Florida, particularly south Florida. General economic
conditions include such factors as the south Florida real estate market,
inflation, recession, unemployment and other factors beyond the Company's
control. The south Florida economy is susceptible to adverse effects resulting
from adverse conditions in the south Florida real estate markets, a decline in
tourism, or adverse economic conditions or recession in the national economy.
Economic recession over a prolonged period or other economic dislocation in
south Florida could cause increases in nonperforming assets, thereby causing
operating losses, impairing liquidity and eroding capital. There can be no
assurance that future adverse changes in the Florida economy would not have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
INTEREST RATE RISK
The Company's earnings depend to a great extent on "rate differentials,"
which are the differences between interest income that the Company earns on
interest-bearing assets, such as loans and investments, and the interest expense
paid on interest-bearing liabilities, such as deposits and other borrowings.
Financial institutions, including the Bank, are affected by changes in general
interest rate levels. Fluctuations in interest rates are not predictable or
controllable. Interest rates are highly sensitive to many factors which are
beyond the Company's control, including general economic conditions and the
policies of various government and regulatory authorities. For example, actions
taken by Federal Reserve Board can lead to changes in interest rates, which
affect the Company's interest income, interest expense and investment portfolio.
The nature, timing and effect of any future changes in federal monetary and
fiscal policies on the Company and its results of operations are not
predictable. From time to time, maturities of assets and liabilities are not
balanced, and a rapid increase or decrease in interest rates could have a
material adverse effect on the net interest margin and results of operations of
the Company. There can be no assurance that the Company will not experience a
material adverse effect on its net interest income in a changing rate
environment. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- For the Years Ended December 31, 1997, 1996 and
1995 -- Interest Rate Sensitivity and Liquidity."
COMPETITION IN THE BANK'S MARKET AREAS
Most of the financial institutions in the Bank's market areas have been in
existence for significantly longer periods of time than the Bank and are better
established in their market areas. Many of such competitors are larger in size
and possess substantially greater financial and other resources than the Bank.
There is currently a trend toward consolidation of the banking industry, which
may make it more difficult for smaller banks to operate profitability. There can
be no assurance that the Bank will be able to continue to compete successfully
against larger institutions. See "BUSINESS -- Competition."
9
<PAGE>
CHANGE IN COMPOSITION OF LOAN PORTFOLIO
As part of the Company's change in focus from the transaction orientation
of mortgage banking and residential lending to the relationship orientation of
community banking, the Company has reduced its focus on the residential mortgage
lending business and increased its commercial lending activity. While commercial
business loans generally are made for shorter terms and at higher yields than
one- to four-family residential loans, such loans generally involve a higher
level of risk. The commercial loan risk of borrower default is greater than in
owner-occupied residential property loans, since the collateral may be more
difficult to liquidate and more likely to decline in value.
REGULATION AND SUPERVISION
Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by several federal and
state regulatory agencies. The Company is subject to the Bank Holding Company
Act of 1956, as amended (the "BHC"), and to regulation and supervision by the
Federal Reserve Board. The Bank, as a Florida state bank, is subject to
regulation and supervision by the Florida Department of Banking and Finance and,
as a result of the insurance of its deposits, by the Federal Deposit Insurance
Corporation ("FDIC"). These regulations are intended primarily for the
protection of depositors and customers, rather than for the benefit of
investors. The Company and the Bank are subject to changes in federal and state
laws, as well as changes in regulations and governmental policies, income tax
laws and accounting principles. The effects of any potential changes cannot be
predicted but could adversely affect the business and operations of the Company
and the Bank in the future. See "Regulation and Supervision."
The Federal Reserve Board has adopted a policy that requires a bank holding
company such as the Company to serve as a source of financial strength to its
banking subsidiaries. The Federal Reserve Board has required bank holding
companies to contribute cash to their troubled bank subsidiaries based upon this
"source of strength" policy, which could have the effect of decreasing funds
available for distributions to shareholders. In addition, a bank holding company
in certain circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary. See "Regulation and Supervision."
DEPENDENCE ON KEY MANAGEMENT PERSONNEL
The Company's success depends to a significant extent upon the performance
of its executive officers, the loss of any of whom could have a materially
adverse effect on the Company. The Company has not, however, entered into
employment agreements with, or obtained "key man" insurance for, its executive
officers. The Company believes that its future success will depend in large part
upon its ability to retain such personnel; however, there can be no assurance
that the Company will be successful in doing so.
RESTRICTIONS ON ABILITY TO PAY DIVIDENDS
The Company has not paid cash dividends on the Common Stock and at the
present time the Company does not foresee paying cash dividends to shareholders
and intends to retain all earnings to fund the growth of the Company and the
Bank. Any declaration and payment of dividends on the Common Stock will depend
upon the earnings and financial condition of the Company, liquidity and capital
requirements, the general economic and regulatory climate, the Company's ability
to service any equity or debt obligations senior to the Common Stock and other
factors deemed relevant by the Company's Board of Directors. It is the policy of
the Federal Reserve Board that bank holding companies should pay cash dividends
on common stock only out of income available over the past year and only if
prospective earnings retention is consistent with the organization's expected
future needs and financial condition. The policy provides that bank holding
companies should not maintain a level of cash dividends that undermines the bank
holding company's ability to serve as a source of strength to its banking
subsidiaries.
The Company's principal source of funds to pay dividends on the shares of
Common Stock will be cash dividends that the Company receives from the Bank. The
payment of dividends by the Bank to the Company is subject to certain
restrictions imposed by federal and state banking laws, regulations and
authorities. Under Florida law, a state bank may not pay dividends from its
capital. All dividends must be paid out of current net profits then on hand plus
retained net profits of the preceding two years. See "Dividend Policy."
Accordingly,
10
<PAGE>
since the Bank had no net profits in either 1996 or 1995, in 1997 the Bank was
unable to pay dividends to the Company. As of March 31, 1998, an aggregate of
approximately $694,000 was available for payment of dividends by the Bank to the
Company under applicable restrictions without regulatory approval. The Company's
sole activity is holding all of the issued and outstanding capital stock of the
Bank and accordingly, the Company does not anticipate paying any dividends until
it receives dividends from the Bank. See "Regulation and Supervision."
The federal banking statutes prohibit federally insured banks from making
any capital distributions (including a dividend payment) if, after making the
distribution, the institution would be "undercapitalized" as defined by statute.
In addition, the relevant federal regulatory agencies also have the authority to
prohibit an insured bank from engaging in an unsafe or unsound practice, as
determined by the agency, in conducting an activity. The payment of dividends
could be deemed to constitute such an unsafe and unsound practice, depending on
the financial condition of the Bank. Regulatory authorities could impose
administratively stricter limitations on the ability of the Bank to pay
dividends to the Company if such limits were deemed appropriate to preserve
certain capital adequacy requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Capital Resources" and
"Regulation and Supervision."
CONCENTRATION OF OWNERSHIP; CONTROL BY MANAGEMENT
After the consummation of the Offering, the executive officers and
directors of the Company will beneficially own 27.70% of the outstanding shares
of Common Stock, and approximately 26.27% of such shares of Common Stock if the
Underwriters' over-allotment option is fully exercised. Accordingly, these
executive officers and directors will be able to influence, to a significant
extent, the outcome of all matters required to be submitted to the Company's
shareholders for approval, including decisions relating to the election of
directors of the Company, the determination of day-to-day corporate and
management policies of the Company and other significant corporate transactions.
See "Management," "Security Ownership of Certain Beneficial Owners and
Management" and "Description of Capital Stock."
YEAR 2000 COMPLIANCE
Almost all of the Company's operations are supported by accounting and
recordkeeping computerized systems and are dependent on the capability of
software applications and operating systems to function properly in the year
2000. The Company has an ongoing program designed to ensure that its operational
and financial systems will not be adversely affected by year 2000 software
failures, due to processing errors arising from calculations using the year 2000
date. Based on current estimates, the Company expects to incur expenses of
$50,000 over the next two years on its program to redevelop, replace, or repair
its computer applications to make them "year 2000 compliant," and expects them
to be so by July 1999. While the Company believes it is doing everything
technologically possible to assure year 2000 compliance, it is to some extent
dependent upon vendor cooperation. The Company is requiring its computer system
and software vendors to represent that the products provided are, or will be,
year 2000 compliant, and has planned a program of testing for compliance. While
the Company believes that all essential computer applications will be year 2000
compliant and that the costs associated with year 2000 compliance will not be
material to the Company, any year 2000 compliance failure could result in
additional expense to the Company.
NO PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE; NO GUARANTEE OF ACTIVE AND
LIQUID TRADING MARKET
Before the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Representatives of the Underwriters based on several
factors that may not be indicative of future market prices. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. Although the Company intends to apply to have the Common
Stock approved for inclusion on Nasdaq, there can be no assurance that if the
Common Stock is approved for inclusion that it will be actively traded on such
market or that, if active trading does develop, it will be sustained.
11
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 2,252,722 shares
of Common Stock outstanding (2,383,157 if the over-allotment option granted to
the Underwriters is exercised in full). Of these shares, 869,565 shares
(1,000,000 shares if the over-allotment option granted to the Underwriters is
exercised in full) together with 812,728 shares previously registered in
connection with the Company's acquisition of the Bank and the Thrift, will be
freely transferable without restriction or registration under the Securities
Act, unless purchased by persons deemed to be "affiliates" (as that term is
defined under the Securities Act) of the Company. All of the remaining 570,429
shares of Common Stock will be "restricted securities," as that term is defined
in Rule 144 promulgated under the Securities Act. The Company and its executive
officers and directors and certain of the Company's existing shareholders have
agreed that they will not sell or otherwise transfer any shares of Common Stock
for 180 days after the Offering without the prior written consent of the
Representatives. Future sales of substantial amounts of Common Stock in the
public market, or the availability of such shares for future sale, could impair
the Company's ability to raise capital through an offering of securities and may
adversely affect the then-prevailing market prices. See "Shares Eligible for
Future Sale."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws
could delay or frustrate the removal of incumbent directors and could make a
merger, tender offer or proxy contest involving the Company more difficult, even
if such events could be perceived as beneficial to the interests of the
stockholders. For example, the Company's Articles of Incorporation provide for
classes of directors, whereby one-third of the members of the Board of Directors
are elected each year and each director of the Company is to serve for a term of
three years. In addition, options granted under the Company's stock option plan
provide for accelerated vesting of such options in the event of a change in
control of the Company. These provisions could have the effect of discouraging
or prohibiting a future takeover attempt in which stockholders of the Company
might otherwise receive a substantial premium for their shares over then-current
market prices. See "Description of Capital Stock -- Certain Anti-Takeover
Provisions."
REGULATION OF CONTROL
Individuals or entities, alone or acting in concert with others, who
acquire 10% or more of any class of voting securities of the Company are
presumed to have acquired "control" of the Company under the Change in Bank
Control Act, which requires the prior approval of the Federal Reserve Board for
any such acquisition. Entities, acting alone or through one or more other
persons, seeking to acquire, directly or indirectly, 25% or more (5% or more in
the case of an acquiror that is a bank holding company) of any class of voting
securities of, or otherwise to control, the Company are required to obtain the
prior approval of the Federal Reserve Board under the BHC. Accordingly,
prospective investors need to be aware of and comply with these requirements in
connection with any purchase of shares of the Common Stock offered hereby.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value of $3.62 per share, based on an assumed
initial public offering price of $15.00 per share. To the extent that any
options to be granted with respect to the Common Stock are exercised, purchasers
of Common Stock will experience additional dilution. See "Dilution" and
"Management."
12
<PAGE>
THE COMPANY
GENERAL
Pointe Financial Corporation, a Florida corporation (the "Company"), is a
bank holding company headquartered in Boca Raton, Florida. As of March 31, 1998,
the Company had total assets of $163.770 million, net loans of $112.756 million,
total deposits of $136.148 million and total shareholders' equity of $14.107
million. The Company had net income of $301 thousand for the period ended March
31, 1998. All of the Company's net income is derived from the operation of its
bank subsidiary, Pointe Bank, a Florida state-chartered commercial bank (the
"Bank") with three full service banking facilities located in Boca Raton (Palm
Beach County), Pembroke Pines (Broward County) and Aventura (Miami-Dade County),
Florida. The Bank also has two remote ATMs located in Boca Raton and Pembroke
Pines. All of the Bank's ATMs are members of international networks. The Bank
provides a full range of banking services catering to small and middle sized
businesses, professionals, and individuals in Palm Beach, Broward and Miami-Dade
Counties, Florida.
The strategy of the Company is to take advantage of the economic vitality
of its market by providing quality community banking services to its customers.
The market for financial services in south Florida has been robust throughout
the recent past. Based on information provided by the Bureau of Economic and
Business Research, University of Florida, Broward and Palm Beach counties rank
in the top 10 counties in Florida in per capita income and represent 9.66% and
6.81%, respectively, of the population of Florida. Additionally, the Bank is
benefitting from the high degree of merger consolidation in its market.
According to the Florida Bankers Association and other industry sources, at
year-end 1997 over 40% of the deposits in Florida have changed hands through
acquisition during the past five years and 81% of Florida bank deposits were
controlled by bank holding companies headquartered outside of Florida. This has
created a favorable operating environment for community banks that provide
personalized services to local businesses and consumers. Management believes
that the larger banks in the Company's markets have increased the cost of
certain banking services and have not stressed personal service to the small
businesses and professionals who are the Company's targeted clients. The Company
markets its products and services to these customers as a community banking
alternative to the style of banking exhibited by large out of state bank holding
companies that operate in Florida.
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.
In late 1994, the Board of Directors of the Company, assisted by R. Carl
Palmer, Jr. on a consulting basis, adopted a Strategic Plan which called for a
dramatic change in focus, shifting from the transaction orientation of mortgage
banking and SBA lending to the relationship orientation of a community bank.
Implementing the Strategic Plan, the Company sold a significant amount of its
home loans and mortgage-backed securities, using the proceeds to repay Federal
Home Loan Bank borrowings. The Company also restructured its deposit base by
lowering rates paid on its certificates of deposit, resulting in the non-renewal
of higher cost certificates of deposit. These factors resulted in a decrease in
the Company's total assets from $193 million at year end 1995 to $151 million at
year end 1996 to $148 million at year end 1997. R. Carl Palmer, Jr. joined the
Company and the Bank in March of 1995 as President and Chief Executive Officer
and began to assemble the Company's current management team and to implement the
Strategic Plan. Part of the implementation of the Strategic Plan has been the
streamlining of the Company's operations and the transfer in-house of certain
support systems for which the Company had previously relied on external sources.
For example, in mid-1995 the Company purchased a software system developed
by Information Technology, Inc. ("ITI") that is designed to support the
operations of community banks and is used by more than 300 banks throughout the
United States. This system was initially installed in a service bureau mode, and
was brought in-house by the Company in mid-1997. Similarly, and at the same
time, the Company transferred the servicing of its residential mortgage loan
portfolio back in-house. These two "conversions" have given the Company access
to a state-of-the-art software system to support a full-range of community
banking services. The
13
<PAGE>
transfer to an "in-house" mode also gives the Company full control of the
quality of service that it delivers to its customers.
The Company further 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.
This streamlining and the staged conversion to in-house systems has enabled
management of the Bank to concentrate on building a local relationship banking
business. With the addition of seasoned managers with significant lending and
operating experience, the Bank has been very successful in transitioning into
the relationship management orientation called for in the 1994 Strategic Plan.
As of December 31, 1997, the Bank's assets and liabilities were derived almost
entirely from banking relationships. During the three years ended December 31,
1997, the Company's deposit mix has changed significantly. Demand, savings, NOW
and money market accounts grew from 30% of total deposits at December 31, 1995
to 48% of total deposits at December 31, 1997. The emphasis on building customer
relationships has also resulted in a substantial growth in service charge
income, which increased from $315,000 in 1995, to $364,000 in 1996 and $502,000
in 1997. This trend continued in the quarter ended March 31, 1998 with service
charge income of $195,000 compared with service charge income of $112,000 for
the quarter ended March 31, 1997. Since 1995 management has developed a very
successful expense control program. Operating expenses have been consistently
reduced, from $7.360 million in 1995, to $6.847 million in 1996 and $5.471
million in 1997. This favorable trend continued during the quarter ended March
31, 1998, with operating expenses declining to $1.308 million in the quarter
compared with $1.328 million for the quarter ended March 31, 1997.
BUSINESS STRATEGY
GROWTH STRATEGY
Management believes that the Company is now in a position to grow. The
Bank's three banking center locations establish a presence in Miami-Dade,
Broward and Palm Beach Counties. The population of these three counties exceeds
4,000,000 people, and the market continues to experience substantial growth. The
Company's strategy for the next three years is to continue to implement its
Strategic Plan and to build its network of banking center locations into
communities that are consistent with the Bank's focus on small businesses,
professionals and individuals. This expansion will be implemented by the
establishment of new banking centers, most likely in facilities that have
already been constructed by other banks, but have become redundant as a result
of consolidations. The Company may also seek strategic acquisitions of smaller
financial institutions that will complement this growth strategy.
Implementation of Strategic Plan
Beginning in 1994, pursuant to the Strategic Plan, major efforts were
undertaken to permit the Bank to become a full-service, community banking
organization. The significant elements of the implementation of the Plan are:
Strengthening of Senior Management Team. The Company has strengthened its
senior management team by supplementing the hiring of Mr. Palmer in 1995 with
the hiring of Senior Vice Presidents Beverly Chambers in 1995, and Dennis Reed
in 1996, both of whom are experienced bankers with whom Mr. Palmer had worked at
Southeast Banking Corporation and Naples Federal. In addition, in 1997, the
Company hired Bradley Meredith to serve as its new Chief Financial Officer and
Senior Vice President. The new management's responsibilities include marketing,
commercial lending, retail banking, operations and mortgage lending, accounting
and finance.
Building Full-Service Banking Relationships with Small Businesses. The
Company's strategy is aggressively to build its number of full-service banking
relationships by providing high quality, personal service. In furtherance of
this strategy, the Company has continued to attract and hire seasoned,
professional bankers with
14
<PAGE>
substantial commercial lending and relationship management experience. The
consolidation occurring in the market is having two positive effects that
enhance the Company's implementation of its strategy. First, a principal result
of these consolidations is a steady flow of business clients who have been
alienated from other banks by reduced service levels and higher prices. Second,
seasoned bankers who previously worked for the acquired banks are released,
thus, enabling the Company to hire the experienced professionals it seeks.
Reducing Focus on Residential Mortgage Lending. In mid-1996, the Company
decided to substantially reduce its focus on the residential mortgage lending
business by limiting its activities to originating residential mortgages through
three specialists, one located in each of its three full service banking
offices. The focus of these specialists is to originate mortgages for
individuals who will become relationship customers of the Company.
Broadening the Offering of Products and Services. The Company has
continued to broaden its offering of products and services. Particular emphasis
has been placed on attracting transaction deposits from all three targeted
business segments: small businesses, professionals and individuals. An example
of the Company's efforts to broaden its offering of products and services
occurred in early 1997 when the Company introduced its own credit card. The
credit card has been marketed only to existing clients and those prospective
clients that have the potential to develop into full service relationships.
Similarly, the merchant processing of credit cards is being offered to business
clients using the same marketing strategy. The back-office support for this
activity has been out-sourced to a nationally prominent firm that specializes in
this business. In early 1998, the Company will be introducing its own debit
card, with processing similarly outsourced through the same firm.
Reinvesting in the Company's Communities. The Company is committed to the
communities it serves. As an example of its proactive commitment to be involved
in its communities, the Company was awarded the lead deposit in the Ft.
Lauderdale (Broward County) Enterprise Zone Linked Deposit Program in a 1996
competitive bidding process. Municipal deposits, provided by the State of
Florida, Broward County and the City of Ft. Lauderdale, were placed with three
banks which established programs to match those funds to make loans to small
businesses within the zone, an area targeted by the State of Florida for
economic revitalization. Management of the Company sees this program as
consistent with its mission to actively provide credit and other financial
services to small and medium sized businesses as well as stimulate economic
growth in the zone.
Concentrating on Professionals. The Company has concentrated its marketing
and business development efforts on the professionals who serve both the
businesses and individuals in its markets. The attorneys, accountants and
doctors who are within the geographic reach of the Company's banking center
locations are both good potential customers and excellent sources of business
referrals.
Reducing Expenses. Management has focused on reducing expenses as it seeks
to improve its operating efficiency. During the last three years, operating
expenses have declined from $7.360 million in 1995 to $6.847 million in 1996 to
$5.471 million in 1997.
Converting to New Operating System. Following a full review of operating
and software support systems, a decision was made to convert to the ITI system
throughout the organization, in a two stage process. The Bank and then the
Thrift sequentially converted, in a service bureau mode, to the ITI system in
late 1995 and early 1996. ITI's parent, FiServe, Inc., managed the service
bureau for a planned eighteen month period during which time the Company and its
management became thoroughly familiar and comfortable with the operating system.
Also during this time, the Company was able to hire a number of senior
operations officers to manage the Company's operations, loan administration and
controller responsibilities. Thus, the mid-1997 conversion to bring the ITI
system in-house was successful, due principally to the efforts of the Company's
operating group who had considerable prior experience with the ITI system.
MANAGEMENT AND BOARD OWNERSHIP
The Company's directors currently own 489,364 shares or 35.64% of the
issued and outstanding Common Stock. Giving effect to the Offering, the
conversion of all outstanding shares of Preferred Stock, and the exercise of all
options held by the Company's executive officers and directors, the Company's
executive officers and directors would own 664,463 shares, or 27.70% of the
issued and outstanding Common Stock. The Company believes that this ownership
position gives management a significant incentive to increase shareholder value.
15
<PAGE>
COMPETITION
The banking business is highly competitive, and the profitability of the
Company will depend upon the Company's ability to compete in its market area.
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
non-financial institutions, including certain governmental organizations which
may offer subsidized financing at lower rates than those offered by the Company.
See "Risk Factors -- Competition."
EMPLOYEES
At March 31, 1998, the Company had 59 full-time employees. None of the
employees is represented by a collective bargaining group, and the Company
considers its relations with its employees to be good. The Company provides
employee benefits customary in the financial institutions industry, including
group medical and life insurance, 401(k) plan, profit-sharing plan and paid
vacations. The Company also provides a stock option plan for certain officers,
directors and employees, pursuant to which they may be granted options to
purchase Common Stock of the Company.
PROPERTIES
The Company conducts its operations from three leased facilities, the
largest of which is located at 21845 Powerline Road, Boca Raton, Florida where
it has leased 18,929 square feet of space for its executive offices, the
operations center and a banking center. The lease expires in 2002 and may be
renewed for one additional five-year period. In addition, the Company has leased
5,719 square feet of space at One S.W. 129th Avenue, Pembroke Pines, Florida for
a banking center. This lease expires on February 28, 2006.
The Bank also has a lease for a free-standing building containing 3,050
square feet of space and located at 2690 N.E. 203rd Street, Aventura, Florida,
as a full service banking center. The lease expires in February 2000 and may be
renewed for one five-year period.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or the
Bank is a party or of which any of their properties are subject; nor are there
material proceedings known to the Company contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated in which any director, officer or affiliate or any proposed
principal security holder of the Company, or any associate of any of the
foregoing is a party or has an interest adverse to the Company or the Bank.
16
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of Common Stock offered hereby, based upon
an assumed initial public offering price of $15.00 per share, are estimated to
be $11.835 million after deduction of the underwriting discount and estimated
expenses $13.655 million if the Underwriter's over-allotment option is exercised
in full). The Company intends to contribute the majority of the net proceeds to
the Bank. The Bank expects the proceeds to be used to fund branch expansion and
support growth in the loan and securities portfolio. To the extent proceeds are
allocated to the Company, the Company intends to retain a portion of the
proceeds for general corporate purposes including, but not limited to, future
acquisitions and capital contributions to existing and future subsidiaries of
the Company. The Company presently has no plans, arrangements or understandings
regarding any future acquisitions. The precise amounts and timing of the
application of cash proceeds will depend, among other things, upon the funding
requirements of the Bank and the availability of other funds. Pending the
application of net proceeds, the Company expects to invest the net proceeds in
short-term government or investment grade obligations.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock. At the
present time, the Company does not foresee paying cash dividends to shareholders
and intends to retain all earnings to fund the growth of the Company and the
Bank. The payment of dividends in the future, if any, will depend upon earnings,
capital levels, cash requirements, the financial condition of the Company and
the Bank, applicable government regulations and policies and other factors
deemed relevant by the Company's Board of Directors, including the amount of
cash dividends payable to the Company by the Bank. The principal source of
income and cash flow for the Company, including cash flow to pay cash dividends
on the Common Stock, is dividends from the Bank. The Bank will be restricted in
its ability to pay dividends under Florida banking laws and by regulations of
the Department. Under Florida law, a state bank may not pay dividends from its
capital. All dividends must be paid out of current net profits then on hand plus
retained net profits of the preceding two years, after deducting bad debts,
depreciation and other worthless assets, and after making provision for
reasonably anticipated future losses on loans and other assets. Payments of
dividends out of net profits is further limited by Section 658.37, Florida
Statutes, which prohibits a bank from declaring a dividend on its shares of
common stock until its surplus equals its stated capital, unless there has been
transferred to surplus not less than 20% of a bank's net profits for the
preceding year (in the case of an annual dividend). Finally, a state bank may
not declare a dividend which would cause the capital accounts of a bank to fall
below the minimum amount required by law, regulation, order or any written
agreement with the Department or any Federal regulatory agency. See "Regulation
and Supervision -- Regulation of the Bank -- Payment of Dividends."
DILUTION
As of March 31, 1998, the tangible book value of the Common Stock was
$10.19 per share. "Tangible book value per share" represents the amount of total
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding. After giving effect to the sale by the Company of 869,565
shares of Common Stock offered hereby (after deducting the underwriting discount
and other estimated offering expenses to be paid by the Company), the pro forma
tangible book value of the Company as of March 31, 1998 would have been $11.38
per share. This represents an immediate increase in net tangible book value of
$1.19 per share to current shareholders and an immediate dilution of $3.62 per
share to new investors. The following table illustrates this per share dilution.
Assumed price to public .................................... $15.00
=======
Tangible book value per share before Offering(1)............ 10.19
Increase per share attributable to new investors............ 1.19
-------
Pro forma tangible book value per share after Offering...... $11.38
=======
Dilution to new investors................................... $3.62
=======
- -------------
(1) Assumes the exercise of all of the Company's outstanding stock options and
the conversion of all of the Company's preferred stock as of March 31, 1998.
The foregoing computations do not take into account the possible issuance
of up to an additional 130,435 shares of Common Stock to new investors pursuant
to the exercise of an option granted by the Company to the Representatives
solely to cover over-allotments, if any, in connection with the Offering. See
"Underwriting."
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1998, and as adjusted to give effect to (i) the sale by
the Company of 869,565 shares of Common Stock offered hereby (at an assumed
initial public offering price of $15.00 per share) and the related estimated net
proceeds therefrom; and (ii) the issuance by the Company of 126,026 shares of
Common Stock upon the conversion of all of the Company's outstanding shares of
preferred stock, which conversion occurred on April 3, 1998. The following data
should be read in conjunction with the Consolidated Financial Statements of the
Company contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deposits.................................................... $136,148 $136,148
-------- --------
Federal Home Loan Bank Advances............................. 7,300 7,300
-------- --------
Stockholders' equity
Preferred stock, $.01 par value, 1,000,000 shares
authorized; 56,026 shares outstanding.................. 1 --
Additional paid-in capital, preferred..................... 1,118 --
Common Stock, $.01 par value, 5,000,000 shares authorized;
1,249,949 shares issued and outstanding(1)............. 12 22
Additional paid-in capital, common.......................... 9,874 22,818
Retained earnings........................................... 3,313 3,313
Unrealized loss on securities available for sale............ (211) (211)
-------- --------
Total Stockholders' Equity............................. $ 14,107 $ 25,942
======== ========
</TABLE>
- ------------------
(1) Does not include 250,281 shares of Common Stock reserved for issuance upon
the exercise of options granted under the Company's stock option plans as of
March 31, 1998. See "Management -- Employee Stock Option Plans."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data of the Company should be
read in conjunction with the Consolidated Financial Statements of the Company,
the information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other financial information included
elsewhere in this Prospectus. The selected historical consolidated financial
data as of and for the three years ended December 31, 1997 are derived from the
Company's Consolidated Financial Statements which have been audited by Hacker,
Johnson, Cohen & Grieb PA, independent certified public accountants. The
selected historical consolidated financial data as of and for the two years
ended December 31, 1994 are derived from the Company's Consolidated Financial
Statements which have been audited by other independent certified public
accountants. The selected historical consolidated financial data as of and for
the three months ended March 31, 1998 and March 31, 1997 have not been audited
but, in the opinion of management, contain all adjustments (consisting of normal
recurring adjustments) necessary for a fair statement of the results for the
interim periods. The results of operations for the three months ended March 31,
1998 are not necessarily indicative of the results of operations that may be
expected for the year ended December 31, 1998, or for any future periods.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income......... $ 3,022 $ 2,965 $ 11,932 $ 12,186 $ 14,690 $ 11,966 $ 9,879
Total interest expense........ 1,541 1,579 6,329 7,616 9,919 7,282 6,207
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income........... 1,481 1,386 5,603 4,570 4,771 4,684 3,672
Provision for loan losses..... 65 11 80 185 336 75 120
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses... 1,416 1,375 5,523 4,385 4,435 4,609 3,552
Noninterest income............ 364 324 1,412 2,434 1,922 2,887 4,956
Noninterest expense before
SAIF
Recapitalization Expense
(1)....................... 1,308 1,328 5,471 6,847 7,360 6,273 5,729
SAIF Recapitalization
Expense(1).................. -- -- -- 926 -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
taxes....................... 472 371 1,464 (954) (1,003) 1,223 2,779
Income taxes (benefit)........ 171 139 550 (355) (376) 458 1,021
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)........... $ 301 $ 232 $ 914 $ (599) $ (627) $ 765 $ 1,758
========== ========== ========== ========== ========== ========== ==========
Without SAIF Assessment
Net earnings (loss)......... $ 301 $ 232 $ 914 $ (18) $ (627) $ 765 $ 1,758
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA (2):
Earnings (loss) per share:
Basic......................... $ .22 $ .19 $ .68 $ (.52) $ (.51) $ .72 $ 2.07
========== ========== ========== ========== ========== ========== ==========
Diluted....................... $ .20 $ .18 $ .62 $ (.52) $ (.51) $ .72 $ 2.07
========== ========== ========== ========== ========== ========== ==========
Without SAIF Assessment (1)
Earnings (loss) per share:
Basic......................... $ .22 $ .19 $ .68 $ (.01) $ (.51) $ .72 $ 2.07
========== ========== ========== ========== ========== ========== ==========
Diluted....................... $ .20 $ .18 $ .62 $ (.01) $ (.51) $ .72 $ 2.07
========== ========== ========== ========== ========== ========== ==========
Weighted average common shares
outstanding:
Basic......................... 1,249,949 1,219,050 1,224,441 1,219,092 1,219,092 1,062,500 849,275
Diluted....................... 1,379,048 1,320,428 1,346,637 1,219,092 1,219,092 1,062,500 849,275
Total common shares
outstanding at end of period
(2), (4).................... 1,249,949 1,219,092 1,247,592 1,219,092 1,219,092 1,219,092 849,627
Book value per share (2),
(4)......................... $ 10.39 $ 9.63 $ 10.23 $ 9.54 $ 10.27 $ 10.27 $ 10.36
BALANCE SHEET DATA (6):
Cash and cash equivalents..... $ 3,817 $ 7,804 $ 2,575 $ 6,663 $ 10,212 $ 5,857 $ 8,009
Securities.................... 39,873 44,726 32,079 42,790 48,542 54,674 32,639
Loans......................... 112,756 94,756 105,653 90,973 104,677 123,048 97,183
Loans held for sale........... 4,134 3,966 4,443 4,396 18,561 6,697 19,329
All other assets.............. 3,190 5,896 3,090 6,436 11,415 11,357 5,670
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets.............. $ 163,770 $ 157,158 $ 147,840 $ 151,258 $ 193,407 $ 201,633 $ 162,830
========== ========== ========== ========== ========== ========== ==========
Deposits...................... 136,148 117,130 124,995 112,498 142,673 164,087 107,505
Other borrowings.............. 10,082 25,364 6,191 23,746 33,215 18,003 39,867
All other liabilities......... 3,433 2,070 2,809 2,593 5,005 7,027 6,655
Stockholders' equity.......... 14,107 12,594 13,845 12,421 12,514 12,516 8,803
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity.... $ 163,770 $ 157,158 $ 147,840 $ 151,258 $ 193,407 $ 201,633 $ 162,830
========== ========== ========== ========== ========== ========== ==========
</TABLE>
(continued)
19
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCE SHEET DATA:
Total assets.................. $ 153,617 $ 150,876 $ 151,209 $ 158,572 $ 200,897 $ 188,067 $ 157,221
Securities.................... 34,841 43,541 38,200 41,068 52,045 56,840 29,807
Loans......................... 110,839 95,343 102,315 96,307 129,431 125,460 114,552
Total deposits................ 129,725 114,290 119,377 115,718 157,262 135,426 108,066
Other borrowings.............. 7,473 21,771 16,879 28,348 25,749 32,685 38,232
Stockholders' equity.......... 13,976 12,508 12,982 11,519 12,515 10,963 7,912
PERFORMANCE RATIOS:
Return on average assets...... .78% .62% .60% (.38%) (.31%) .41% 1.12%
Return on average equity...... 8.61% 7.42% 7.04% (5.20%) (5.01%) 6.98% 22.22%
Return on average equity
(4)......................... 9.35% 7.94% 7.56% (5.37%) (5.01%) 6.98% 22.22%
Interest rate spread during
the period (3).............. 3.26% 3.36% 3.30% 2.83% 2.25% 1.98% 2.07%
Net interest margin........... 4.05% 3.90% 3.93% 3.19% 2.53% 2.51% 2.39%
Noninterest expense to average
assets...................... 3.40% 3.53% 3.62% 4.90% 3.66% 3.34% 3.64%
Efficiency ratio (5).......... 70.89% 77.66% 78.31% 112.42% 109.98% 82.53% 69.63%
ASSET QUALITY RATIOS (6):
Nonperforming loans to total
loans....................... 2.06% 1.95% 2.34% 1.60% 2.09% .77% 1.02%
Nonperforming loans, and
foreclosed real estate as a
percentage of total
assets...................... 1.51% 1.23% 1.76% 1.15% 1.15% .54% .72%
Allowance for loan losses as a
percentage of total loans... .80% .87% .80% .85% .79% .42% .38%
Allowance for loan losses as a
percentage of nonperforming
loans....................... 38.90% 44.36% 33.97% 52.97% 37.74% 55.17% 37.20%
Net charge-offs as a
percentage of average
loans....................... -- (.04%) .01% .25% .02% .03% .05%
CAPITAL RATIOS (6):
Company
Total capital to risk weighted
assets...................... 15.27% 16.87% 16.02% 17.58% 14.09% 13.75% --
Tier I capital to risk
weighted assets............. 14.34% 15.84% 15.09% 16.52% 13.18% 13.19% --
Tier I capital to average
assets...................... 9.38% 8.40% 9.10% 8.04% 6.02% 6.66% --
Bank (7)
Total capital to risk weighted
assets...................... 15.51% 15.66% 16.00% 15.88% 17.53% 22.87% --
Tier I capital to risk
weighted assets............. 14.56% 14.37% 15.06% 14.67% 15.66% 22.14% --
Tier I capital to average
assets...................... 9.05% 8.47% 8.95% 8.69% 10.53% 13.57% --
Savings Bank (8)
Tangible...................... -- 8.29% -- 8.25% 6.00% 5.30% 5.39%
Core.......................... -- 8.29% -- 8.25% 6.00% 5.30% 5.39%
Risk-based.................... -- 17.64% -- 18.32% 12.77% 12.40% 12.26%
OTHERS (6):
Total number of offices....... 3 3 3 3 3 3 1
Full-service banking
offices..................... 3 3 3 3 3 3 1
</TABLE>
- ------------------
(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.
(3) Difference between weighted-average yield on all interest-earning assets and
weighted-average rate on all interest-bearing liabilities.
(4) Excludes the Common Stock into which the preferred stock of the Company was
converted on April 3, 1998.
(5) Calculated by dividing total noninterest expenses by net interest income
plus noninterest income excluding securities gains and losses.
(6) At period end.
(7) The Bank was acquired in 1994.
(8) Represents the capital ratios of the Thrift prior to its merger into the
Bank in 1997.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and Financial
Condition analyzes the major elements of the Company's statement of operations
and balance sheets. This section should be read in conjunction with the
Company's Consolidated Financial Statements and accompanying notes and other
detailed information appearing elsewhere in this Prospectus.
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
OVERVIEW
For the period ending March 31, 1998, the Company had consolidated net
earnings of $301,000 or $.22 basic earnings per share ($.20 diluted earnings per
share), compared to consolidated net earnings of $232,000 or $.19 basic earnings
per share ($.18 diluted earnings per share) for the period ending March 31,
1997. The increase in net earnings reflected a combination of higher net
interest income, increased noninterest income and lower noninterest expense,
which was driven by growth in relationship assets and liabilities. Return on
average assets and return on average equity were .78% and 8.61% respectively,
for the three months ended March 31, 1998 compared to .62% and 7.42%
respectively, for the same time period in 1997.
Total assets at March 31, 1998 increased to $163.770 million from $157.158
million at March 31, 1997, an increase of $6.612 million or 4.21%. Deposits grew
to $136.148 million at March 31, 1998 from $117.130 million at March 31, 1997,
an increase of $19.018 million or 16.24%. Total shareholders' equity was $14.107
million at March 31, 1998, representing an increase of $1.513 million or 12.01%
over total shareholders' equity of $12.594 million at March 31, 1997.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income represents the amount by which interest income on
interest-earning assets, including loans and securities, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowings. Net interest income is the principal source of the Company's
earnings. Interest rate fluctuations, as well as changes in the amount and type
of earning assets and liabilities, combine to affect net interest income.
Net interest income for the three months ended March 31, 1998 increased to
$1.481 million from $1.386 million for the three months ended March 31, 1997, an
increase of $95,000 or 6.85%. Net interest income increased as a result of
higher interest-earning assets derived primarily from the increase in loan
balances and an improved liability mix. Average interest-earning assets
increased to $146.220 million for the three months ended March 31, 1998 from
$142.140 million for the three months ended March 31, 1997, an increase of
$4.080 million or 2.87%. Average loans increased to $110.839 million for the
three months ended March 30, 1998 from $95.343 million for the three months
ended March 31, 1997, an increase of $15.496 million or 16.25%, as a result of
internal loan growth. During this same period average securities decreased to
$34.841 million at March 31, 1998 from $43.541 million at March 31, 1997, a
decrease of $8.700 million or 19.98%. Noninterest bearing demand deposits
increased $4.927 million, or 53.58%, from $9.196 million at March 31, 1997 to
$14.123 at March 31, 1998. Lower interest expense is attributed to a decrease in
average interest-bearing liabilities from $126.865 million at March 31, 1997 to
$123.075 million for the three months ended March 31, 1998, a decrease of $3.790
million or 2.99%.
The Company posted net interest margins of 4.05% and 3.90% and
interest-rate spreads of 3.26% and 3.36% for the periods ended March 31, 1998
and March 31, 1997, respectively. The 15 basis point increase in the net
interest margin for the first quarter of 1998 as compared to 1997, is a result
of a higher ratio of average earning assets to average costing liabilities which
increased to 1.19 at March 31, 1998 from 1.12 in March 31, 1997. The lower
interest-rate spread in the period ended March 31, 1998 was caused by a
combination of a seven basis point decline in yield on interest bearing assets
and a three basis point increase in cost on interest bearing liabilities.
21
<PAGE>
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
asset to average interest-bearing liabilities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------
1998 1997
--------------------------------- ---------------------------------
INTEREST INTEREST
AVERAGE AND AVERAGE AVERAGE AND AVERAGE
BALANCE DIVIDENDS YIELD/RATE BALANCE DIVIDENDS YIELD/RATE
-------- --------- ---------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................................ $110,839 $2,498 9.01% $ 95,343 $2,247 9.43%
Securities........................... 34,841 517 5.94% 43,541 684 6.28%
Other interest-earning assets(1)..... 540 7 5.19% 3,256 34 4.18%
-------- ------ -------- ------
Total interest-earning assets...... 146,220 3,022 8.27% 142,140 2,965 8.34%
------ ------
Noninterest-earning assets(2)....... 7,397 8,736
-------- --------
Total assets:...................... $153,617 $150,876
======== ========
Interest-bearing liabilities:
Savings and NOW deposits............. 10,848 47 1.73% 10,449 50 1.91%
Money-market deposits................ 37,873 436 4.60% 36,282 414 4.56%
Time deposits........................ 66,881 957 5.72% 58,363 813 5.57%
Other borrowings..................... 7,473 101 5.41% 21,771 302 5.55%
-------- ------ -------- ------
Total interest-bearing
liabilities...................... 123,075 1,541 5.01% 126,865 1,579 4.98%
------ ------
Demand deposits...................... 14,123 9,196
Noninterest-bearing liabilities...... 2,443 2,307
Stockholders' equity................. 13,976 12,508
-------- --------
Total liabilities and stockholders'
equity........................... $153,617 $150,876
======== ========
Net-interest income.................... $1,481 $1,386
====== ======
Interest-rate spread(3)................ 3.26% 3.36%
==== ====
Net interest margin(4)................. 4.05% 3.90%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities.......................... 1.19 1.12
======== ========
</TABLE>
- ------------------
(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.
22
<PAGE>
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).
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 VS. 1997
INCREASE (DECREASE) DUE TO
----------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----- ------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Bearing Assets:
Loans................................................... $ (98) $365 $(16) $251
Securities.............................................. (38) (137) 8 (167)
Other interest-earning assets........................... 8 (28) (7) (27)
----- ---- ---- ----
Total.............................................. (128) 200 (15) 57
----- ---- ---- ----
Interest bearing liabilities:
Deposits:
Savings and NOW deposits............................. (5) 2 (0) (3)
Money-market deposits................................ 4 18 (0) 22
Time deposits........................................ 22 119 3 144
Other borrowings........................................ (8) (198) 5 (201)
----- ---- ---- ----
Total.............................................. 13 (59) 8 (38)
----- ---- ---- ----
Net change in net interest income......................... $(141) $259 $(23) $ 95
===== ==== ==== ====
</TABLE>
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 for loan losses increased to $65,000 for the three months ended March
31, 1998 from $11,000 for the same time period in 1997, an increase of $54,000
or 491%. This significant increase is a result of management recognizing greater
potential losses from the loan portfolio as the loan volumes are shifting from
residential towards commercial/commercial real estate lending.
Noninterest Income
Noninterest income is an important source of revenue for financial
institutions in a deregulated environment. The Company's primary source of
noninterest income is service charges on deposit accounts and other banking
service related fees. Noninterest income for the three months ended March 31,
1998 was $364,000, an increase of $40,000 or 12.35% from $324,000 for the same
period in 1997. The following table presents for the periods indicated the major
categories of noninterest income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Noninterest income:
Service charges on deposit accounts................ $195 $112
Loan servicing fees................................ 16 21
Net gains from sale of loans....................... 69 95
Net realized gains on sale of securities available
for sale........................................ 2 4
Other.............................................. 82 92
---- ----
Total noninterest income........................ $364 $324
==== ====
</TABLE>
23
<PAGE>
Service charges on deposit accounts is the largest component of noninterest
income and a significant source of revenue to the Company. The increase of
$83,000 in service charges on deposit accounts from $112,000 during the three
months ending March 31, 1997 to $195,000 during the same period in 1998 is the
result of an increase in the number of the Company's transaction accounts.
Noninterest Expense
For the three month period ended March 31, 1998, noninterest expenses
decreased to $1.308 million from $1.328 million for the period ended March 31,
1997, a 1.51% decrease. The decrease in noninterest expenses is a result of
management's focus on controlling expenditures and implementation of its
Strategic Plan. The efficiency ratio, calculated by dividing total noninterest
expenses by net interest income plus noninterest income, was 70.89% for the
three months ended March 31, 1998 and 77.66% for the three months ended March
31, 1997.
The following table presents for the periods indicated the major categories
of noninterest expense:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------ ------
IN THOUSANDS)
<S> <C> <C>
Noninterest expenses:
Salaries and employee benefits...................... $ 701 $ 699
Occupancy expense................................... 260 284
Advertising and promotion........................... 59 51
Loan servicing expense.............................. -- 6
Professional fees................................... 24 --
Federal deposit insurance premiums.................. 14 11
Data processing..................................... 70 108
Other............................................... 180 169
------ ------
Total noninterest expenses....................... $1,308 $1,328
====== ======
</TABLE>
Provision for Income Taxes
Income tax expense includes the regular federal income tax at the statutory
rate. The amount of federal income tax expense is influenced by the amount of
taxable income, the amount of tax-exempt income, the amount of non-deductible
interest expense and the amount of other non-deductible expense. During the
three months ended March 31, 1998, income tax expense was $171,000 compared to
$139,000 for the three months ended March 31, 1997.
Impact of Inflation
The effects of inflation on the local economy and on the Company's
operating results have been relatively modest for the past several years. Since
substantially all of the Company's assets and liabilities are monetary in
nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. The Company tries to
control the impact of interest rate fluctuations by managing the relationship
between its interest rate sensitive assets and liabilities. See "-- Interest
Rate Sensitivity and Liquidity".
FINANCIAL CONDITION
Loan Portfolio
Loans, net were $113.669 million at March 31, 1998, an increase of $18.080
million or 18.91% from $95.589 million at March 31, 1997. This increase is
believed to be the result of the Company's increased focus on relationship
banking, featuring professional, attentive and responsive service to customers'
needs both in residential mortgage lending and commercial lending to middle
market companies.
24
<PAGE>
The following table summarizes as of the dates indicated the loan portfolio
of the Company by type of loan:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
------------------------ -----------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial...................................... $ 21,981 19.31% $12,415 12.97%
Commercial real estate.......................... 19,374 17.02% 16,783 17.53%
Residential real estate......................... 65,572 57.61% 61,027 63.75%
Consumer........................................ 6,893 6.06% 5,505 5.75%
-------- ------ ------- ------
Total loans................................... 113,820 100.00% 95,730 100.00%
====== ======
Less:
Deferred loan fees.............................. (151) (141)
Allowances for loan losses...................... (913) (830)
-------- -------
Loans, net...................................... $112,756 $94,759
======== =======
</TABLE>
The primary lending focus of the Company is on small and medium sized
commercial, residential mortgage and consumer loans. A substantial portion of
the Company's loan portfolio consists of single-family residential mortgage
loans collateralized by owner-occupied properties located in the Company's
market area. The Company offers a variety of mortgage loan products, with both
fixed and adjustable rates. The loans are generally amortized over fifteen to
thirty years, although such loans often remain outstanding for significantly
shorter periods than their contractual terms.
Loans collateralized by single-family residential real estate generally
have been originated in amounts of no more than 80% of appraised value. For
loans in amounts greater than 80% of appraised value, the Company generally
requires mortgage insurance. For all such loans, the Company requires mortgage
title insurance and hazard insurance. Of the mortgages originated, the Company
generally retains mortgage loans with variable rates or where the borrower has a
deposit relationship with the Company and sells longer term, fixed-rate, non-
relationship loans.
The Company offers a variety of commercial lending products including term
loans, lines of credit and fixed asset loans, including real estate and
equipment financing. A broad range of short- to medium-term commercial loans,
both collateralized and uncollateralized, are made available to businesses for
working capital (including inventory and receivables), business expansion
(including acquisitions of real estate and improvements) and the purchase of
equipment. The purpose of the particular loan determines its structure.
Generally, the Company's commercial loans are underwritten in the Company's
primary market area on the basis of the borrower's ability to service such debt
from income. As a general practice, the Company takes as collateral a lien on
any available real estate, equipment or other assets. Working capital loans are
primarily collateralized by short-term assets whereas term loans are primarily
collateralized by long-term assets. While commercial business loans generally
are made for shorter terms and at higher yields than one- to four-family
residential loans, such loans generally involve a higher level of risk. The
commercial loan risk of borrower default is greater than in owner-occupied
residential properties, since the collateral may be more difficult to liquidate
and more likely to decline in value.
The Company's commercial mortgage loans are secured by liens on real
estate, typically have variable interest rates and amortize over a ten to
fifteen year period with balloon payments due at the end of three to five years.
In underwriting commercial mortgage loans, consideration is given to the
property's operating history, future operating projections, current and
projected occupancy, location and physical condition. The underwriting analysis
also includes credit checks, appraisals, a review of the financial condition of
the borrower and generally full recourse to the owner.
A number of the Company's commercial loans are underwritten under
guidelines of the SBA loan guarantee programs. SBA loan originations were
$941,000 and $1.125 million for the three months ended March 31, 1998 and 1997,
respectively.
25
<PAGE>
Consumer loans made by the Company include automobile loans, home
improvement loans, home equity lines of credit, personal loans (collateralized
and uncollateralized) and loans collateralized by deposit accounts. The terms of
these loans typically range from 12 to 84 months and vary based on the nature of
the collateral and size of the loan.
The contractual ranges of the commercial and residential mortgages, and
consumer loans with predetermined interest rates and floating rates in each
maturity range as of March 31, 1998 are summarized in the following table:
<TABLE>
<CAPTION>
RESIDENTIAL
COMMERCIAL MORTGAGE CONSUMER
LOANS LOANS LOANS TOTAL
---------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due within one year................................ $18,622 $ 918 $2,744 $ 22,284
Due after one through five years................... 15,450 2,254 2,136 19,840
Due after five years............................... 7,283 62,400 2,013 71,696
------- ------- ------ --------
Total....................................... $41,355 $65,572 $6,893 $113,820
======= ======= ====== ========
</TABLE>
Of the $92.304 million in loans due after one year, 42.40% of such loans
have fixed rates of interest and 57.60% have adjustable rates.
The following table displays loan originations by type of loan and
principal reductions during the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
------ ------
IN THOUSANDS)
<S> <C> <C>
Originations:
Commercial loans..................................... $3,926 $6,945
Commerical real estate loans......................... 1,667 1,150
Residential real estate.............................. 9,366 3,040
Consumer loans....................................... 374 1,439
------ ------
Total loans originated.......................... 15,333 12,574
Principal reductions................................... (8,172) (8,769)
------ ------
Increase in gross loans......................... $7,161 $3,805
====== ======
</TABLE>
The originations noted in the table above exclude originations of loans
held for sale of $401,000 and $1.187 million for the three months ended March
31, 1998 and 1997, respectively.
Nonperforming Assets
The Company has several procedures in place to assist it in maintaining the
overall quality of its loan portfolio. These procedures include low individual
lending limits for officers, an independent credit analysis for all commercial
credit relationships over $100,000, Management Loan Committee approval for all
commercial credit relationships over $100,000, Board of Director Loan Committee
approval for all commercial and for most residential credit relationships over
$500,000, quality loan documentation and a periodic loan review by an
independent consultant with considerable banking regulatory experience. The
Board of Directors reviews all new and renewed loans on a monthly basis. The
Company also monitors its delinquency levels for any negative or adverse trends.
There can be no assurance, however, that the Company's loan portfolio will not
become subject to increasing pressures from deteriorating borrower credit due to
general economic conditions.
The Company generally places a loan on nonaccrual status and ceases
accruing interest when loan payment performance is deemed unsatisfactory. All
loans past due 90 days, however, are placed on nonaccrual status, unless the
loan is both well collateralized and in the process of collection. Cash payments
received while a loan is classified as nonaccrual are recorded as a reduction of
principal as long as doubt exists as to collection.
26
<PAGE>
The Company has historically had strong asset quality, as evidenced by its
low percentage of net charge-offs to average loans outstanding (an average of
.07% over the last five years). See "-- Allowance for Loan Losses." Although
nonperforming assets (nonaccrual loans and foreclosed real estate) at March 31,
1998 increased to $2.475 million from $1.936 million at March 31, 1997, this
increase was attributable to one residential real estate loan for $1.225 million
where the original loan to value was less than 60%. The borrowers and a number
of businesses they own have all sought protection under the U. S. bankruptcy
laws. While these are complex bankruptcies, during 1998 the borrowers have been
able to bring this loan current except for one pre-petition payment which they
are precluded from making under the U. S. bankruptcy laws. Management expects
this loan will be fully repaid from liquidation of the underlying collateral.
The Company's ratio of nonperforming loans and foreclosed real estate to total
assets remained low at 1.51% at March 31, 1998 compared to 1.23% at March 31,
1997.
The following table presents information regarding nonperforming assets at
March 31, 1998 and March 31, 1997.
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans
Residential real estate loans........................ $2,068 $1,465
Commercial real estate............................... -- --
Commercial loans..................................... 278 400
Consumer loans and other............................. 1 6
------ ------
Total nonaccrual loans............................ 2,347 1,871
------ ------
Total nonpreforming loans......................... 2,347 1,871
------ ------
Total nonperforming loans to total loans.......... 2.06% 1.95%
====== ======
Foreclosed real estate:
Real estate acquired by foreclosure or deed in lieu
or
foreclosure....................................... 128 65
------ ------
Total nonperforming loans and foreclosed real
estate.......................................... $2,475 $1,936
====== ======
Total nonperforming and foreclosed real estate to
total assets.................................... 1.51% 1.23%
====== ======
</TABLE>
The Company would have recorded additional interest income of approximately
$83,000 in the first three months of 1998 on nonperforming loans if the loans
had been current in accordance with original terms. Interest income recorded on
nonperforming loans for the first three months of 1998 was approximately
$39,000.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Based on an evaluation of
the loan portfolio, management presents a monthly review of the allowance for
loan losses to the Board of Directors, indicating any changes in the allowance
since the last review and any recommendations as to adjustments in the
allowance. In making its evaluation, management considers the diversification by
industry of the Company's commercial loan portfolio, the significant proportion
of single family, owner-occupied residential real estate loans in the portfolio,
the effect of changes in the local real estate market on collateral values, the
effects on the loan portfolio of current economic indicators and their probable
impact on borrowers, the amount of charge-offs for the period, the amount of
nonperforming loans and related collateral security, the evaluation of its loan
portfolio by the independent loan review function and the annual examination of
the Company's financial statements by its independent auditors. Charge-offs
occur when loans are deemed to be uncollectible.
The Company maintains an internally classified loan list which, along with
the delinquency list of loans, helps management assess the overall quality of
the loan portfolio and the adequacy of the allowance for loan losses. Loans
classified as "substandard" are those loans with clear and defined weaknesses
such as a highly-leveraged position, unfavorable financial ratios, uncertain
repayment sources or poor financial condition, which may jeopardize
recoverability of the debt. At March 31, 1998, the Company had $1.070 million of
such loans, excluding loans on nonaccrual, which were primarily residential and
commercial real estate loans.
27
<PAGE>
Loans classified as "doubtful" are those loans which have characteristics
similar to substandard accounts but with an increased risk that a loss may
occur, or at least a portion of the loan may require a charge-off if liquidated
at present. Although loans classified as substandard do not duplicate loans
classified as doubtful, both substandard and doubtful loans include some loans
that are delinquent at least 30 days or on nonaccrual status. Loans classified
as "loss" are those loans which are in the process of being charged off. At
March 31, 1998, the Company had $293,000 of loans with a doubtful
classification.
In addition to the internally classified loan list and delinquency list of
loans, the Company maintains a separate "watch list" which further aids the
Company in monitoring loan portfolios. Watch list loans show warning elements
where the present status portrays one or more deficiencies that require
attention in the short term or where pertinent ratios of the loan account have
weakened to a point where more frequent monitoring is warranted. These loans do
not have all of the characteristics of a classified loan (substandard or
doubtful) but do show weakened elements as compared with those of a satisfactory
credit. The Company reviews these loans to assist in assessing the adequacy of
the allowance for loan losses. At March 31, 1998, the Company had $98,000 of
such loans, which were primarily commercial loans.
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. An unallocated allowance is also established based on the
Company's historical charge-off experience. The Company then charges to
operations a provision for loan losses to maintain the allowance for loan losses
at an adequate level determined by the foregoing methodology.
For the three months ended March 31, 1998 and March 31, 1997 there were no
loan charge-offs. There were no recoveries for March 31, 1998, however,
recoveries for the same period ending March 31, 1997 was $42,000. During the
three months ended March 31, 1998, the Company recorded a provision for loan
losses of $65,000 compared to $11,000 for the three months ended March 31, 1997.
At March 31, 1998, the allowance totaled $913,000, or .80% of total loans
resulting in an allowance to nonperforming loans of 38.90%. Management feels the
allowance for loan losses is appropriate given the fact that one nonperforming
residential real estate loan totaling $1.225 million represents 49.08% of the
nonperforming loans. The original loan to value was less than 60% and the
collateral is involved in a complex bankruptcy. The borrowers and a number of
businesses they own have all sought protection under the U. S. bankruptcy laws.
While these are complex bankruptcies, during 1998 the borrowers have been able
to bring this loan current except for one pre-petition payment which they are
precluded from making under the U. S. bankrupty laws. Management expects this
loan will be fully repaid from liquidation of the underlying collateral.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding, net....................... $110,839 $ 95,343
======== ========
Allowance at beginning of year 848 777
Recoveries........................................... -- 42
-------- --------
Net charge-offs...................................... -- 42
Provision for loan losses charged to operating
expenses........................................... 65 11
-------- --------
Allowance at end of period........................... $ 913 $ 830
======== ========
Net charge-offs to average loans outstanding......... 0.00% (0.04)%
======== ========
Allowance as a percent of total loans................ .80% .87%
======== ========
Allowance as a percent of nonperforming loans........ 38.90% 44.36%
======== ========
Total loans at end of period.................... $113,820 $ 95,730
======== ========
</TABLE>
28
<PAGE>
The following table describes the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT MARCH 31, 1997
------------------- -------------------
% OF LOANS % OF LOANS
TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS
------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial loans...................................... $176 19.31% $108 12.97%
Commercial real estate loans.......................... 156 17.02% 146 17.53%
Residential real estate loans......................... 526 57.61% 529 63.75%
Consumer loans........................................ 55 6.06% 47 5.75%
---- ------- ---- -------
Total allowance for loan losses.................. $913 100.00% $830 100.00%
==== ======= ==== =======
</TABLE>
Securities
The Company uses its securities portfolio primarily as a source of income
and secondarily as a source of liquidity. At March 31, 1998, investment
securities totaled $39.873 million, a decrease of $4.853 million from $44.726
million at March 31, 1997. The decrease was primarily attributable to the
repositioning of the investments from less desirable mortgage backed securities
to more liquid United States government direct obligations. At March 31, 1998,
investment securities represented 24.34% of total assets compared to 28.46% of
total assets at March 31, 1997. The yield on the investment portfolio for the
three months ended March 31, 1998 was 5.94% compared to a yield of 6.28% for the
three months ended March 31, 1997.
The following table presents the amortized cost of securities classified as
Available-for-Sale and held to Maturity indicating their approximate fair values
at March 31, 1998:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for Sale:
U.S. Treasury securities........................ $19,142 $ 10 $ (34) $19,118
U.S. Government agency securities............... 3,449 -- (12) 3,437
Mortgage-backed securities...................... 3,206 -- (119) 3,087
Mutual funds.................................... 5,137 -- (175) 4,962
------- ---- ----- -------
Total......................................... $30,934 $ 10 $(340) $30,604
======= ==== ===== =======
Held to Maturity:
U.S. Government agency securities............... $ 1,235 $ 81 $ -- $ 1,316
Mortgage-backed securities...................... 6,325 23 (230) 6,118
Other........................................... 175 -- -- 175
------- ---- ----- -------
Total......................................... $ 7,735 $104 $(230) $ 7,609
======= ==== ===== =======
</TABLE>
The above table does not include the Federal Reserve and Federal Home Loan
Bank Stock.
29
<PAGE>
The following table sets forth, by maturity distribution, certain
information pertaining to the securities portfolio:
<TABLE>
<CAPTION>
AFTER ONE YEAR
ONE YEAR OR LESS TO FIVE YEARS AFTER FIVE YEARS TOTAL
------------------ ------------------ ------------------ ------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At March 31, 1998:
U.S. Government agency
securities............. $ -- --% $ 4,436 6.59% $ 236 6.09% $ 4,672 6.56%
U.S. Treasury
securities............. 4,010 5.95 15,108 5.95 -- -- 19,118 5.95
Mortgage-backed
securities............. 3,664 6.19 1,984 5.57 3,764 5.37 9,412 5.73
Mutual funds............. 4,962 5.95 -- -- -- -- 4,962 5.95
Other(1)................. -- -- 25 7.88 1,684 7.08 1,709 7.11
------- ------- ------- -------
Total $12,636 6.02% $21,553 6.05% $ 5,684 5.91% $39,873 6.02%
======= ======= ======= =======
</TABLE>
- ------------------
(1) Includes Federal Reserve and Federal Home Loan Bank stock.
Deposits
The Company offers a variety of deposit accounts having a wide range of
interest rates and terms. The Company's deposits consist of demand, NOW,
savings, money market and time accounts. The Company relies primarily on
competitive pricing policies and customer service to attract and retain these
deposits. The Company does not have any brokered deposits.
The Company's average total deposits for the three months ended March 31,
1998 were $129.725 million or 13.51% over average total deposits during the same
period in 1997. The Company's total deposits at March 31, 1998, were $136.148
million, up $19.018 million or 16.24% over total deposits at March 31, 1997.
The Company's lending and investing activities are funded principally by
deposits, approximately 20.91% of which are demand, NOW and savings deposits.
Average noninterest-bearing deposits at March 31, 1998 were $14.123 million as
compared to $9.196 million for the first three months of 1997, an increase of
$4.927 million or 53.58%. Approximately 10.89% of average deposits for the three
months ended March 31, 1998 were noninterest-bearing. The amount of deposits
grew due to management efforts to build relationship Banking.
The following table shows the distribution of, and certain other
information relating to, deposit accounts by type.
<TABLE>
<CAPTION>
AT MARCH 31,
---------------------------------------------
1998 % OF 1997 % OF
BALANCE TOTAL BALANCE TOTAL
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits...................................... $ 15,587 11.45% $ 9,791 8.36%
Savings and NOW deposits............................. 12,879 9.46% 12,095 10.32%
Money market deposits................................ 40,253 29.56% 37,223 31.78%
Time deposits........................................ 67,429 49.53% 58,021 49.54%
-------- ------- -------- -------
Total deposits....................................... $136,148 100.00% $117,130 100.00%
======== ======= ======== =======
</TABLE>
30
<PAGE>
Jumbo certificates ($100,000 and over) indicated above mature as follows:
<TABLE>
<CAPTION>
AT MARCH 31,
1998
---------------
(IN THOUSANDS)
<S> <C>
Due three months or less............................... $ 1,123
Due over three months to six months.................... 422
Due over six months to one year........................ 1,220
Due over one year...................................... 9,235
Total............................................. -------
$12,000
=======
</TABLE>
The scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Due in one year or less............................. $23,336
Due in more than one year less than three years..... 24,136
Due in more than three but less than five years..... 19,957
-------
Total.......................................... $67,429
=======
</TABLE>
The following table sets for the net deposit flows of the Company during
the periods indicated:
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED FOR THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Net increase before interest
credited......................... $ 9,697 $3,211
Net credited....................... 1,456 1,421
--------- --------
Net deposit increase.......... $11,153 $4,632
========= ========
</TABLE>
The following table indicates the daily average balances and weighted
average interest rates paid on interest bearing deposits for the periods
indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------------------------------------------------
1998 1997
--------------------------------- ----------------------------------
AVERAGE % OF AVERAGE AVERAGE % OF AVERAGE
BALANCE TOTAL YIELD BALANCE TOTAL YIELD
-------- ------ ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Savings and NOW deposits............... $ 10,848 8.36% 1.73% $ 10,449 9.14% 1.91%
Money market deposits.................. 37,873 29.19% 4.60% 36,282 31.75% 4.56%
Time deposits.......................... 66,881 51.56% 5.72% 58,363 51.07% 5.57%
-------- ------ -------- ------
Total interest-bearing deposits........ 115,602 89.11% 105,094 91.96%
Non-interest bearing................... 14,123 10.89% 9,196 8.04%
-------- ------ -------- ------
Total............................. $129,725 100.00% $114,290 100.00%
======== ====== ======== ======
</TABLE>
Borrowings
Advances from the Federal Home Loan Bank (the "FHLB"), securities sold
under repurchase agreements and for investment and repurchase agreements offered
to the Company's commercial deposit customers provide the Company with
short-term and long-term sources of funds. FHLB advances have decreased from
$24.711 million to $7.300 million at March 31, 1997 and March 31, 1998,
respectively. Other borrowings have increased from $653,000 at March 31, 1997 to
$2.782 million at March 31, 1998. It is the strategy of the Company to fund
asset growth from its deposit base; however, the Company may, from time to time,
borrow from wholesale sources of funds to fund such growth as market conditions
warrant. As the Company shifts the balance sheet from long-term fixed rate
investments to shorter term relationship assets, management expects the Company
to become less dependent on wholesale sources of funds.
31
<PAGE>
Maturities and interest rates of advances from the FHLB were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
INTEREST AT MARCH 31, AT MARCH 31,
MATURITY RATE 1998 1997
- -------- -------- ------------ ------------
<S> <C> <C> <C>
1997..................................... 6.00% $ -- $ 1,300
1997..................................... 6.89% -- 5,000
1997..................................... 5.65% -- 18,411
1998..................................... 6.23% 2,300 --
2007..................................... 5.47% 5,000 --
-------- --------
Total.................................... $ 7,300 $24,711
======== ========
</TABLE>
At March 31, 1998, pursuant to a 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.
Interest Rate Sensitivity and Liquidity
Asset and liability management is concerned with the timing and magnitude
of repricing assets compared to liabilities. It is the objective of the Company
to generate stable growth in net interest income and to attempt to control risks
associated with interest rate movements. In general, management's strategy is to
reduce the impact of changes in interest rates on its net interest income by
maintaining a favorable match between the maturities or repricing dates of its
interest-earning assets and interest-bearing liabilities. The Company's asset
and liability management strategy is formulated and monitored by the Asset
Liability Committee ("ALCO"), which is composed of senior officers of the
Company, in accordance with policies approved by the Company's Board of
Directors. ALCO meets regularly to review, among other things, the sensitivity
of the Company's assets and liabilities to interest rate changes, the book and
market values of assets and liabilities, unrealized gains and losses, purchase
and sale activity, maturities of investments, deposits and borrowing. ALCO also
approves and establishes pricing and funding decisions with respect to the
Company's overall asset and liability composition. ALCO reviews the Company's
liquidity, cash flow flexibility, maturities of investments, deposits and
borrowings, retail and institutional deposit activity, current market conditions
and interest rates on both a local and national level.
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. A GAP is considered positive when the amount of
interest rate sensitive assets exceeds the amount of 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 tend to adversely affect net
interest income, while a positive GAP would tend to result in an increase in net
interest income. During a period of falling interest rates a negative GAP would
tend to result in an increase in net interest income while a positive GAP would
tend to affect net interest income adversely. While GAP is a useful measurement
and contributes toward effective assets and liabilities management, it is
difficult to predict the effect of changing interest rates solely on that
measure. Different types of assets and liabilities with the same or similar
maturities may react differently to changes in overall market rates or
conditions. Changes in interest rates may affect net interest income positively
or negatively even if an institution were perfectly matched in each maturity
category.
32
<PAGE>
The following table sets forth an interest rate sensitivity analysis for
the Company at March 31, 1998:
<TABLE>
<CAPTION>
MORE
THAN MORE
THREE THAN SIX MORE
MONTHS MONTHS THAN ONE MORE
THREE TO SIX TO ONE YEAR TO THAN
MONTHS MONTHS YEAR FIVE YEARS FIVE YEARS TOTAL
-------- -------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans (1), (2)............... $ 41,324 $ 7,149 $ 17,378 $ 21,446 $ 30,657 $117,954
Securities (3)............... 8,279 114 4,243 21,553 4,150 39,873
Interest bearing deposits.... 452 -- -- -- -- 452
-------- -------- -------- -------- -------- --------
Total rate-sensitive
assets..................... 50,055 7,263 21,621 42,999 34,807 158,279
-------- -------- -------- -------- -------- --------
Deposit accounts(4):
Savings and NOW.............. 12,879 -- -- -- -- 12,879
Money market................. 40,253 -- -- -- -- 40,253
Time deposits................ 7,026 6,612 9,699 31,698 12,394 67,429
-------- -------- -------- -------- -------- --------
Total deposit accounts....... 60,158 6,612 9,699 31,698 12,394 120,561
Other borrowings............. 5,082 -- -- -- 5,000 10,082
-------- -------- -------- -------- -------- --------
Total rate-sensitive
liabilities................ 65,240 6,612 9,699 31,698 17,394 130,643
-------- -------- -------- -------- -------- --------
GAP.......................... $(15,185) $ 651 $ 11,922 $ 11,301 $ 17,413 $ 27,636
======== ======== ======== ======== ======== ========
Cumulative GAP............... $(15,185) $(14,534) $ (2,612) $ 8,689 $ 26,102 $ 53,738
======== ======== ======== ======== ======== ========
Cumulative GAP/total
assets..................... (9.27%) (8.87%) (1.59%) 5.31% 15.94% 32.81%
======== ======== ======== ======== ======== ========
</TABLE>
- ------------------
(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.
(4) Savings, NOW and money market accounts are regarded as readily accessible
withdrawable accounts. All other time accounts are scheduled according to
their respective maturity dates.
Shortcomings are inherent in any GAP analysis since certain assets and
liabilities may not move proportionally as interest rates change.
Liquidity
Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. During the past three years, the Company's
liquidity needs have been met primarily by financing activities through FHLB
advances, growth in core deposits and other short term borrowing sources. In the
Company's investing activities, highly liquid securities have provided
flexibility in meeting the Company's cash needs. Access to purchased funds from
correspondent banks is available and has been utilized to take advantage of
investment opportunities.
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 less deposits of certain public funds. 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 Department, such as federal funds sold and United States
government securities or securities guaranteed by the United States or agencies
thereof. As of March 31, 1998 and March 31, 1997, the Bank had liquidity of
approximately $34.344 million and $30.569 million, or approximately 25.23% and
26.12% of total deposits combined with borrowings, respectively. 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 retain deposits in a changing interest rate environment.
33
<PAGE>
Capital Resources
Capital management consists of providing equity to support both current and
future operations. The Company is subject to capital adequacy requirements
imposed by the Federal Reserve Board and the Bank is subject to capital adequacy
requirements imposed by the FDIC and the Department. Both the Federal Reserve
Board and the FDIC have adopted risk-based capital requirements for assessing
the capital adequacy of bank holding companies and banks. These standards define
capital and establish minimum capital requirements in relation to assets and
off-balance sheet exposure, adjusted for credit risk. The risk-based capital
standards currently in effect are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among bank holding
companies and banks, to account for off balance sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off balance sheet items are
assigned to broad risk categories, each with appropriate relative risk weights.
The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.
Bank regulatory authorities in the United States have issued risk-based
capital standards by which all bank holding companies and banks are evaluated in
terms of capital adequacy. The risk-based capital standards issued by the
Federal Reserve Board apply to the Company. These guidelines relate a financial
institution's capital to the risk profile of its assets. The risk-based capital
standards require all financial institutions to have "Tier 1 capital" of at
least 4.0% and "total risk-based" (Tier 1 and Tier 2) capital of at least 8.0%
of total risk-adjusted assets. "Tier 1 capital" generally includes common
shareholders' equity and qualifying perpetual preferred stock, together with
related surpluses and retained earnings, less deductions for goodwill and
various other intangibles. "Tier 2 capital" may consist of a limited amount of
intermediate term preferred stock, a limited amount of term subordinated debt,
certain hybrid capital instruments and other debt securities, perpetual
preferred stock not qualifying as Tier 1 capital, and a limited amount of the
general valuation allowance for loan losses. The sum of Tier 1 capital and Tier
2 capital is "total risk-based capital."
The Federal Reserve Board has also adopted guidelines which supplement the
risk-based capital guidelines with a minimum ratio of Tier 1 capital to average
total consolidated assets ("leverage ratio") of 3.0% for institutions with well
diversified risk, including no undue interest rate exposure; excellent asset
quality; high liquidity; good earnings; and that are generally considered to be
strong banking organizations, rated composite 1 under applicable federal
guidelines, and that are not experiencing or anticipating significant growth.
Other banking organizations are required to maintain a leverage ratio of at
least 4.0% to 5.0%. These rules further provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
capital positions substantially above the minimum supervisory levels and
comparable to peer group averages, without significant reliance on intangible
assets.
Pursuant to Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency revised its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of nontraditional activities, as well
as reflect the actual performance and expected risk of loss on multifamily
mortgages. The Bank is subject to capital adequacy guidelines of the FDIC that
are substantially similar to the Federal Reserve Board's guidelines. Also
pursuant to FDICIA, the FDIC has promulgated regulations setting the levels at
which an insured institution such as the Bank would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." The Bank is classified
"well capitalized" for purposes of the FDIC's prompt corrective action
regulations.
Shareholders' equity increased from $12.594 million at March 31, 1997 to
$14.107 million at March 31, 1998, an increase of $1.513 million or 12.01%. This
increase was primarily the result of net income of $983,000.
The following table provides a comparison of the Company's leverage and
risk-weighted capital ratios as of March 31, 1998 to the minimum and
well-capitalized regulatory standards:
<TABLE>
<CAPTION>
AT MARCH 31, MINIMUM WELL
1998 REQUIRED CAPITALIZED
------------ -------- -----------
<S> <C> <C> <C>
Total Capital to Risk Weighted Assets............... 15.27% 3.00% N/A
Tier I Capital to Risk Weighted Assets.............. 14.34% 4.00% N/A
Tier I Capital to Average Assets.................... 9.38% 8.00% N/A
</TABLE>
34
<PAGE>
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
OVERVIEW
For the year ended December 31, 1997, the Company had consolidated net
earnings of $914,000 or $.68 basic earnings per share ($.62 diluted earnings per
share), compared to a consolidated net loss of $599,000 or $.52 basic and
diluted loss per share for 1996. The consolidated net loss for the year ended
December 31, 1996 included the effect of the SAIF special assessment of $926,000
before taxes ($581,000 after taxes). The consolidated net loss for the year
ended December 31, 1995 was $627,000.
At December 31, 1997, the Company had total consolidated assets of $147.840
million, a decrease of 2.26% over total assets of $151.258 million at December
31, 1996. During the year ended December 31, 1997 loans receivable increased
$14.727 million (15.44%), while the Company's portfolio of securities declined
$10.711 million (25.03%) to $32.079 million. The Company's deposits increased to
$124.995 million as of December 31, 1997, from $112.498 million as of December
31, 1996, an 11.11% increase. Other borrowings, principally borrowings from the
FHLB, were $6.191 million as of December 31, 1997, a decrease of $17.555 million
(73.93%) from December 31, 1996.
At December 31, 1996, the Company had total consolidated assets of $151.258
million, a decrease of 21.79% over total assets of $193.407 million at December
31, 1995. During the year ended December 31, 1996, loans receivable decreased
$27.869 million (22.61%) to $95.369 million and the Company's portfolio of
securities declined $5.752 million (11.85%) to $42.790 million. The Company's
deposits decreased to $112.498 million at December 31, 1996 from $142.673
million at December 31, 1995. Other borrowings, principally borrowings from the
FHLB, were $23.746 million at December 31, 1996, a decrease of $9.469 million
(28.51%) from December 31, 1995.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income represents the amount by which interest income on
interest-earning assets, including loans and securities, exceeds interest
expense incurred on interest-bearing liabilities, including deposits and other
borrowings. Net interest income is the principal source of the Company's
earnings. Interest rate fluctuations, as well as changes in the amount and type
of earning assets and liabilities, combine to affect net interest income.
Net Interest Income 1997 versus 1996. Net interest income for the year
ended December 31, 1997 increased to $5.603 million from $ 4.570 million in
1996, an increase of $1.033 million or 22.60%. This resulted in a net interest
margin of 3.93% and 3.19% and a net interest spread of 3.30% and 2.83% for the
years ended December 31, 1997 and 1996, respectively. The increase in the net
interest margin and net interest spread was primarily the result of a decrease
in the cost of interest-bearing liabilities to 5.07% for 1997 from 5.67% for
1996.
The increase in net interest income was driven almost exclusively by lower
cost of interest-bearing liabilities, which decreased to $6.329 million in 1997,
from $7.616 million in 1996 a decrease of $1.287 million or 16.90%. This
improvement was caused by a more favorable mix of deposits. Lower costing
average demand deposits, savings and NOW deposits and money market deposits grew
by $1.557 million (15.87%), $1.743 million (20.42%) and $7.774 million (26.19%),
respectively, from 1996 to 1997. This growth allowed the Company to reduce the
levels of higher-costing time deposits and other borrowings by $7.415 million
(10.95%) and $11.469 million (40.46%), respectively, from 1996 to 1997.
Management attributes this improvement to its success in developing more
full-service banking relationships with its targeted business, professional and
individual clients. This allowed the Company to replace borrowings and
rate-driven time deposits with transaction deposit accounts. The increase in net
interest income was also positively impacted by the increase in the ratio of
average interest earning assets to average interest bearing liabilities which
improved to 1.14 at December 31, 1997 from 1.07 at December 31, 1996. This
resulted in a substantial decline in the level of non-interest earning assets to
$8.609 million in 1997, from $15.127 million in 1996, a decrease of $6.518
million or 43.09%.
Net Interest Income 1996 versus 1995. Net interest income for the year
ended December 31, 1996 decreased to $4.570 million, from $4.771 million in
1995, a decrease of approximately $201,000 or 4.21%. This decline in net
interest income was directly attributable to a substantial decline in the
Company's average total assets, which decreased to $158.572 million from
$200.897 million in 1995, a decrease of $42.325 million or 21.07%. During 1996,
the Company embarked upon a program to use the proceeds from the decrease of
average loans and
35
<PAGE>
securities, which declined $33.124 million (25.59%) and $10.977 million
(21.09%), respectively, during 1996 to reduce higher costing time deposits. Time
deposits averaged $67.688 million in 1996, as compared to $121.708 million in
1995, a decrease of $54.020 million or 44.38%. These changes in the balance
sheet resulted in a net interest margin of 3.19% and 2.53% and a net interest
spread of 2.83% and 2.25% for the years ended December 31, 1996 and 1995,
respectively. The improved net interest margin and net spread was primarily the
result of improved yields on interest earning assets, which were 8.50% for the
year ended December 31, 1996 from 7.78% for the year ended December 31, 1995.
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
asset to average interest-bearing liabilities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans...................... $102,315 $ 9,427 9.21% $ 96,307 $ 9,001 9.35% $129,431 $11,024 8.52%
Securities................. 38,200 2,402 6.29 41,068 2,872 6.99 52,045 3,256 6.26
Other interest-earning
assets(1)................ 2,085 103 4.94 6,070 313 5.16 7,416 410 5.53
-------- ------- -------- ------- -------- -------
Total interest-earning
assets................... 142,600 11,932 8.37 143,445 12,186 8.50 188,892 14,690 7.78
------- ------- -------
Noninterest-earning
assets(2).................. 8,609 15,127 12,005
-------- -------- --------
Total assets................. $151,209 $158,572 $200,897
======== ======== ========
Interest-bearing liabilities:
Savings and NOW deposits... 10,278 203 1.98 8,535 180 2.11 8,441 161 1.91
Money-market deposits...... 37,457 1,731 4.62 29,683 1,381 4.65 23,568 1,084 4.60
Time deposits.............. 60,273 3,434 5.70 67,688 4,253 6.28 121,708 6,987 5.74
Other borrowings........... 16,879 961 5.69 28,348 1,802 6.36 25,749 1,687 6.55 ~
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities................ 124,887 6,329 5.07 134,254 7,616 5.67 179,466 9,919 5.53
Demand deposits.............. 11,369 ------- 9,812 ------- 3,545 -------
Noninterest-bearing
liabilities................ 1,971 2,987 5,371
Stockholders' equity......... 12,982 11,519 12,515
-------- -------- --------
Total liabilities and
stockholders' equity..... $151,209 $158,572 $200,897
======== ======== ========
Net interest income.......... $ 5,603 $ 4,570 $ 4,771
======= ======= =======
Interest-rate spread(3)...... 3.30% 2.83% 2.25%
===== ===== =====
Net interest margin(4)....... 3.93% 3.19% 2.53%
===== ===== =====
Ratio of average
interest-earning assets to
average interest-bearing
liabilities................ 1.14 1.07 1.05
======== ======== ========
</TABLE>
- ------------------
(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.
36
<PAGE>
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 (i) changes in rate (change
in rate multiplied by prior volume), (ii) changes in volume (change in volume
multiplied by prior rate) and (iii) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 VS. 1996
-----------------------------------
INCREASE (DECREASE) DUE TO
-----------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 VS. 1995
------------------------------------
INCREASE (DECREASE) DUE TO
------------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans................................................... $ 1,073 $(2,821) $(275) $(2,023)
Securities.............................................. 384 (687) (81) (384)
Other interest-earning assets........................... (28) (74) 5 (97)
------- ------- ----- -------
Total................................................ 1,429 (3,582) (351) (2,504)
------- ------- ----- -------
Interest-bearing liabilities:
Deposits:
Savings and NOW deposits............................. 17 2 0 19
Money-market deposits................................ 13 281 3 297
Time deposits........................................ 660 (3,101) (293) (2,734)
Other borrowings........................................ (50) 170 (5) 115
------- ------- ----- -------
Total................................................ 640 (2,648) (295) (2,303)
------- ------- ----- -------
Net change in net interest income......................... $ 789 $ (934) $ (56) $ (201)
======= ======= ===== =======
</TABLE>
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 to $80,000 in 1997 from $185,000 in 1996, a decrease of
$105,000 or 56.76%,
37
<PAGE>
reflecting improved portfolio quality. The provision decreased to $185,000 in
1996 from $336,000 in 1995, a decrease of $151,000 or 44.94%.
Noninterest Income
Total noninterest income decreased to $1.412 million for the year ended
December 31, 1997 from $2.434 million reported in 1996, a decrease of $1.022
million or 41.99%, principally due to a decrease in net gain on sale of loans
and loan servicing rights to $508,000 in 1997 from $1.179 million in 1996, and
$365,000 in earnings from a limited partnership during 1996, compared to no such
amounts during the comparable period in 1997. This decrease was the result of
management's focus on its three primary business lines, a shift away from the
wholesale mortgage business and the sale of the limited partnership in late
1996. An increase in service charges on deposit accounts of $138,000 from the
year ended December 31, 1996 to the year ended December 31, 1997, was the result
of increased attention to relationship banking and core noninterest income
opportunities. The increase in other noninterest income is partially related to
additional product introductions such as merchant card services which will
improve noninterest income going forward.
Total noninterest income increased to $2.434 million in 1996 from $1.922
million in 1995, an increase of $512,000 or 26.64% primarily due to an increase
in the net gain on sale of loans of $488,000 during the year ended December 31,
1996, when compared to 1995.
The following table presents for the period indicated the major categories
of noninterest income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Noninterest income:
Service charges on deposit accounts....................... $ 502 $ 364 $ 315
Gain on sale of loan servicing rights..................... 29 131 192
Loan servicing fees....................................... 70 170 180
Net gains from sale of loans.............................. 479 1,048 560
Net realized gains on sale of securities available for
sale................................................... 29 91 1
Equity in earnings of limited partnership................. -- 365 507
Other..................................................... 303 265 167
------ ------ ------
Total noninterest income............................... $1,412 $2,434 $1,922
====== ====== ======
</TABLE>
Noninterest Expense
Total noninterest expense declined to $5.471 million for the year ended
December 31, 1997 from $6.847 million for the year ended December 31, 1996, a
decrease of $1.376 million or 20.10%. Salaries and employee benefits declined to
$2.657 million in 1997, from $3.169 million in 1996, a decrease of $512,000 or
16.16%, reflecting the change in the business plan to reduce activities in
mortgage banking, with its emphasis on origination and sales of mortgage loans.
The remaining items in noninterest expense decreased to $2.814 million in 1997
from $3.678 million in 1996, a decrease of $864,000 or 23.49%, as a result of
management's focus on all areas of expense to improve the Company's operating
efficiency.
Noninterest expense declined to $6.847 million for year ended December 31,
1996 from $7.360 million for the year ended December 31, 1995, a decrease of
$513,000 or 6.97%, due primarily to reductions in other expenses. These
reductions were related to amortized purchased servicing rights and expenses in
the limited partnership which were eliminated in 1996.
38
<PAGE>
The following table presents for the periods indicated the major categories
of noninterest expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Noninterest expenses:
Salaries and employee benefits............................ $2,657 $3,169 $3,165
Occupancy expense......................................... 1,100 1,251 1,169
Advertising and promotion................................. 257 142 226
Loan servicing expense.................................... 36 150 88
Professional fees......................................... 157 286 225
Federal deposit insurance premiums........................ 82 283 390
Data processing........................................... 403 428 275
Other..................................................... 779 1,138 1,822
Noninterest expenses before SAIF recapitalization
assessment............................................. 5,471 6,847 7,360
SAIF recapitalization assessment.......................... -- 926 --
------ ------ ------
Total noninterest expenses................................ $5,471 $7,773 $7,360
====== ====== ======
</TABLE>
Provision (Credit) for Income Taxes
The provision for income taxes increased to $550,000 in 1997 from a
$355,000 credit during the year ended December 31, 1996. The effective tax rate
increased to 37.57% during the year ended December 31, 1997 from 37.21% for the
year ended December 31, 1996.
The credit for income taxes decreased to $355,000 during the year ended
December 31, 1996 from $376,000 during the year ended December 31, 1995, a
decrease of $ 21,000 or 5.59%. The effective tax rate decreased to 37.21% for
the year ended December 31, 1996 from 37.49% for the year ended December 31,
1995.
FINANCIAL CONDITION
Loan Portfolio
Total loans were $106.659 million at December 31, 1997, an increase of
$14.734 million or l6.03% from $91.925 million at December 31, 1996. This
increase is believed to be the result of the Company's increased focus on
relationship banking, featuring professional, attentive and responsive service
to customers' needs both in residential mortgage lending and commercial lending
to middle market companies.
The following table summarizes the loan portfolio of the Company by type of
loan as of December 31, 1997, 1996, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial............. $ 19,832 18.59% $ 16,711 18.18% $ 15,401 14.49% $ 11,645 9.34% $ 3,135 3.12%
Commercial real
estate............... 17,628 16.53 10,894 11.85 2,572 2.42 2,097 1.69 922 .92
Residential real
estate............... 61,827 57.97 60,716 66.05 86,971 81.80 110,005 88.26 96,093 95.54
Consumer............... 7,372 6.91 3,604 3.92 1,371 1.29 887 .71 428 .42
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans........ 106,659 100.00% 91,925 100.00% 106,315 100.00% 124,634 100.00% 100,578 100.00%
====== ====== ====== ====== ======
Less:
Deferred loan fees..... (158) (175) (71) (109) (92)
Undisbursed portion of
loans in process..... -- -- (727) (949) (2,921)
Allowance for loan
losses............... (848) (777) (840) (528) (382)
-------- -------- -------- -------- --------
Loans, net......... $105,653 $ 90,973 $104,677 $123,048 $ 97,183
======== ======== ======== ======== ========
</TABLE>
39
<PAGE>
The primary lending focus of the Company is on small and medium sized
commercial, residential mortgage and consumer loans. A substantial portion of
the Company's loan portfolio consists of single-family residential mortgage
loans collateralized by owner-occupied properties located in the Company's
market area. The Company offers a variety of mortgage loan products, with both
fixed and adjustable rates. The loans are generally amortized over fifteen to
thirty years, although such loans often remain outstanding for significantly
shorter periods than their contractual terms.
Loans collateralized by single-family residential real estate generally
have been originated in amounts of no more than 80% of appraised value. For
loans in amounts greater than 80% of appraised value, the Company generally
requires mortgage insurance. For all such loans, the Company requires mortgage
title insurance and hazard insurance. Of the mortgages originated, the Company
generally retains mortgage loans with variable rates or where the borrower has a
deposit relationship with the Company and sells longer term, fixed-rate, non-
relationship loans.
The Company offers a variety of commercial lending products including term
loans, lines of credit and fixed asset loans, including real estate and
equipment financing. A broad range of short- to medium-term commercial loans,
both collateralized and uncollateralized, are made available to businesses for
working capital (including inventory and receivables), business expansion
(including acquisitions of real estate and improvements) and the purchase of
equipment. The purpose of the particular loan determines its structure.
Generally, the Company's commercial loans are underwritten in the Company's
primary market area on the basis of the borrower's ability to service such debt
from income. As a general practice, the Company takes as collateral a lien on
any available real estate, equipment or other assets. Working capital loans are
primarily collateralized by short-term assets whereas term loans are primarily
collateralized by long-term assets. While commercial business loans generally
are made for shorter terms and at higher yields than one- to four-family
residential loans, such loans generally involve a higher level of risk. The
commercial loan risk of borrower default is greater than in owner-occupied
residential property loans, since the collateral may be more difficult to
liquidate and more likely to decline in value.
The Company's commercial mortgage loans are secured by liens on real
estate, typically have variable interest rates and amortize over a ten to
fifteen year period with balloon payments due at the end of three to five years.
In underwriting commercial mortgage loans, consideration is given to the
property's operating history, future operating projections, current and
projected occupancy, location and physical condition. The underwriting analysis
also includes credit checks, appraisals, a review of the financial condition of
the borrower and generally full recourse to the owner.
A number of the Company's commercial loans are underwritten under
guidelines of the SBA loan guarantee programs. SBA loan originations were $2.878
million for 1997, $2.329 million for 1996 and $4.261 million for 1995.
Consumer loans made by the Company include automobile loans, home
improvement loans, home equity lines of credit, personal loans (collateralized
and uncollateralized) and loans collateralized by deposit accounts. The terms of
these loans typically range from 12 to 84 months and vary based on the nature of
the collateral and size of the loan.
Total loans decreased to $91.925 million at December 31, 1996, from
$106.315 million at December 31, 1995, a decrease of $14.390 million, or 13.54%.
The decrease was primarily the result of the shift away from the transaction
orientation of mortgage banking to a relationship driven approach to the
origination of loans. At December 31, 1996, residential real estate loans were
$60.716 million or 66.05% of total loans as compared to $86.971 million or
81.80% of total loan outstandings at December 31, 1995.
40
<PAGE>
The following table reflects the contractual principal repayments of the
Company's loan portfolio at December 31, 1997:
<TABLE>
<CAPTION>
RESIDENTIAL
CONSUMER MORTGAGE CONSUMER
LOANS LOANS LOANS TOTAL
---------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due within one year................................ $14,595 $ 926 $2,734 $ 18,255
Due after one through five years................... 15,977 767 1,762 18,506
Due after five years............................... 6,888 60,134 2,876 69,898
------- ------- ------ --------
Total......................................... $37,460 $61,827 $7,372 $106,659
======= ======= ====== ========
</TABLE>
Of the $87.278 million in loans due after one year, 39.20% of such loans
have fixed rates of interest and 60.80% have adjustable rates.
The following table displays loan originations by type of loan and
principal reductions during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Originations:
Commercial loans..................... $ 19,720 $ 1,085 $ 676 $ 1,610 $ 1,092
Commercial real estate loans......... 8,360 3,205 1,214 -- --
Residential real estate.............. 10,507 7,480 5,528 35,436 40,662
Consumer loans....................... 3,564 1,497 553 293 52
--------- --------- --------- --------- ---------
Total loans originated............ 42,151 13,267 7,971 37,339 41,806
Principal reductions................... (27,417) (27,657) (26,290) (13,283) (25,551)
--------- --------- --------- --------- ---------
Increase (decrease) in gross
loans........................... $ 14,734 $ (14,390) $ (18,319) $ 24,056 $ 16,255
========= ========= ========= ========= =========
</TABLE>
The originations noted in the table above exclude originations of loans
held for sale of $9.005 million, $51.533 million, and $55.650 million for
periods ended December 31, 1997, 1996 and 1995, respectively.
Nonperforming Assets
The Company has several procedures in place to assist it in maintaining the
overall quality of its loan portfolio. These procedures include low individual
lending limits for officers, an independent credit analysis for all commercial
credit relationships over $100,000, Management Loan Committee approval for all
commercial credit relationships over $100,000, Board of Director Loan Committee
approval for all commercial and for most residential credit relationships over
$500,000, quality loan documentation and a periodic loan review by an
independent consultant with considerable OCC experience. The Board of Directors
reviews all new and renewed loans on a monthly basis. The Company also monitors
its delinquency levels for any negative or adverse trends. There can be no
assurance, however, that the Company's loan portfolio will not become subject to
increasing pressures from deteriorating borrower credit or general economic
conditions.
The Company generally places a loan on nonaccrual status and ceases
accruing interest when loan payment performance is deemed unsatisfactory. All
loans past due 90 days, however, are placed on nonaccrual status, unless the
loan is both well collateralized and in the process of collection. Cash payments
received while a loan is classified as nonaccrual are recorded as a reduction of
principal as long as doubt exists as to collection.
The Company has historically had strong asset quality, as evidenced by its
low percentage of net charge-offs to average loans outstanding (an average of
.07% over the last five years). See "-- Allowance for Loan Losses." Although
nonperforming assets (nonaccrual loans and foreclosed real estate) at December
31, 1997 increased to $2.601 million from $1.737 million at December 31, 1996,
this increase was primarily attributable to one residential real estate loan for
$1.225 million where the original loan to value was less than 60%. The
collateral is involved in a complex bankruptcy. A trustee has been appointed and
was recently granted permission to retain a
41
<PAGE>
broker to sell the property. This action will accelerate the liquidation of the
collateral and management expects a full recovery.
The following table presents information regarding nonperforming assets at
December 31, 1997, 1996, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Residential real estate loans................... $1,918 $1,282 $1,573 $ 932 $1,026
Commercial real estate.......................... -- -- 302 -- --
Commercial loans................................ 577 182 351 25 --
Consumer loans and other........................ 1 3 -- -- 1
------ ------ ------ ------ ------
Total nonaccrual loans....................... 2,496 1,467 2,226 957 1,027
------ ------ ------ ------ ------
Total nonperforming loans.................... 2,496 1,467 2,226 957 1,027
------ ------ ------ ------ ------
Total nonperforming loans to total loans..... 2.34% 1.60% 2.09% .77% 1.02%
====== ====== ====== ====== ======
Foreclosed real estate:
Real estate acquired by foreclosure or deed in
lieu of foreclosure........................... 105 270 -- 127 145
------ ------ ------ ------ ------
Total nonperforming loans and foreclosed real
estate....................................... $2,601 $1,737 $2,226 $1,084 $1,172
====== ====== ====== ====== ======
Total nonperforming and foreclosed real estate
to total assets.............................. 1.76% 1.15% 1.15% .54% .72%
====== ====== ====== ====== ======
</TABLE>
Interest income that would have been recorded under the original terms of
nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income that would have been recognized............. $343 $200 $203 $117 $110
Interest income recognized.................................. 123 3 103 28 19
---- ---- ---- ---- ----
Interest income forgone..................................... $220 $197 $100 $ 89 $ 91
==== ==== ==== ==== ====
</TABLE>
Allowance for Loan Losses
The Company maintains an internally classified loan list which, along with
the delinquency list of loans, helps management assess the overall quality of
the loan portfolio and the adequacy of the allowance for loan losses. Loans
classified as "substandard" are those loans with clear and defined weaknesses
such as a highly-leveraged position, unfavorable financial ratios, uncertain
repayment sources or poor financial condition, which may jeopardize
recoverability of the debt. At December 31, 1997, the Company had $134,000 of
such loans, excluding loans on nonaccrual, of which one loan for $119,200 was
upgraded to a performing asset within thirty days.
Loans classified as "doubtful" are those loans which have characteristics
similar to substandard loans but with an increased risk that a loss may occur,
or at least a portion of the loan may require a charge-off if liquidated at
present. Although loans classified as substandard do not duplicate loans
classified as doubtful, both substandard and doubtful loans include some loans
that are delinquent at least 30 days or on nonaccrual status. Loans classified
as "loss" are those loans which are in the process of being charged off. At
December 31, 1997, the Company had four loans classified as doubtful with
aggregate balances of $965,400. One loan carries an SBA guarantee in the amount
of $609,400, reducing the Company's exposure to $356,000.
42
<PAGE>
In addition to the internally classified loan list and delinquency list of
loans, the Company maintains a separate "watch list" which further aids the
Company in monitoring loan portfolios. Watch list loans show warning elements
where the present status portrays one or more deficiencies that require
attention in the short term or where pertinent ratios of the loan have weakened
to a point where more frequent monitoring is warranted. These loans do not have
all of the characteristics of a classified loan (substandard or doubtful) but do
show weakened elements as compared with those of a satisfactory credit. The
Company reviews these loans to assist in assessing the adequacy of the allowance
for loan losses. At December 31, 1997, the Company had four loans with aggregate
balances of $796,000 on the watch list. Each of the four loans is guaranteed
under SBA loan programs in an aggregate amount of $665,000, reducing the
Company's exposure to $131,000.
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans and
other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. An unallocated allowance is also established based on the
Company's historical charge-off experience. The Company then charges to
operations a provision for loan losses to maintain the allowance for loan losses
at an adequate level determined by the foregoing analysis.
For the year ended December 31, 1997, net loan charge-offs totaled $9,000
or .01% of average loans outstanding for the period, compared to $248,000 in net
charge-offs or .25% of average loans outstanding for the year ended December 31,
1996. During the year ended December 31, 1997, the Company recorded a provision
for loan losses of $80,000, compared to $185,000 for the year ended December 31,
1996. At December 31, 1997, the allowance totaled $848,000 or .80% of total
loans resulting in an allowance to nonperforming loans of 33.97%.
The following table sets forth information with respect to activity in the
Bank's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding, net......................... $102,315 $96,307 $129,431 $125,460 $114,552
======== ======= ======== ======== ========
Allowance at beginning of year......................... 777 840 528 382 322
-------- ------- -------- -------- --------
Charge-offs:
Residential real estate.............................. -- (2) (27) (51) (66)
Commercial real estate............................... (48) (238) -- (2) --
Consumer loans....................................... (10) (8) (2) -- --
-------- ------- -------- -------- --------
Total loans charged-off............................ (58) (248) (29) (53) (66)
Recoveries............................................. 49 -- 5 10 6
-------- ------- -------- -------- --------
Net charge-offs........................................ (9) (248) (24) (43) (60)
Provision for loan losses charged to operating
expenses............................................. 80 185 336 75 120
Amount attributable to Pointe Bank at acquisition...... -- -- -- 114 --
-------- ------- -------- -------- --------
Allowance at end of year............................... $ 848 $ 777 $ 840 $ 528 $ 382
======== ======= ======== ======== ========
Net charge-offs to average loans outstanding........... .01% .25% .02% .03% .05%
======== ======= ======== ======== ========
Allowance as a percent of total loans.................. .80% .85% .79% .42% .38%
======== ======= ======== ======== ========
Allowance as a percent of nonperforming loans.......... 33.97% 52.97% 37.74% 55.17% 37.20%
======== ======= ======== ======== ========
Total loans at end of year........................... $106,659 $91,925 $106,315 $124,634 $100,578
======== ======= ======== ======== ========
</TABLE>
43
<PAGE>
The following table presents information regarding the Company's total
allowance for loan losses as well as the allocation of such amounts to the
various categories of loans:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans........ $158 18.59% $135 17.35% $122 14.49% $ 33 6.26% $ 12 3.12%
Commercial real estate
loans................. 140 16.53 88 11.31 20 2.42 25 4.77 3 .92
Residential real estate
loans................. 492 57.97 525 67.60 687 81.80 466 88.26 365 95.53
Consumer loans.......... 58 6.91 29 3.74 11 1.29 4 .71 2 .43
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
Total allowance for
loan losses......... $848 100.00% $777 100.00% $840 100.00% $528 100.00% $382 100.00%
==== ====== ==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
Securities
At December 31, 1997 securities totaled $32.079 million, from $42.790
million in 1996, a decrease of $10.711 million, or 25.03%. The decrease is a
result of the Company's planned sale in 1997 of mortgage backed securities
products and re-positioning into United States Treasury securities. During 1996,
securities decreased to $42.790 million from $48.542 million at December 31,
1995, a decrease of $5.752 million or 11.85%. The yields on the securities
portfolio were 6.29%, 6.99% and 6.26% for 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
CARRYING % OF CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL VALUE TOTAL
-------- ------ -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government agency securities............. $ 1,253 3.91% $ 2,311 5.40% $ 3,295 6.79%
U.S. Treasury securities...................... 9,039 28.18 11,497 26.87 3,027 6.24
Mortgage-backed securities.................... 15,177 47.31 22,390 52.32 35,536 73.20
Mutual funds.................................. 4,965 15.47 4,851 11.34 4,943 10.18
Other......................................... 1,645 5.13 1,741 4.07 1,741 3.59
------- ------ ------- ------ ------- ------
Total....................................... $32,079 100.00% $42,790 100.00% $48,542 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the securities portfolio:
<TABLE>
<CAPTION>
AFTER ONE YEAR
ONE YEAR OR LESS TO FIVE YEARS AFTER FIVE YEARS TOTAL
------------------ ------------------ ------------------ ------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
======= ======= ======= =======
At December 31, 1996:
U.S. Government agency
securities.................... $ 983 7.77% $ 488 7.89% $ 840 7.45% $ 2,311 7.78%
U.S. Treasury securities........ -- -- 11,497 5.65 -- -- 11,497 5.65
Mortgage-backed securities...... 14,462 6.20 4,098 5.84 3,830 6.60 22,390 6.20
Mutual funds.................... 4,851 6.30 -- -- -- -- 4,851 6.30
Other........................... -- -- 25 7.88 1,716 7.08 1,741 7.09
------- ------- ------- -------
Total......................... $20,296 6.31% $16,108 5.78% $ 6,386 6.84% $42,790 6.19%
======= ======= ======= =======
</TABLE>
44
<PAGE>
The following table summarizes the carrying value and classification of
securities as of the dates shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Available for Sale............................... $22,745 $32,920 $38,065
Held to Maturity................................. 9,334 9,870 10,477
------- ------- -------
Total securities............................... $32,079 $42,790 $48,542
======= ======= =======
</TABLE>
Deposits
Average total interest bearing deposits during 1997 increased to $108.008
million in 1997, from $105.906 million in 1996, an increase of $2.102 million or
1.98%. The increase was primarily attributed to the growth in the Company's
transaction accounts as the Company became less dependent on certificates of
deposit. In implementing its Strategic Plan, to restructure its deposit base the
Company reduced its rates paid on certificates of deposits, which resulted in
the non-renewal of higher costing time deposits, and total deposits declined to
$112.498 million in 1996 from $142.673 million in 1995, a decrease of $30.175
million or 21.15%. Average interest bearing transaction balances at December 31,
1997 were $47.735 million as compared to $38.218 million in 1996 and $32.009
million in 1995. The Company's percentage of non-interest bearing demand
deposits to average total deposits for years ending 1997, 1996 and 1995 were
9.52%, 8.48% and 2.25%, respectively, as the Company's emphasis changed to
relationship banking.
The following table shows the distribution of, and certain other
information relating to, deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
BALANCE % OF TOTAL BALANCE % OF TOTAL BALANCE % OF TOTAL
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits....................... $ 12,136 9.71% $ 9,386 8.34% $ 6,484 4.54%
Savings and NOW deposits.............. 9,834 7.87% 11,324 10.07% 8,680 6.08%
Money-market deposits................. 38,326 30.66% 34,803 30.94% 27,470 19.25%
Time deposits......................... 64,699 51.76% 56,985 50.65% 100,039 70.13%
-------- ------ -------- ------ -------- ------
Total deposits...................... $124,995 100.00% $112,498 100.00% $142,673 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
Jumbo certificates ($100,000 and over) included above mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------
(IN THOUSANDS)
<S> <C>
Due three months or less.......................... $ 1,558
Due over three months to six months............... 1,123
Due over six months to one year................... 1,640
Due over one year................................. 6,720
-------
Total........................................... $11,041
=======
</TABLE>
The scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------
(IN THOUSANDS)
<S> <C>
Due in one year or less........................... $32,999
Due in more than one but less than three years.... 24,136
Due in more than three but less than five years... 7,564
-------
Total........................................... $64,699
=======
</TABLE>
45
<PAGE>
The following table sets forth the net deposit flows of the Company during
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net increase (decrease) before interest credited...... $ 6,849 $ (37,026) $ (29,138)
Net credited.......................................... 5,648 6,851 7,724
------- --------- ---------
Net deposit increase (decrease)....................... $12,497 $ (30,175) $ (21,414)
======= ========= =========
</TABLE>
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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE % OF TOTAL YIELD BALANCE % OF TOTAL YIELD BALANCE % OF TOTAL YIELD
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings and NOW $ 10,278 8.61% 1.98% $ 8,535 7.38% 2.11% $ 8,441 5.37% 1.91%
deposits...............
Money market deposits.... 31.38% 4.62% 29,683 25.65% 4.65% 23,568 14.99% 4.60%
Time deposits............ 60,273 50.49% 5.70% 67,688 58.49% 6.28% 121,708 77.39% 5.74%
-------- ------ -------- ------ -------- ------
Total interest-bearing
deposits............... 108,008 90.48% 4.97% 105,906 91.52% 5.49% 153,717 97.75% 5.36%
Non-interest bearing..... 11,369 9.52% 9,812 8.48% 3,545 2.25%
-------- ------ -------- ------ -------- ------
Total.................... $119,377 100.00% $115,718 100.00% $157,262 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
Borrowings
FHLB advances, securities sold under repurchase agreements and for
investment and repurchase agreements offered to the Company's commercial deposit
customers provide the Company with short-term and long-term sources of funds.
FHLB advances have decreased from $27.190 million to $22.972 million to $4.400
million at years ended December 31, 1995, 1996 and 1997, respectively. Other
borrowings have changed from $ 6.025 million to $774,000 to $1.791 million at
years ended December 31, 1995, 1996 and 1997, respectively. It is the strategy
of the Company to fund asset growth from its deposit base; however, the Company
may, from time to time, borrow from wholesale sources of funds to fund such
growth as market conditions warrant. As the Company shifts the balance sheet
from long-term fixed rate investments to shorter term relationship assets,
management expects the Company to become less dependent on wholesale sources of
funds.
Maturities and interest rates of advances from the FHLB were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
INTEREST --------------------------------------------
YEAR ENDED DECEMBER 31 RATE 1997 1996 1995
- ---------------------- -------- ------ ------- -------
<S> <C> <C> <C> <C>
1996......................... 6.76% $ -- $ -- $ 8,000
1996......................... 6.25% -- -- 4,000
1996......................... 5.95% -- -- 5,000
1996......................... 5.93% -- -- 2,000
1996......................... 6.00% -- -- 4,500
1996......................... 5.77% -- -- 3,000
1996......................... 5.43% -- -- 690
1997......................... 5.44% -- 5,000 --
1997......................... 5.37% -- 5,000 --
1997......................... 6.95% -- 1,672 --
1997......................... 5.97% -- 5,000 --
1997......................... 6.00% -- 1,300 --
1997......................... 6.89% -- 5,000 --
1998......................... 6.50% 4,400 -- --
------ ------- -------
Total........................ $4,400 $22,972 $27,190
====== ======= =======
</TABLE>
46
<PAGE>
At December 31, 1997, pursuant to a 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.
Interest Rate Sensitivity and Liquidity
The following table sets forth certain information relating to the
Company's interest-earning assets and interest-bearing liabilities at December
31, 1997 that are estimated to mature or are scheduled to reprice within the
period shown.
<TABLE>
<CAPTION>
MORE
THAN MORE MORE
THREE THAN SIX THAN ONE
MONTHS MONTHS YEAR TO
THREE TO SIX TO ONE FIVE MORE THAN
MONTHS MONTHS YEAR YEARS FIVE YEARS TOTAL
--------- -------- -------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans (1), (2).......................... $ 37,201 $ 10,857 $ 17,647 $20,552 $ 24,845 $111,102
Securities(3)........................... 10,936 570 787 12,923 6,863 32,079
Interest Bearing Deposits............... 303 -- -- -- -- 303
--------- -------- -------- ------- -------- --------
Total rate-sensitive assets........... 48,440 11,427 18,434 33,475 31,708 143,484
--------- -------- -------- ------- -------- --------
Deposit accounts (4):
Savings and NOW....................... 9,834 -- -- -- -- 9,834
Money market.......................... 38,326 -- -- -- -- 38,326
Time deposits......................... 9,664 7,026 16,309 31,700 -- 64,699
--------- -------- -------- -------- -------- --------
Total deposit accounts.................. 57,824 7,026 16,309 31,700 -- 112,859
Other borrowings........................ 6,191 -- -- -- -- 6,191
--------- -------- -------- -------- -------- --------
Total rate-sensitive liabilities...... 64,015 7,026 16,309 31,700 -- 119,050
--------- -------- -------- -------- -------- --------
Gap (repricing differences)............. $ (15,575) $ 4,401 $ 2,125 $ 1,775 $ 31,708 $ 24,434
========= ======== ======== ======== ======== ========
Cumulative GAP.......................... $ (15,575) $(11,174) $ (9,049) $(7,274) $ 24,434
========= ======== ======== ======== ========
Cumulative GAP/total assets............. (10.54)% (7.56)% (6.12)% (4.92)% 16.53%
========= ======== ======== ======== ========
</TABLE>
- ------------------
(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.
(4) Savings, NOW and money market accounts are regarded as readily accessible
withdrawable accounts. All other time accounts are scheduled according to
their respective maturity dates.
Shortcomings are inherent in any GAP analysis since certain assets and
liabilities may not move proportionally as interest rates change. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months Ended March 31, 1998 and 1997 -- Interest Rate
Sensitivity and Liquidity" for a discussion of the Company's policies regarding
asset and liability risk management.
Liquidity
As of December 31, 1997 and December 31, 1996, the Bank had liquidity of
approximately $27.728 million and $38.768 million, or approximately 22.41% and
34.65% of total deposits combined with borrowings, respectively. 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 retain deposits in a changing interest rate environment.
Shareholders' equity increased from $12.421 million at December 31, 1996 to
$13.845 million at December 31, 1997, an increase of $1.424 million or 11.46%.
This increase was primarily the result of net income of
47
<PAGE>
$914,000, net preferred stock issuance of $228,000 and $190,000 in proceeds from
the exercise of common stock options.
Capital Resources
The following table summarizes the regulatory capital requirements for the
Company and the Company's risk-based and leverage capital ratios at year end for
1997 (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS:
--------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1997:
Total Capital (to Risk-Weighted Assets).............. $14,565 16.02% $ 7,227 8.00% $ 9,033 10.00%
Tier I Capital (to Risk-Weighted Assets)............. 13,718 15.09 3,613 4.00 5,420 6.00
Tier I Capital (to Average Assets)................... 13,718 9.10 6,030 4.00 7,537 5.00
</TABLE>
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 depends 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.
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 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.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require 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 with the same magnitude
as the prices of goods and services, since such prices are affected by inflation
to a larger extent than interest rates.
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<PAGE>
REGULATION AND SUPERVISION
GENERAL
As a one-bank holding company registered under the BHC, the Company is
subject to regulation and supervision by the Federal Reserve Board. Under the
BHC, the Company's activities are limited to banking, managing or controlling
banks, furnishing services to or performing services for its subsidiaries and
engaging in any other activity that the Federal Reserve Board determines to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. As a state-chartered commercial bank, the Bank is subject to
extensive regulation by the Department and the FDIC.
The Company and the Bank are required to file reports with the Federal
Reserve Board, the Department and the FDIC concerning their 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 Federal
Reserve Board, the Department and the FDIC to monitor the Company's and the
Bank's compliance with the various regulatory requirements. Deposits held by the
Bank are insured up to the applicable limits by the FDIC under the Bank
Insurance Fund ("BIF"). The Bank is subject to regulation of the Federal Reserve
Board and the Department with respect to reserves required to be maintained
against transaction deposit accounts and certain other matters.
REGULATION OF THE COMPANY
Acquisitions by Bank Holding Companies. The BHC prohibits bank holding
companies such as the Company from acquiring direct or indirect control of more
than 5% of any class of outstanding voting stock or acquiring substantially all
of the assets of any bank or merging or consolidating with another bank holding
company without prior approval of the Federal Reserve Board. Additionally, the
BHC prohibits bank holding companies such as the Company from engaging in or
from acquiring ownership or control of more than 5% of the outstanding voting
stock of any company engaged in a non-banking business, unless such business is
determined by the Federal Reserve Board to be so closely related to banking or
managing or controlling banks as to be properly incident thereto.
Transactions between the Bank and the Company. Sections 23A and 23B of the
Federal Reserve Act (the "Act") restrict certain transactions between banks (and
their subsidiaries) and companies affiliated with such institutions. Sections
23A and 23B generally define an "affiliate" as any company that controls or is
under common control with an institution. Accordingly, the Company is an
affiliate of the Bank for purposes of Sections 23A and 23B. Subsidiaries of a
bank, however, are generally exempted from the definition of "affiliate."
Section 23A limits the aggregate amount of a bank's transactions restricted by
Section 23A with any individual affiliate to 10% of the capital and surplus of
the bank and also limits the aggregate amount of such transactions of a bank
with all affiliates to 20% of the capital and surplus of the bank. Certain
transactions with affiliates, such as loans to affiliates or guarantees,
acceptances and letters of credit issued by a bank on behalf of affiliates, are
required to be collateralized by collateral in an amount and of a type described
in the Act. The purchase by a bank of low quality assets from affiliates is
generally prohibited. Section 23B provides that certain transactions of a bank
with affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to the institution as those prevailing at the time for
comparable transactions with nonaffiliated companies. In the absence of
comparable transactions, such transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to nonaffiliated companies.
Support of Subsidiary Depository Institutions. Under Federal Reserve Board
policy, the Company is expected to act as a source of financial strength and to
commit resources to support the Bank. This support may be required at times when
the Company might not be inclined to provide such support. In addition, any
capital loans by a bank holding company to any of its subsidiary banks must be
subordinate in right of payment to depositors and to certain other indebtedness
of such subsidiary banks. In the event of a bank holding company's bankruptcy
under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have
assumed and is required to cure immediately any deficit under any commitment by
the debtor holding company to any of the federal banking agencies to maintain
the capital of an insured depository institution, and any claim for breach of
that obligation will generally have priority over most other unsecured claims.
Under the Federal Deposit Insurance Act ("FDIA"), a subsidiary bank of a
bank holding company can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC in connection with (i) the
49
<PAGE>
default of a commonly controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to any commonly controlled FDIC insured
depository institution "in danger of default." "Default" is defined generally as
the appointment of a conservator or a receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance.
Control of a Bank Holding Company. The Change in Bank Control Act and the
Federal Reserve Board's Regulation Y, require persons acting directly or
indirectly or in concert with one or more persons to give the Federal Reserve
Board 60 days written notice before acquiring control of a bank holding company.
Under the regulation, control is defined as the ownership or control with the
power to vote 25% or more of any class of voting securities of the bank holding
company. The regulation also provides for a presumption of control if a person
owns, controls, or holds with the power to vote 10% or more (but less than 25%)
of any class of voting securities, and if (i) the bank holding company's
securities are registered securities under Section 12 of the Securities and
Exchange Act of 1934, as amended; or (ii) no other person owns a greater
percentage of that class of voting securities.
REGULATION OF THE BANK
General. From time to time, various bills are introduced in the United
States Congress with respect to the regulation of financial institutions. Recent
banking legislation, particularly the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), has broadened the regulatory
powers of the federal bank regulatory agencies and restructured the nation's
banking system.
FDICIA revised sections of the FDIA affecting bank regulation, deposit
insurance and provisions for funding of the BIF administered by the FDIC. FDICIA
also revised bank regulatory structures embodied in several other federal
banking statutes, strengthened the bank regulators' authority to intervene in
cases of deterioration of a bank's capital level, placed limits on real estate
lending and imposed detailed audit requirements.
Prompt Corrective Action. A central feature of FDICIA is the requirement
that the federal banking agencies take "prompt corrective action" with respect
to insured depository institutions that do not meet minimum capital
requirements. Pursuant to FDICIA, the federal bank regulatory authorities have
adopted regulations setting forth a five-tiered system for measuring the capital
adequacy of the depository institutions they supervise. Under these regulations,
a depository institution is classified in one of the following capital
categories: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." FDICIA
imposes progressively more restrictive constraints on operations, management,
and capital distributions depending on the category in which an institution is
classified. Pursuant to FDICIA, undercapitalized institutions must submit
recapitalization plans to their respective federal bank regulatory agencies, and
a company controlling a failing institution must guarantee such institution's
compliance with its recapitalization plan in order for the plan to be accepted.
The FDIC's prompt corrective action regulations define, among other things,
the relevant capital measures for the five capital categories. For example, a
bank is deemed to be "well-capitalized" if it has a total risk-based capital
ratio (total capital to risk-weighted assets) of 10% or greater, a Tier I
risk-based capital ratio (Tier I capital to risk-weighted assets) of 6% or
greater, and a Tier I leverage capital ratio (Tier I capital to adjusted total
assets) of 5% or greater, and is not subject to a regulatory order, agreement or
directive to meet and maintain a specific capital level for any capital measure.
A bank is deemed to be "adequately capitalized" if it has a total risk-based
capital ratio of 8% or greater, and (generally) a Tier I leverage capital ratio
of 4% or greater, and the bank does not meet the definition of a
"well-capitalized" institution. A bank is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%. In addition, the
FDIC is authorized effectively to downgrade a bank to a lower capital category
than the bank's capital ratios would otherwise indicate, based upon safety and
soundness considerations (such as when the bank has received a less than
satisfactory examination rating for certain of the CAMELS rating categories
other than capital: i.e., Asset Quality, Management, Earnings or Liquidity). As
a bank drops to lower capital levels, the extent of action to be taken by the
appropriate regulator increases, restricting the types of transactions in which
the bank may engage. The new capital standards are designed to bolster and
protect the deposit insurance fund. The Bank is considered to be well
capitalized as of March 31, 1998.
50
<PAGE>
Insurance on Deposit Accounts. FDICIA also provided for increased funding
of the BIF. Under the FDIC's risk-based insurance premium assessment system,
each bank whose deposits are insured by the BIF is assigned one of the nine risk
classifications based upon certain capital and supervisory measures and,
depending upon its classification, is assessed premiums. On November 14, 1995,
the FDIC board of directors voted to lower the BIF premium range to zero from
.27% effective January 1996. The rate schedule is subject to future adjustments
by the FDIC. In addition, the FDIC has the authority to impose special
assessments from time to time. As a result of the enactment of the Deposit
Insurance Funds Act of 1996 on September 30, 1996, commercial banks are now
required to pay part of the interest on the Financing Corporation's ("FICO")
bonds issued to deal with the savings and loan crisis of the late 1980s. As a
result, commercial bank deposits are now also subject to assessment by FICO
("FICO Assessment") upon the approval by the FDIC Board of such assessment.
Beginning in 1997 and continuing until the earlier of December 31, 1999 or the
date on which the last saving association ceases to exist, the assessment rate
FICO imposes on a commercial bank must be at a rate equal to one-fifth the
assessment rate applicable to deposits assessable by the SAIF. It is estimated
that the annual assessment for BIF insured institutions will be approximately
1.2 cents per $100 of deposits, while SAIF insured institutions will pay 6.5
cents per $100 of deposits. These payments began in 1997 and run through 1999.
Beginning in the year 2000 and continuing through the year 2017, banks and
thrifts will each pay 2.43 cents per $100 of deposits. These assessments will be
in addition to any regular deposit insurance assessments imposed by the FDIC
under FDICIA. On September 30, 1996, President Clinton signed into law an act
that contained a comprehensive approach to recapitalizing the SAIF and to assure
the payment of the FICO bond obligations. Under this act, banks insured under
the BIF are required to pay a portion of the interest due on bonds that were
issued by FICO to support the Federal Savings and Loan Insurance Corporation in
1987. The BIF rate must equal one-fifth of the SAIF rate through year-end 1999,
or until the insurance funds are merged, whichever occurs first. Thereafter, BIF
and SAIF payers will be assessed pro rata for the FICO bond obligations. With
regard to the assessment for the FICO obligation, the current BIF rate is .0126%
of deposits and the SAIF rate is .0630% of deposits.
After the merger of the Thrift into the Bank in April 1997, the Bank became
an Oakar Bank, in that the Bank belonged to one insurance fund, the BIF, and the
Thrift belonged to a secondary insurance fund, the SAIF. The result of the
merger produced an adjusted attributed deposit amount (AADA) to the Bank.
Approximately 63% of the total deposits are subjected to SAIF FICO premiums and
the remaining 37% is subjected to BIF FICO premiums. At March 31, 1998, the
blended FICO for the Bank was .0437%. The Bank's FICO Assessment for 1997 was
$59,000, and the Bank believes it will be at least $59,000 for 1998.
Standards for Safety and Soundness. FDICIA requires each federal banking
agency to prescribe for all insured depository institutions and their holding
companies, standards relating to internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. In
addition, the federal banking agencies are required to prescribe by regulation
standards specifying: (i) maximum classified assets to capital ratios; (ii)
minimum earnings sufficient to absorb losses without impairing capital; (iii) to
the extent feasible, a minimum ratio of market value to book value for publicly
traded shares of depository institutions or the depository institution holding
companies; and (iv) such other standards relating to asset quality, earnings and
valuation as the agency deems appropriate. Finally, each federal banking agency
is required to prescribe standards for employment contracts and other
compensation arrangements of executive officers, employees, directors and
principal shareholders of insured depository institutions that would prohibit
compensation and benefits and other arrangements that are excessive or that
could lead to a material financial loss for the institution. If an insured
depository institution or its holding company fails to meet any of its standards
described above, it will be required to submit to the appropriate federal
banking agency a plan specifying the steps that will be taken to cure the
deficiency. If an institution fails to submit an acceptable plan or fails to
implement the plan, the appropriate federal banking agency will require the
institution or holding company to correct the deficiency and, until corrected,
may impose restrictions on the institution or the holding company including any
of the restrictions applicable under the prompt corrective action provisions of
FDICIA.
FDICIA also requires each appropriate federal banking agency to adopt
uniform regulations prescribing standards for extensions of credit secured by
real estate or made for the purpose of financing the construction of
improvements on real estate. In prescribing these standards, the federal banking
agencies must consider the risk posed to the deposit insurance funds by real
estate loans, the need for safe and sound operation of insured depository
institutions and the availability of credit.
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<PAGE>
Capital Requirements. The Federal Reserve Board and the FDIC have adopted
capital regulations which establish a Tier 1 core capital definition and a
minimum 3% leverage capital ratio requirement for the most highly-rated bank
holding companies and state nonmember banks, respectively (i.e., those bank
holding companies and state nonmember banks with a composite CAMELS rating of 1
under the Uniform Financial Institutions Rating System established by the
Federal Financial Institutions Examination Council) that are not anticipating or
experiencing significant growth. All other state nonmember banks are required to
meet a minimum leverage ratio that is at least 100 to 200 basis points above 3%.
A bank holding company or state nonmember bank that is not in the highest-rated
category or that is anticipating or experiencing significant growth will have to
meet a minimum leverage ratio of at least 4%.
Under the applicable risk-based regulations, a bank holding company or
state nonmember bank must classify its assets and certain off-balance sheet
activities into categories and maintain specified levels of capital for each
category. The least capital is required for the category deemed by the Federal
Reserve Board and the FDIC to have the least risk, and the most capital is
required for the category deemed by the Federal Reserve Board and the FDIC to
have the greatest risk. The regulations require a bank holding company or state
nonmember bank to have a total risk-based capital ratio of 8% and a Tier I
risk-based capital ratio of 4%. Under the statement of policy, certain assets
are required to be deducted from risk-based capital. Such assets include
intangible assets, unconsolidated banking and finance subsidiaries, investments
in securities subsidiaries, ineligible equity investments and reciprocal holding
of capital instruments with other banks. In addition, the Federal Reserve Board
or the FDIC may consider deducting other assets on a case-by-case basis or
investments in other subsidiaries on a case-by-case basis or based on the
general characteristics or functional nature of the subsidiaries.
Loans to One Borrower. Florida law allows a state bank to extend credit to
any one borrower in an amount up to 25% of its capital accounts, which are
defined as unimpaired capital, surplus and undivided profits, provided that the
unsecured portion may not exceed 15% of the capital accounts of the bank. The
law permits exemptions for loans collateralized by accounts maintained with the
Bank and for loans guaranteed by the SBA, the Federal Housing Administration and
the Veterans Administration. The Bank is subject to these limits.
Payment of Dividends. The primary source of income to the Company is
dividends from the Bank. Under Florida law, a Florida chartered commercial bank
may not pay cash dividends that would cause the bank's capital to fall below the
minimum amount required by federal or Florida law. Otherwise, a commercial bank
may pay a dividend out of the total of current net profits plus retained net
profits of the preceding two years to the extent it deems expedient, except as
described below. Twenty percent of the net profits in the preceding two-year
period may not be paid in dividends, but must be retained to increase capital
surplus until such surplus equals the amount of common and preferred stock
issued and outstanding. In addition, no bank may pay a dividend at any time that
net income in the current year when combined with retained net income from the
preceding two years produces a loss. The ability of the Bank to pay dividends to
the Company will depend in part on the FDIC capital requirements in effect at
such time and the ability of the Bank to comply with such requirements.
Brokered Deposits. In accordance with FDICIA, the FDIC has implemented
restrictions on the acceptance of brokered deposits. In general, an
"undercapitalized" institution may not accept, renew or roll over any brokered
deposits. "Adequately capitalized" institutions may request a waiver from the
FDIC to do so, while "well-capitalized" institutions may accept, renew or roll
over such deposits without restriction. The rule requires registration of
deposit brokers and imposes certain recordkeeping requirements. Institutions
that are not "well-capitalized" (even if meeting minimum capital requirements)
are subject to limits on rates of interest they may pay on brokered and other
deposits.
Liquidity. A state-chartered commercial bank is required under Florida law
to maintain a liquidity reserve of at least 15% of its total transaction
accounts and 8% of its total nontransaction accounts, subject to certain
restrictions. This reserve may consist of cash-on-hand, demand deposits due from
correspondent banks, and other investments and short-term marketable securities.
Community Reinvestment. Under the Community Reinvestment Act of 1977 (the
"CRA"), as implemented by Federal Reserve Board and FDIC regulations, state
nonmember banks have a continuing and affirmative obligation consistent with
their safe and sound operation to help meet the credit needs of their entire
community, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community
consistent with the CRA. The
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CRA requires the FDIC, in connection with its examination of state nonmember
banks, to assess an institution's record of meeting the credit needs of its
communities and to take such record into account in its evaluation of certain
applications by such institution to establish branches, merge or acquire the
assets and assume the liabilities of another bank. FIRREA requires federal
banking agencies to make public a rating of a bank's performance under the CRA.
In the case of a bank holding company, the CRA performance records of the banks
involved in the transaction are reviewed and taken into account by the Federal
Reserve Board when considering applications to acquire ownership or control of
shares or assets of a bank or to merge with any other bank holding company. An
unsatisfactory record can substantially delay or block the transaction. Under
the Bank's most recent CRA examination, conducted in October 1996, the Bank
received a "satisfactory" rating from the FDIC.
Interstate Banking. Effective September 29, 1995, the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "RNA") permits
adequately capitalized and managed bank holding companies to acquire control of
banks in any state. Additionally, beginning on June 1, 1997, the RNA provides
for banks to branch across state lines, although individual states were allowed
to authorize interstate branches earlier or elect to opt-out entirely. The RNA
authorizes de novo branching by an out-of-state bank only if expressly permitted
by the laws of the host state. Florida has allowed bank holding companies from
the southeastern United States to acquire banks in Florida since 1984, and in
1994 this was expanded to include bank holding companies from other parts of the
United States as well. In 1996, Florida enacted legislation, effective as of
June 1, 1997 which allows out-of-state banks to enter Florida by merging with an
existing Florida-based bank, and thereafter to branch throughout the state, and
also allows Florida-based banks to establish branches in other states by merging
with out-of-state banks. Such legislation may further increase competition for
the Bank by allowing large banks from other parts of the United States to
operate directly in Florida.
Department Assessment. State-chartered commercial banks are required by
Department regulation to pay assessments to the Department to fund the
operations of the Department. The general assessment, to be paid semi-annually,
is computed based upon a bank's total assets, including consolidated
subsidiaries, as reported in the bank's latest quarterly call report. The Bank
is required to pay such assessments semi-annually.
Reserve Requirements. Federal Reserve Board regulations require banks to
maintain non interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves of 3% must be maintained against
aggregate transaction accounts of $47.8 million or less (subject to adjustment
by the Federal Reserve Board) and an initial reserve of $1.434 million plus 10%
(subject to adjustment by the Federal Reserve Board between 8% and 14%) against
that portion of total transaction accounts in excess of $47.8 million. The first
$4.7 million of otherwise reservable balances (subject to adjustments by the
Federal Reserve Board) are exempted from the reserve requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements. Because required reserves must be
maintained in the form of either vault cash, a noninterest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal Reserve
Board, interest-earning assets of the Bank are reduced.
FEDERAL SECURITIES LAWS
The Company, in connection with this Offering, has filed with the
Securities and Exchange Commission a registration statement under the Securities
Act for the registration of the Company's Common Stock. The registration under
the Securities Act of shares of the Common Stock issued in this Offering does
not cover the resale of such shares. Shares of the Common Stock purchased by
persons who are not affiliates of the Company may be resold without further
registration. Shares purchased by an affiliate of the Company will be subject to
the resale restrictions of Rule 144 under the Securities Act. If the Company
meets the current public information requirements of Rule 144 under the
Securities Act, each affiliate of the Company who complies with the other
conditions of Rule 144 (including the holding period and those that require the
affiliate's sale to be aggregated with those of certain other persons) may be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Company, or (ii) the average weekly volume of trading in such
shares during the preceding four calendar weeks.
The scope of regulation, supervision and permissible activities of the
Company and the Bank is subject to change by future federal and state
legislation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information about the current directors and executive officers of the
Company is set forth below. The Company's Board of Directors currently consists
of seven members. Four of the Directors of the Company are also Directors of the
Bank.
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- ---
<S> <C> <C>
Roberto Kassin.................... Chairman of the Company and Director of the Bank 47
Morris Massry..................... Director of the Company and Chairman of the Bank 68
Timothy McGinn.................... Director and Vice-Chairman of the Company and the 49
Bank
R. Carl Palmer, Jr................ Director and President and Chief Executive Officer 57
of the Company and the Bank
Beverly P. Chambers............... Senior Vice President of the Company and the Bank 47
Bradley R. Meredith............... Senior Vice President and Chief Financial Officer 44
of the Company and the Bank
Dennis Reed....................... Senior Vice President of the Company and the Bank 54
Steven A. Elias................... Director 51
D. Richard Mead, Jr............... Director 67
Parker D. Thomson................. Director 65
</TABLE>
Roberto Kassin. Mr. Kassin has been Chairman of the Board of the Company
and a director of the Bank since 1994. He was a director of Pointe Federal in
1986 and Chairman in 1993. He has been President of American Land Management
Group, Inc. since 1986 and President of Foreign Financial Investment, Inc. since
1979. Mr. Kassin is President of the Greater Miami Jewish Federation-Latin
Division, Acting President of Aish H'Torah, and director of the Michael-Ann
Russell Jewish Community Center. Mr. Kassin is a resident of Miami-Dade County.
Morris Massry. Mr. Massry has been a director of the Company since 1994.
He became a director of Flamingo Bank in 1988 and Chairman of the Board in 1989.
Mr. Massry has been a partner in the real estate investment firm of Albert,
Kirsch, Massry & Massry, in Albany, New York, since 1964. Mr. Massry serves as a
director of the State University Foundation, a director and former Chairman of
the Center for the Disabled, a director and former Chairman of The United Way,
and a trustee of Russell Sage College, all in Albany, New York. Mr. Massry
resides part of the year in Albany, New York and part of the year in Miami-Dade
County.
Timothy McGinn. Mr. McGinn became a director of the Company in 1994. He
has been a director and Chairman of McGinn, Smith & Co., Inc., investment
bankers and brokers, since 1980. Mr. McGinn serves as director and Chairman of
Health Enterprises Management, Inc. and as a director of Same Day Surgery, Inc.
Mr. McGinn resides in Albany, New York and has a home in Palm Beach County.
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 Miami-Dade 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
54
<PAGE>
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.
Steven A. Elias. Mr. Elias has been president of Steven Allan Elias &
Associates, Inc., registered real estate brokers, since 1976. He has extensive
knowledge of real estate in Miami-Dade, Broward and Palm Beach counties. Prior
to forming his company, Mr. Elias was a manufacturer's representative for three
and one half years. Mr. Elias graduated from the University of Miami in 1968,
after which he joined the U.S. Coast Guard. He has been a resident of south
Florida since 1953.
D. Richard Mead, Jr. Mr. Mead retired from Southeast Banking Corporation
as a Senior Vice President and manager of the Commercial Real Estate Division in
1991. From 1976 to 1991 he was also President and Chief Executive Officer of
Southeast Mortgage Company. Prior to joining Southeast Bank, he was an officer
of D. R. Mead & Co., a commercial mortgage banking firm, which was sold to
Southeast Banking Corporation in 1970. Mr. Mead received his undergraduate
degree from Duke University in 1950 and a graduate degree from Harvard Business
School in 1954. He is currently a director and Chairman of the Audit Committee
of Consolidated Paper Company. Mr. Mead resides in Miami-Dade County.
Parker D. Thomson. Mr. Thomson is the Senior Partner of Thomson Muraro
Razook & Hart, P.A., a law firm in Miami-Dade County, and has been a partner in
such firm for the past five years. He was admitted to the Florida bar in 1961
and is a member of the bar of several federal courts, including the United
States Supreme Court. He is a special Assistant Attorney General for the State
of Florida and a member of the Florida Taxation and Budget Reform Commission.
Mr. Thomson was Chairman of the Advocacy Center for Persons with Disabilities,
Inc. from 1979 to 1997 and is now Chairman Emeritus, and was a member of the
American Bar Association Commission on Mental and Physical Disability Law from
1991 to 1996. Mr. Thomson received an undergraduate degree from Princeton
University and an LL.B. from Harvard University. He resides in Miami-Dade
County.
Directors are elected for three year terms, classified into Classes I, II,
and III. Messrs. Massry and Thomson are Class I directors with terms of office
expiring on the date of the Company's annual meeting of shareholders in 2001;
Messrs. Elias and Mead are Class II directors with terms of office expiring on
the date of the Company's annual meeting of shareholders in 1999; and Messrs.
Kassin, McGinn and Palmer are Class III directors with terms of office expiring
on the date of the Company's annual meeting of shareholders in 2000. Each
officer of the Company is elected by the Board of Directors and holds office
until his successor is duly elected and qualified or until his earlier death,
resignation or removal.
55
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information regarding
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and President. No other executive officer received
compensation for the fiscal year ended December 31, 1997 which exceeded
$100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) COMPENSATION OPTIONS(#)
- --------------------------- ---- ---------- ------------ ----------
<S> <C> <C> <C> <C>
1997 $202,000 $2,375 19,500
R. Carl Palmer, Jr. ............................. 1996 $202,000 $1,775 30,000
Chief Executive Officer and President 1995 $200,000 $0 0
</TABLE>
The amount shown for cash compensation does not include amounts expended
for perquisites and other personal benefits, which in the aggregate do not
exceed the lesser of $50,000 or 10% of the cash compensation reported for the
executive named above.
Consists of the Company's contribution to the Company's 401(k) Plan.
The following table sets forth stock options exercised during 1997 by the
executive officers, including the value realized upon exercise. In addition,
this table describes the number of unexercised options and the value of
unexercised in-the-money options at the end of the 1997 fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL-YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT OPTIONS AT
ON VALUE FISCAL-YEAR-END FISCAL-YEAR-END
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME # ($) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Beverly Chambers............................. 0 $0 4,378/5,522 $2,991/$3,774
Bradley R. Meredith.......................... 0 $0 976/8,024 $ 667/$5,483
R. Carl Palmer, Jr........................... 0 $0 41,070/8,430 $7,564/$5,761
Dennis Reed.................................. 0 $0 1,632/5,868 $1,115/$4,010
</TABLE>
There is currently no trading market for the Company's Common Stock. The
value of unexercised in-the-money options was calculated based on the difference
between the book value per share at December 31, 1997 ($10.23) and the exercise
price of the options. Book value per share is not necessarily indicative of the
actual market value per share.
DIRECTOR COMPENSATION
Directors who are not also employees receive annual retainers of $6,000 for
serving on the board of directors of both the Company and the Bank. The Chairman
of the Board of the Company receives an annual stipend of $10,000 and the
Chairman of the Board of the Bank receives an annual stipend of $5,000. In
addition, committee chairmen receive annual retainers of $3,000. Directors may
elect to receive their retainers and stipends in the form of cash or a
combination of cash, stock options and stock grants, the latter two of which are
granted after the end of each year for the prior year's service. In addition,
each non-employee director receives an annual stock option award and receives
meeting fees of $100.00 per board meeting and $200.00 per committee meeting. For
1997, total cash payments to directors were $68,400 and the Company granted
non-employee Directors five year stock options to purchase 17,313 shares at
$10.03 per share.
EMPLOYEE STOCK OPTION PLANS
The Company has two employee stock option plans. The 1994 Non-Statutory
Stock Option Plan (the "1994 Plan") authorizes the issuance of up to 300,000
shares of common Stock pursuant to "non-qualified" options granted to key
employees of the Company. These options to acquire the Company's Common Stock
are granted for terms of five years. Option grant letters may contain vesting
requirements. All options vest immediately upon
56
<PAGE>
a change in control of the Company. The options terminate upon the termination
of the option holder's employment with the Company although the option agreement
provides for one year extensions of the period of exerciseability of the options
in the event of termination by retirement, disability or death. The purchase
price of the shares is the fair market value per share of the Common Stock on
the date of grant. In the absence of any arm's length trades in the three months
preceding the date of grant, "fair market value per share" is the total equity
available to holders of common stock divided by the total number of outstanding
shares of common stock.
At March 31, 1998, options to purchase 250,281 shares of Common Stock
granted to 21 employees and non-employee directors were outstanding under the
1994 Plan, with per share exercise prices ranging from $9.55 to $10.52, 21,219
shares of Common Stock remained available for future grants, and 28,500 shares
of Common Stock had been issued upon exercise of stock options.
The following table sets forth information regarding stock options granted
to executive officers during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED (#)(1) YEAR ($/SHARE) DATE
- ---- -------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Beverly Chambers................................ 9,900 8.45% $9.55 05/21/2002
Bradley R. Meredith............................. 9,000 7.68% $9.55 05/21/2002
R. Carl Palmer, Jr.............................. 19,500 16.65% $9.55 05/21/2002
Dennis Reed..................................... 7,500 6.40% $9.55 05/21/2002
</TABLE>
- ------------------
(1) Granted under the 1994 Plan.
The Company's shareholders adopted the 1998 Incentive Compensation and
Stock Award Plan (the "1998 Plan") on April 27, 1998. The 1998 Plan authorizes
the issuance of up to 200,000 shares of Common Stock under both "non-qualified"
and "incentive stock" options and a variety of other stock-related awards. The
1998 Plan is intended to provide flexible terms to permit the Board of Directors
(or any committee designated by the Board to administer the 1998 Plan) to enter
into compensatory arrangements that promote the Board's compensation, goals and
policies. No grants of stock or options have yet been made under the 1998 Plan.
THE DEFERRED COMPENSATION PLAN
In 1993, the Company adopted a Deferred Compensation Plan (the "Plan") for
certain directors. Under the Plan a portion of each participant's compensation
can be deferred and the Company makes annual contributions, which are subject to
an annual increase of 4%. Upon retirement, disability, death, or termination of
service, the participant has the option to take a lump sum payment or receive
monthly installments for a period of ten years. In 1997, the Company made
contributions aggregating $21,889 to the Plan and participants deferred $12,091
in fees as contributions.
At December 31, 1997 and 1996, approximately $118,000 and $177,000,
respectively, were deferred and included in Other Liabilities on the Company's
Consolidated Balance Sheet.
During 1997, two directors received lump sum payments under the Plan and,
in early 1998, one other director received a lump sum payment.
401(K) PLAN
The Company has adopted a contributory profit sharing plan pursuant to
Internal Revenue Code Section 401(k) covering substantially all employees (the
"401(k) Plan"). Each year the Company determines, at its discretion, the amount
of the Company's contributions to the 401(k) Plan. Expenses relating to the
Company's contributions to the 401(k) Plan for 1997, 1996 and 1995 were
approximately $1,000, $4,400 and $15,800, respectively.
57
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 30, 1998, by (i) each director of the Company; (ii)
each executive officer of the Company; (iii) all directors and executive
officers as a group; and (iv) each person known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of the Company's
Common Stock. All shares are owned directly unless otherwise indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIALLY OWNED(1)
----------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ------------------------------------ --------------------- -------- --------
<S> <C> <C> <C>
Roberto Kassin (2).................................... 272,407 17.89% 11.35%
21471 Highland Lakes Boulevard
North Miami, FL 33179
Morris Massry (3)..................................... 215,008 14.12% 8.96%
Executive Park North
Stuyvesant Plaza
Albany, NY 12203
Timothy McGinn (4).................................... 27,740 1.82% 1.16%
15 Marion Avenue
Albany, NY 12203
R. Carl Palmer, Jr. (5)............................... 82,866 5.44% 3.45%
10231 East Bay Harbor Dr.
Apartment #6B
Bay Harbor, FL 33154
Beverly Chambers (6).................................. 20,548 1.35% .86%
2633 Oakbrook Drive
Ft. Lauderdale, FL 33332
Bradley M. Meredith (7)............................... 19,015 1.25% .79%
2302 N.W. 25th Way
Boca Raton, FL 33434
Dennis Reed (8)....................................... 20,321 1.33% .85%
2015 Timberline Drive
Naples, FL 34109
D. Richard Mead, Jr................................... 6,558 .43% .27%
4990 S.W. 72nd Street
Unit 105
Miami, FL 33155
Steven A. Elias....................................... -- -- --
115 N.W. 167 St., #300
North Miami Beach, FL 33169
Parker D. Thomson..................................... -- -- --
1 S. E. 3rd Avenue
Miami, FL 33131
All directors and executive officers, as a group (10
persons) (9)........................................ 664,463 43.65% 27.70%
</TABLE>
- ------------------
(1) The nature of reported beneficial ownership, as such term is defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended, is sole voting
and investment power unless otherwise indicated. Common Stock ownership of
the persons listed reflects, as indicated, shares of the Company's Common
58
<PAGE>
Stock that would be issued upon the exercise of options granted to such
persons to acquire such Common Stock.
(2) Reflects 160,849 shares held jointly by Roberto Kassin and his wife; 15,624
shares held by Foreign Financial Investment, Inc., of which Mr. Kassin is
president; 75,624 shares held by a trust for the benefit of Mr. Kassin's
father-in-law, Leon Papu, the co-trustees of which are Mr. Kassin and his
wife; and 14,192 shares that may be acquired by Mr. Kassin upon exercise of
options.
(3) Reflects 62,969 shares owned by KAM, Inc., controlled by Mr. Massry; and
6,802 shares that may be acquired by Mr. Massry upon exercise of his
options. Does not include 10,680 shares owned or controlled by Mr. Massry's
family members.
(4) Reflects 6,420 shares held by McGinn, Smith & Co., Inc.; 456 shares owned by
Mr. McGinn and his wife; 277 shares held by Kathleen McGinn; 242 shares held
by Matthew McGinn; and 4,797 shares that may be acquired by Mr. McGinn upon
the exercise of his options.
(5) Reflects 69,750 shares that may be acquired by Mr. Palmer upon exercise of
his options.
(6) Reflects 19,350 shares that may be acquired by Ms. Chambers upon exercise of
her options.
(7) Reflects 16,500 shares that may be acquired by Mr. Meredith upon exercise of
his options.
(8) Reflects 15,000 shares that may be acquired by Mr. Reed upon exercise of his
options.
(9) Includes an aggregate of 146,391 shares that may be acquired by the group
upon the exercise of options.
59
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, through the Bank, from time to time, makes loans and extends
credit to certain of its directors and officers and their affiliates. The
aggregate amount of loans to related parties at March 31, 1998 totaled
approximately $737,000 or 5.22% of shareholders' equity.
In addition, during 1997 the Bank had outstanding a line of credit to First
American Railway, Inc. in the amount of $1,000,000. Mr. Raymond Monteleone, a
director of the Company until January 1998, served as a director and president
of First American Railway, Inc. until November 1997.
All of the above loans were made in the ordinary course of business, were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons,
and did not involve more than the normal risk of collectibility or present other
unfavorable features.
DESCRIPTION OF CAPITAL STOCK
Set forth below is a summary of all material terms and provisions of the
Company's capital stock, which is qualified in its entirety by reference to the
Company's Articles of Incorporation. A copy of the Articles of Incorporation has
been attached as an exhibit to the Registration Statement of which this
Prospectus forms a part, and is incorporated herein by reference.
Under the Articles of Incorporation, the authorized but unissued and
unreserved shares of the Company's capital stock will be available for issuance
for general corporate purposes, including, but not limited to, possible stock
dividends, future mergers or acquisitions, or private or public offerings.
Except as may otherwise be required, shareholder approval will not be required
for the issuance of those shares.
The following table sets forth all classes of stock outstanding, and stock
options held, as of April 30, 1998, as well as the amount of Common Stock which
would be outstanding upon exercise of all outstanding options:
<TABLE>
<CAPTION>
SHARES OF TOTAL SHARES
SHARES AND OPTIONS COMMON STOCK ASSUMING
OUTSTANDING CONVERTIBLE INTO CONVERSION
------------------ ---------------- ------------
<S> <C> <C> <C>
Common Stock........................... 1,383,157 -- 1,383,157
Stock Options.......................... 243,099 243,099 243,099
--------- ------- ---------
Total................................ 1,626,256 243,099 1,626,256
========= ======= =========
</TABLE>
The authorized capital stock of the Company consists of 5,000,000 shares of
Common Stock, $.01 par value, of which 1,383,157 shares are presently issued and
outstanding, and 1,000,000 shares of preferred stock, $.01 par value, none of
which is outstanding. At April 30, 1998 there were approximately 214 holders of
Common Stock.
COMMON STOCK
Dividends. The holders of the Common Stock are entitled to dividends and
other distributions if, as, and when declared by the Board of Directors out of
assets legally available therefor. Upon the liquidation, dissolution or winding
up of the Company, the holder of each share of Common Stock will be entitled to
share equally in the distribution of the Company's assets. The holders of Common
Stock are not entitled to the benefit of any sinking fund provision. The shares
of Common Stock of the Company are not subject to any redemption provisions, nor
are they convertible into any other security or property of the Company.
Voting Rights. The holders of Common Stock are entitled to elect the
members of the Board of Directors of the Company and such holders are entitled
to vote as a class on all matters required or permitted to be submitted to the
shareholders of the Company.
Stock Options. The Company has two employee stock option plans. The 1994
Plan authorizes the issuance of up to 300,000 shares of Common Stock pursuant to
"non-qualified" options granted to key employees of the Company. These options
to acquire the Company's Common Stock are granted for terms of five years.
Option grant letters may contain vesting requirements. All options vest
immediately upon a change in control of the
60
<PAGE>
Company. The options terminate upon the termination of the option holder's
employment with the Company although the option agreement provides for one year
extensions of the period of exerciseability of the options in the event of
termination by retirement, disability or death. The purchase price of the shares
is the fair market value per share of the Common Stock on the date of grant. In
the absence of any arm's length trades in the three months preceding the date of
grant, "fair market value per share" is the total equity available to holders of
common stock divided by the total number of outstanding shares of common stock.
At March 31, 1998, options to purchase 250,281 shares of Common Stock
granted to 21 employees and non-employee directors were outstanding, with per
share exercise prices ranging from $9.55 to $10.52, 21,219 shares of Common
Stock remained available for future grants, and 28,500 shares of Common Stock
had been issued upon exercise of stock options.
The 1998 Plan authorizes the issuance of up to 200,000 shares of Common
Stock under both "non-qualified" and "incentive stock" options and a variety of
other stock-related awards. The 1998 Plan is intended to provide flexible terms
to permit the Board of Directors (or any committee designated by the Board to
administer the 1998 Plan) to enter into compensatory arrangements that promote
the Board's compensation, goals and policies. No grants of stock or options have
yet been made under the 1998 Plan.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance, in series,
of up to 1,000,000 shares of preferred stock and permits the Company's Board of
Directors to establish the rights and preference of each of such series and to
increase the number of shares in any of the series. The Company had issued a
total of 56,026 shares of preferred stock, all of which shares were converted
into Common Stock pursuant to their terms on April 3, 1998. There are no shares
of preferred stock currently outstanding.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws,
as well as certain provisions of Florida law, could have the effect of deterring
takeovers. The Board of Directors believes that the provisions of the Company's
Articles of Incorporation and Bylaws described below are prudent and in the best
interests of the Company and its shareholders. Although these provisions may
discourage a future takeover attempt in which shareholders might receive a
premium for their shares over the then current market price and may make removal
of incumbent management more difficult, the Board of Directors believes that the
benefits of these provisions outweigh their possible disadvantages. Management
is not aware of any current effort to effect a change in control of the Company.
In addition, the Company has opted not to be governed by the affiliated
transactions and control-share acquisitions sections of the Florida Business
Corporation Act.
Directors. The Board of Directors is divided into three classes of
directors serving staggered three-year terms. Vacancies on the Board may be
filled for the remainder of the unexpired term by a majority vote of the
directors then in office. The maximum number of members of the Company's Board
of Directors is 12.
Shareholders entitled to vote may nominate persons for election as
directors only if written notice is given not later than (i) with respect to an
annual meeting, 60 days in advance of the meeting, and (ii) with respect to a
special meeting, the close of business on the seventh day following the date on
which notice of the meeting is first given.
Cumulative Voting. Shareholders may not cumulate their votes in the
election of directors.
Capital Structure. The Board of Directors may authorize for issuance
various series of Preferred Stock with different voting rights. The Board of
Directors is authorized to establish the rights and preferences of such stock
and issue such shares, subject to shareholder approval in certain circumstances.
LIMITED LIABILITY AND INDEMNIFICATION
Under the Florida Business Corporation Act (the "FBCA"), a director is not
personally liable for monetary damages to the corporation or any other person
for any statement, vote, decision or failure to act unless (i) the director
breached or failed to perform his duties as a director and (ii) a director's
breach of, or failure to perform,
61
<PAGE>
those duties constitutes (1) a violation of the criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (2) a transaction from
which the director derived an improper personal benefit, either directly or
indirectly, (3) a circumstance under which an unlawful distribution is made, (4)
in a proceeding by or in the right of the corporation to produce a judgement in
its favor or by or in the right of a shareholder, conscious disregard for the
best interest of the corporation or willful misconduct, or (5) in a proceeding
by or in the right of someone other than the corporation or a shareholder,
recklessness or an act or omission which was committed in bad faith or with
malicious purpose or in a manner exhibiting wanton and willful disregard of
human rights, safety or property. A corporation may purchase and maintain
insurance on behalf of any director or officer against any liability asserted
against him and incurred by him in his capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnity him
against such liability under the FBCA.
Article X of the Articles of Incorporation of the Company provides that the
Company shall indemnify and may insure its officers and directors to the fullest
extent permitted by law.
TRANSFER AGENT
The Company's transfer agent is American Stock Transfer & Trust Company,
New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have 2,252,722 shares
of Common Stock outstanding (2,383,157 shares if the over-allotment option
granted to the Underwriters is exercised in full). Of these shares, the 869,565
shares sold in this Offering (1,000,000 shares if the over-allotment option is
exercised in full), together with 812,728 shares previously registered in
connection with the Company's acquisition of the Bank and the Thrift, will be
freely transferable without restriction or registration under the Securities
Act, unless purchased by persons deemed to be "affiliates" (as that term is
defined under the Securities Act) of the Company. The remaining 570,429 shares
of Common Stock to be outstanding immediately following the Offering may only be
sold in the public market if such shares are registered under the Securities Act
or sold in accordance with Rule 144 promulgated under the Securities Act.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned his shares for
one year may sell in the open market within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 22,527 shares immediately after
this Offering, 23,831 if the over-allotment option is exercised in full) or (ii)
the average weekly trading volume in the Common Stock in the over-the-counter
market during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain limitations on the manner of sale, notice
requirements and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is deemed not to have been
an "affiliate" of the Company at any time during the 90 days preceding a sale by
such person and who has beneficially owned his shares for at least two years may
sell such shares in the public market under Rule 144(k) without regard to the
volume limitations, manner of sale provisions, notice requirements or
availability of current information referred to above. Shares properly sold in
reliance upon Rule 144 are thereafter freely tradable without restrictions or
registration under the Securities Act, unless thereafter held by an "affiliate"
of the Company.
The Company has reserved an aggregate of 500,000 shares of Common Stock for
issuance pursuant to the 1994 Plan and the 1998 Plan (collectively, the
"Plans"). The Company intends to register eligible shares of Common Stock
issuable upon the exercise of options under the Plans on Form S-8 following this
offering. Subject to restrictions imposed pursuant to the Plans, such eligible
shares of Common Stock issued pursuant to the Plans after the effective date of
any Registration Statement on Form S-8 will be available for sale in the public
market without restriction to the extent they are held by persons who are not
affiliates of the Company. See "Management -- Employee Stock Option Plans."
Prior to this Offering, there has been no trading market for the Common
Stock. No prediction can be made as to the effect, if any, that future sales of
shares pursuant to Rule 144 or otherwise will have on the market price
prevailing from time to time. Sales of substantial amounts of the Common Stock
in the public market following
62
<PAGE>
this Offering could adversely affect the then prevailing market price. The
Company and its executive officers, directors and certain of the Company's
existing shareholders are agreeing that they will not sell or otherwise transfer
any shares of Common Stock for 180 days after this Offering without the prior
written consent of the Representatives. See "Risk Factors' Shares Eligible for
Future Sale" and "Underwriting."
UNDERWRITING
Subject to the terms and conditions of the Purchase Agreement between the
Company and the underwriters named below (the "Underwriters"), for whom Keefe,
Bruyette & Woods, Inc. and McGinn, Smith & Co., Inc. are acting as
representatives (the "Representatives"), the Underwriters have severally agreed
to purchase from the Company, and the Company has agreed to sell to the
Underwriters, the following respective number of shares of Common Stock at the
initial public offering price less the underwriting discounts set forth on the
cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Keefe, Bruyette & Woods, Inc................................
McGinn, Smith & Co., Inc....................................
Total.....................................................
</TABLE>
The Purchase Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all such shares of Common Stock if any of such shares are purchased.
The Underwriters are obligated to take and pay for all of the shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any are taken.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer such shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.
Pursuant to the Purchase Agreement, the Company has granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 130,435 additional shares of Common Stock at
the public offering price, less the underwriting discounts set forth on the
cover page of this Prospectus, solely to cover over-allotments. To the extent
that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares in
such table, and the Company will be obligated, pursuant to the option, to sell
such shares to the Underwriters.
The Company, each of its directors and executive officers, and certain of
the shareholders of the Company have agreed not to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representatives of the
Underwriters, except that the Company may issue shares of Common Stock upon the
exercise of currently outstanding options. See "Risk Factors -- Shares Eligible
for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Underwriters are permitted to
engage in certain
63
<PAGE>
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell a greater aggregate number of
shares of Common Stock than is set forth on the cover page of this Prospectus,
the Underwriters may reduce the short position by purchasing shares of Common
Stock in the open market. The Underwriters may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase Common Stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the Common Stock, they may reclaim the amount of the selling concession
from the selling group members who sold those shares of Common Stock as part of
the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor the Representatives make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor the Representatives make any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives of
the Underwriters. Among the factors considered in such negotiations were
prevailing market and general economic conditions, the market capitalizations,
trading histories and stages of development of other traded companies that the
Company and the Representatives of the Underwriters believed to be comparable to
the Company, the results of operations of the Company in recent periods, the
current financial position of the Company, estimates of the business potential
of the Company and the present state of the Company's development and the
availability for sale in the market of a significant number of shares of Common
Stock. Additionally, consideration has been given to the general status of the
securities market, the market conditions for new issues of securities and the
demand for securities of comparable companies at the time the Offering was made.
Timothy McGinn is the Chairman of the Board of McGinn, Smith & Co., Inc. He
has also served as a director of the Company since 1994 and is a shareholder of
the Company. See "Management -- Directors and Executive Officers of the
Company."
Application has been made for quotation of the Common Stock on Nasdaq.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Stuzin and Camner, P.A., 550 Biltmore Way, Suite 700,
Coral Gables, Florida 33134, counsel to the Company. Certain legal matters with
respect to the Common Stock offered hereby will be passed upon for the
Underwriters by Brown & Wood LLP.
EXPERTS
The consolidated financial statements of the Company and subsidiaries at
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, included elsewhere in the Registration Statement have been
included in reliance upon the report of Hacker, Johnson, Cohen & Grieb PA,
independent certified public accountants, given upon the authority of said firm
as experts in accounting and auditing matters.
64
<PAGE>
AVAILABLE INFORMATION
Prior to the Offering, the Company has not been required to file reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company has filed with the Commission a Registration Statement on Form
SB-2 (together with all exhibits and schedules thereto, the "Registration
Statement") under the Securities Act with respect to the registration of the
shares offered by this Prospectus. This Prospectus does not contain all of the
information set forth in such Registration Statement and the exhibits thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information pertaining to the shares offered by
this Prospectus and related matters, reference is made to such Registration
Statement, including the exhibits filed as a part thereof. Each statement in
this Prospectus referring to a document filed as an exhibit to such Registration
Statement is qualified by reference to the exhibit for a complete statement of
its terms and conditions.
The Registration Statement filed by the Company can be inspected and copies
at the public reference facilities maintained by the Commission at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a web site that contains registration statements, reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such Web Site is
http://www.sec.gov. Copies of exhibits may also be obtained by written request
addressed to: Bradley R. Meredith, Chief Financial Officer, 21845 Powerline
Road, Boca Raton, Florida 33433.
The Company intends to furnish annual reports to its shareholders which
will contain audited financial statements and quarterly reports which will
contain unaudited financial statements. In addition, the Company will be
required, under section 15(d) of the Exchange Act, to file annual and quarterly
reports with the Commission. Copies of such reports will be available to the
Company's shareholders.
65
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets, At March 31, 1998 (unaudited)
and At December 31, 1997 and 1996......................... F-3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 (unaudited) and the Years
Ended December 31, 1997, 1996 and 1995.................... F-4
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 1998 and 1997 (unaudited) and
the Years Ended December 31, 1997, 1996 and 1995.......... F-5
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 1998 (unaudited) and the
Years Ended December 31, 1997, 1996 and 1995.............. F-6
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (unaudited) and the Years
Ended December 31, 1997, 1996 and 1995.................... F-7 - F-8
Notes to Consolidated Financial Statements for the Three
Months Ended March 31, 1998 and 1997 (unaudited) and the
Years Ended December 31, 1997, 1996 and 1995.............. F-9 - F-29
</TABLE>
All schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in the
financial statements and related notes.
F-1
<PAGE>
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, 1997 and 1996, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
February 14, 1998
F-2
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT
MARCH 31, AT DECEMBER 31,
----------- -------------------
1998 1997 1996
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks..................................... $ 3,365 $ 2,272 $ 2,861
Interest bearing deposits with banks........................ 452 303 3,802
-------- -------- --------
Total cash and cash equivalents....................... 3,817 2,575 6,663
Securities available for sale............................... 30,604 22,745 32,920
Securities held to maturity (market value of $7,609
(unaudited) in 1998, $7,478 in 1997 and $7,879 in 1996)... 7,735 7,764 8,204
Loans receivable, net of allowance for loan losses of $913
(unaudited) in 1998, $848 in 1997 and $777 in 1996........ 112,756 105,653 90,973
Loans held for sale......................................... 4,134 4,443 4,396
Accrued interest receivable................................. 1,059 1,027 1,181
Premises and equipment, net................................. 1,135 1,225 1,275
Restricted securities:
Federal Home Loan Bank stock.............................. 1,235 1,271 1,555
Federal Reserve Bank stock................................ 299 299 111
Foreclosed real estate...................................... 128 105 270
Deferred income tax asset................................... 263 224 621
Other assets................................................ 605 509 3,089
-------- -------- --------
Total................................................. $163,770 $147,840 $151,258
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits........................................... 15,587 12,136 9,386
Savings and NOW deposits.................................. 12,879 9,834 11,324
Money-market deposits..................................... 40,253 38,326 34,803
Time deposits............................................. 67,429 64,699 56,985
-------- -------- --------
Total deposits........................................ 136,148 124,995 112,498
Official checks........................................... 1,605 1,320 1,263
Advances from Federal Home Loan Bank...................... 7,300 4,400 22,972
Other borrowings.......................................... 2,782 1,791 774
Accrued interest payable.................................. 657 673 953
Advance payments by borrowers for taxes and insurance..... 689 333 30
Other liabilities......................................... 482 483 347
-------- -------- --------
Total liabilities..................................... 149,663 133,995 138,837
-------- -------- --------
Commitments and contingencies (Notes 5, 9 and 10)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, 60,000 shares designated as Series A,
convertible and cumulative, 56,026 (unaudited), 54,116
and 39,250 shares issued and outstanding (aggregate
liquidation value $1,121 (unaudited), $1,082 and
$785)................................................... 1 1 1
Common stock, $.01 par value, 5,000,000 shares authorized;
1,249,949 (unaudited), 831,728 and 812,728 shares issued
and outstanding......................................... 12 8 8
Additional paid-in capital................................ 10,992 10,935 10,452
Retained earnings......................................... 3,313 3,039 2,206
Accumulated other comprehensive income, unrealized loss on
securities available for sale, net of taxes of $119
(unaudited) in 1998, $83 in 1997 and $146 in 1996....... (211) (138) (246)
-------- -------- --------
Total stockholders' equity............................ 14,107 13,845 12,421
-------- -------- --------
Total................................................. $163,770 $147,840 $151,258
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -------------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable....................................... $2,498 $2,247 $9,427 $9,001 $11,024
Securities available for sale.......................... 401 543 1,892 2,330 1,759
Securities held to maturity............................ 116 141 510 542 1,497
Other interest earning assets.......................... 7 34 103 313 410
------ ------ ------ ------ -------
Total interest income.............................. 3,022 2,965 11,932 12,186 14,690
------ ------ ------ ------ -------
Interest expense:
Deposits............................................... 1,440 1,277 5,368 5,814 8,232
Borrowings............................................. 101 302 961 1,802 1,687
------ ------ ------ ------ -------
Total interest expense............................. 1,541 1,579 6,329 7,616 9,919
------ ------ ------ ------ -------
Net interest income...................................... 1,481 1,386 5,603 4,570 4,771
Provision for loan losses.......................... 65 11 80 185 336
------ ------ ------ ------ -------
Net interest income after provision for loan losses...... 1,416 1,375 5,523 4,385 4,435
------ ------ ------ ------ -------
Noninterest income:
Service charges on deposit accounts.................... 195 112 502 364 315
Gain on sale of loan servicing rights.................. -- -- 29 131 192
Loan servicing fees.................................... 16 21 70 170 180
Net gains from sale of loans........................... 69 95 479 1,048 560
Net realized gains on sale of securities available for
sale................................................. 2 4 29 91 1
Equity in earnings of limited partnership.............. -- -- -- 365 507
Other.................................................. 82 92 303 265 167
------ ------ ------ ------ -------
Total noninterest income........................... 364 324 1,412 2,434 1,922
------ ------ ------ ------ -------
Noninterest expenses:
Salaries and employee benefits......................... 701 699 2,657 3,169 3,165
Occupancy expense...................................... 260 284 1,100 1,251 1,169
Advertising and promotion.............................. 59 51 257 142 226
Loan servicing expense................................. -- 6 36 150 88
Professional fees...................................... 24 -- 157 286 225
Federal deposit insurance premiums..................... 14 11 82 283 390
Data processing........................................ 70 108 403 428 275
Other.................................................. 180 169 779 1,138 1,822
------ ------ ------ ------ -------
Noninterest expenses before SAIF
recapitalization assessment..................... 1,308 1,328 5,471 6,847 7,360
SAIF recapitalization assessment....................... -- -- -- 926 --
------ ------ ------ ------ -------
Total noninterest expenses......................... 1,308 1,328 5,471 7,773 7,360
------ ------ ------ ------ -------
Earnings (loss) before income taxes (benefit)...... 472 371 1,464 (954) (1,003)
Income taxes (benefit)................................... 171 139 550 (355) (376)
------ ------ ------ ------ -------
Net earnings (loss)................................ $ 301 $ 232 $ 914 $ (599) $ (627)
====== ====== ====== ====== =======
Earnings (loss) per share:
Basic.................................................. $ .22 $ .19 $ .68 $ (.52) $ (.51)
====== ====== ====== ====== =======
Diluted................................................ $ .20 $ .18 $ .62 $ (.52) $ (.51)
====== ====== ====== ====== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------ -------------------------
1998 1997 1997 1996 1995
---- ----- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net earnings (loss)..................................... $301 $ 232 $ 914 $(599) $(627)
Other comprehensive income -- Change in unrealized
losses arising during period, net of tax (benefit) of
$(36) and $(60) for the three months ended March 31,
1998 and 1997 (unaudited), and $63, $(122) and $312
for the years ended December 31, 1997, 1996 and
1995.................................................. (73) (128) 108 (196) 625
---- ----- ------ ----- -----
Comprehensive income.................................... $228 $ 104 $1,022 $(795) $ (2)
==== ===== ====== ===== =====
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME,
UNREALIZED
LOSS ON
CONVERTIBLE ADDITIONAL SECURITIES TOTAL
PREFERRED COMMON PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS FOR SALE EQUITY
----------- ------ ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994...... $-- $ 8 $ 9,716 $3,467 $(675) $12,516
Net loss.......................... -- -- -- (627) -- (627)
Other comprehensive income........ -- -- -- -- 625 625
--- --- ------- ------ ----- -------
Balance at December 31, 1995...... -- 8 9,716 2,840 (50) 12,514
Sale of preferred stock net of
offering costs.................. 1 -- 736 -- -- 737
Cash dividends declared on
preferred stock................. -- -- -- (35) -- (35)
Net loss.......................... -- -- -- (599) -- (599)
Other comprehensive income........ -- -- -- -- (196) (196)
--- --- ------- ------ ----- -------
Balance at December 31, 1996...... 1 8 10,452 2,206 (246) 12,421
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
Net earnings...................... -- -- -- 914 -- 914
Other comprehensive income........ -- -- -- -- 108 108
--- --- ------- ------ ----- -------
Balance at December 31, 1997...... 1 8 10,935 3,039 (138) 13,845
Three-for-two stock split (415,828
shares) (unaudited)............. -- 4 (4) -- -- --
Stock dividends on preferred stock
(1,410 shares) (unaudited)...... -- -- 27 (27) -- --
Proceeds from issuance of common
stock, net of offering costs
(2,393 shares) (unaudited)...... -- -- 24 -- -- 24
Proceeds from issuance of
preferred stock, net of offering
costs (500 shares)
(unaudited)..................... -- -- 10 -- -- 10
Other comprehensive income
(unaudited)..................... -- -- -- -- (73) (73)
Net earnings (unaudited).......... -- -- -- 301 -- 301
--- --- ------- ------ ----- -------
Balance at March 31, 1998
(unaudited)..................... $ 1 $12 $10,992 $3,313 $(211) $14,107
=== === ======= ====== ===== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------
1998 1997 1997 1996 1995
-------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................. $ 301 $ 232 $ 914 $ (599) $ (627)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Provision for loan losses....................... 65 11 80 185 336
Depreciation and amortization................... 97 91 414 555 536
Provision (credit) for deferred income taxes.... (39) 139 334 (355) (376)
(Increase) decrease in other assets............. (60) 364 2,580 (224) 590
Equity in earnings of limited partnership....... -- -- -- (365) (507)
Gain on sale of securities available for sale... (2) (4) (29) (91) (1)
Gain on sale of loans and loan servicing
rights....................................... (69) (95) (508) (1,179) (752)
Originations of loans held for sale............. (401) (1,187) (9,005) (51,533) (55,650)
Proceeds from sale of loans held for sale....... 779 1,712 9,437 66,746 44,346
Increase (decrease) in official checks.......... 285 (366) 57 (755) (997)
(Decrease) increase in accrued interest
payable...................................... (16) (144) (280) (1,037) 508
(Decrease) increase in other liabilities........ (1) (302) 132 (215) (563)
(Increase) decrease in accrued interest
receivable................................... (32) 34 154 1 (109)
Net amortization of fees, premiums, discounts
and other.................................... (26) (24) (134) 156 177
-------- ------- -------- -------- --------
Net cash provided by (used in) operating
activities................................. 881 461 4,146 11,290 (13,089)
-------- ------- -------- -------- --------
Cash flows from investing activities:
Purchase of securities available for sale........... (18,564) (4,073) (5,098) (19,539) (4,711)
Purchase of securities held to maturity............. (100) -- -- -- --
Proceeds from sale of available-for-sale
securities........................................ 9,549 504 13,578 20,157 8,852
Purchase of premises and equipment, net............. (7) (2) (364) (221) (555)
Principal repayments on securities available for
sale.............................................. 43 341 1,029 2,036 2,826
Principal repayments on securities held to
maturity.......................................... 132 75 440 608 --
Proceeds from sale of limited partnership........... -- -- -- 5,872 --
Net (increase) decrease in loans.................... (7,261) (3,753) (14,816) 13,331 18,423
Net proceeds from sale of foreclosed real estate.... 99 194 253 -- 243
Investment in limited partnership................... -- -- -- -- (462)
Maturities of securities available for sale......... 1,000 1,000 1,000 2,264 --
Net decrease in restricted securities............... 36 -- 96 -- --
-------- ------- -------- -------- --------
Net cash (used in) provided by investing
activities................................. (15,073) (5,714) (3,882) 24,508 24,616
-------- ------- -------- -------- --------
Cash flows from financing activities:
Net increase in demand, savings, NOW and
money-market deposits............................. 8,423 3,596 4,783 12,879 8,169
Net increase (decrease) in time deposits............ 2,730 1,036 7,714 (43,054) (29,583)
Net increase (decrease) in advances from Federal
Home Loan Bank.................................... 2,900 1,739 (18,572) (4,218) 17,000
Net increase (decrease) in other borrowings......... 991 (121) 1,017 (5,251) (1,788)
Decrease in federal funds purchased................. -- -- -- -- (800)
Increase (decrease) in advance payments by borrowers
for taxes and insurance........................... 356 75 303 (440) (170)
Proceeds from issuance of preferred stock net of
offering costs.................................... 10 69 201 737 --
Proceeds from issuance of common stock.............. 24 -- 190 -- --
Cash dividends paid on preferred stock.............. -- -- 12 -- --
-------- ------- -------- -------- --------
Net cash provided by (used in) financing
activities................................. 15,434 6,394 (4,352) (39,347) (7,172)
-------- ------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................ 1,242 1,141 (4,088) (3,549) 4,355
Cash and cash equivalents at beginning of period...... 2,575 6,663 6,663 10,212 5,857
-------- ------- -------- -------- --------
Cash and cash equivalents at end of period............ $ 3,817 $ 7,804 $ 2,575 $ 6,663 $ 10,212
======== ======= ======== ======== ========
</TABLE>
(continued)
F-7
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------ ------------------------------
1998 1997 1997 1996 1995
-------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest.......................................... $ 1,557 $ 1,723 $ 6,609 $ 8,653 $ 9,411
======== ======= ======== ======== ========
Income taxes...................................... $ -- $ (53) $ 160 $ 200 $ 179
======== ======= ======== ======== ========
Noncash transactions:
Reclassification of loans receivable to foreclosed
real estate..................................... $ 122 $ 57 $ 156 $ 270 $ 102
======== ======= ======== ======== ========
Reclassification of foreclosed real estate to
loans receivable................................ $ -- $ 68 $ 68 $ -- $ --
======== ======= ======== ======== ========
Accumulated other comprehensive income, change in
unrealized loss on securities available for
sale............................................ $ (73) $ (128) $ 108 $ (196) $ 625
======== ======= ======== ======== ========
Dividend payable on preferred stock............... $ -- $ -- $ 4 $ 35 $ --
======== ======= ======== ======== ========
Stock dividends paid on preferred stock........... $ 27 $ -- $ 65 $ -- $ --
======== ======= ======== ======== ========
Conversion of mortgage loans to mortgage-backed
securities...................................... $ -- $ -- $ -- $ -- $ 3,214
======== ======= ======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-8
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General. The accompanying consolidated financial statements at March 31,
1998 and for the three-month periods ended March 31, 1998 and 1997 are
unaudited; however, in the opinion of management, all adjustments necessary for
the fair presentation of the consolidated financial statements have been
included. All such adjustments are of a normal recurring nature. The results for
the three months ended March 31, 1998 are not necessarily indicative of the
results which may be expected for the entire year.
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, 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 March 31, 1998
(unaudited), December 31, 1997 and 1996 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.
F-9
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
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. 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, because there
is no active trading market for the Company's common stock, the average book
value per share was used. For 1996 and 1995, outstanding stock options were not
dilutive due to the net loss incurred by the Company. The weighted-average
number of shares outstanding for 1996 and 1995 was 1,219,092 shares and the net
loss used in the computation of basic EPS was $634,000 in 1996 which takes into
effect the dividend
F-10
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
declared on the preferred stock. There was no outstanding preferred stock in
1995. All per share amounts reflect the three-for-two stock split declared in
February, 1998 (dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, FOR THE
------------------------------------------------------------- YEAR ENDED DECEMBER 31,
1998 1997 1997
----------------------------- ----------------------------- -----------------------------
WEIGHTED PER WEIGHTED PER WEIGHTED PER
AVERAGE SHARE AVERAGE SHARE AVERAGE SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- --------- ------ -------- --------- ------ -------- --------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net earnings.............. $301 $232 $914
Less preferred stock
dividends............... (27) -- (81)
---- ---- ----
Net earnings available to
common stockholders..... 274 1,249,949 $.22 232 1,219,050 $.19 833 1,224,441 $.68
==== ==== ====
Effect of dilutive
securities-
Incremental shares from
assumed exercise of
options................. 3,040 5,415 435
Incremental shares from
assumed conversion of
preferred stock......... 126,059 95,963 121,761
--------- --------- ---------
Diluted EPS:
Net earnings available to
common stockholders and
assumed conversions..... $274 1,379,048 $.20 $232 1,320,428 $.18 $833 1,346,637 $.62
==== ========= ==== ==== ========= ==== ==== ========= ====
</TABLE>
Off-Balance-Sheet Financial Instruments. In the ordinary course of
business the Company has entered into off-balance-sheet financial instruments
consisting of commitment 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
incurred or received.
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
F-11
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
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.
(2) SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
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):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Available for Sale:
At March 31, 1998 (unaudited):
U.S. Treasury securities........................ $19,142 $ 10 $ (34) $19,118
U.S. Government agency securities............... 3,449 -- (12) 3,437
Mortgage-backed securities...................... 3,206 -- (119) 3,087
Mutual funds.................................... 5,137 -- (175) 4,962
------- ---- ----- -------
Total......................................... $30,934 $ 10 $(340) $30,604
======= ==== ===== =======
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
======= ==== ===== =======
At December 31, 1996:
U.S. Treasury securities........................ 11,496 19 (18) 11,497
U.S. Government agency securities............... 1,000 -- (17) 983
Mortgage-backed securities...................... 15,777 113 (301) 15,589
Mutual funds.................................... 5,039 -- (188) 4,851
------- ---- ----- -------
Total......................................... $33,312 $132 $(524) $32,920
======= ==== ===== =======
</TABLE>
F-12
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(2) SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY -- (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Held to Maturity:
At March 31, 1998 (unaudited):
U.S. Government agency securities................ 1,235 81 -- 1,316
Mortgage-backed securities....................... 6,325 23 (230) 6,118
Other............................................ 175 -- -- 175
------- ---- ----- ------
Total.......................................... $ 7,735 $104 $(230) $7,609
======= ==== ===== ======
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
======= ==== ===== ======
At December 31, 1996:
U.S. Government agency securities................ 1,328 43 -- 1,371
Mortgage-backed securities....................... 6,801 21 (389) 6,433
Other............................................ 75 -- -- 75
------- ---- ----- ------
Total.......................................... $ 8,204 $ 64 $(389) $7,879
======= ==== ===== ======
</TABLE>
During the quarter ended December 31, 1995, the Company adopted the
provisions of SFAS No. 115 Questions and Answers Guide ("SFAS No. 115 Q&A")
which allowed a one-time reclassification of securities between held to maturity
and available for sale between November 15, 1995 and December 31, 1995. The
Company reclassified U.S. Government agency securities and mortgage-backed
securities with market values of approximately $248,000 and $15,975,000,
respectively, and amortized cost of $241,000 and $16,081,000, respectively.
At March 31, 1998 (unaudited), December 31, 1997 and 1996, approximately
$498,000, $711,000 and $245,000, respectively, of securities were pledged for
the Company's treasury tax and loan account, approximately $3,200,000,
$3,011,000 and $4,001,000 were pledged as collateral for investment repurchase
agreements, approximately $0, $277,000 and $6,276,000 were pledged as collateral
for Federal Home Loan Bank advances and approximately $6,683,000, $7,270,000 and
$2,209,000 were pledged for public deposits.
The Company currently invests in two mutual funds, the Short U.S.
Government Securities Portfolio and the Intermediate Mortgage 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" for
savings associations under the regulations of the Office of Thrift Supervision
of the Department of the Treasury and that, if included in the portfolio, will
qualify its shares as "liquid assets." The Company's net investment at March 31,
1998 (unaudited), December 31, 1997 and 1996 was $3,963,000, $3,966,000 and
$3,875,000, respectively. The Intermediate Mortgage Securities Portfolio pursues
its investment objective by investing primarily in intermediate-term
mortgage-related securities paying fixed or adjustable rates of interest. The
Company's net investment at March 31, 1998 (unaudited), December 31, 1997 and
1996 was $999,000, $999,000 and $976,000, respectively.
F-13
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(2) SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY -- (CONTINUED)
The following summarizes sales of securities available for sale (in
thousands):
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- --------------------------------
1998 1997 1997 1996 1995
------ ---- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Proceeds from sale of securities available for sale... $9,549 $504 $13,578 $20,157 $8,852
====== ==== ======= ======= ======
Gross gains from sale of securities available for
sale................................................ 56 4 95 92 4
Gross losses from sale of securities available for
sale................................................ (54) -- (66) (1) (3)
------ ---- ------- ------- ------
Net gains............................................. $ 2 $ 4 $ 29 $ 91 $ 1
====== ==== ======= ======= ======
</TABLE>
The scheduled maturities of securities are as follows (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR- HELD-TO-
SALE SECURITIES MATURITY SECURITIES
------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
At March 31, 1998 (unaudited):
Due in less than one year............................. $ 4,003 $ 4,010 $ -- $ --
Due from one to five years............................ 18,588 18,545 1,024 1,089
Due from five to ten years............................ -- -- 386 402
Mortgage-backed securities............................ 3,206 3,087 6,325 6,118
Mutual funds.......................................... 5,137 4,962 -- --
------- ------- ------ ------
$30,934 $30,604 $7,735 $7,609
======= ======= ====== ======
At December 31, 1997:
Due from one to five years............................ 9,003 9,039 804 808
Due from five to ten years............................ -- -- 524 531
Mortgage-backed securities............................ 8,826 8,741 6,436 6,139
Mutual funds.......................................... 5,137 4,965 -- --
------- ------- ------ ------
$22,966 $22,745 $7,764 $7,478
======= ======= ====== ======
</TABLE>
F-14
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(3) LOANS RECEIVABLE
The components of loans in the consolidated balance sheets are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, ---------------------
1998 1997 1996
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Residential real estate.................................... $ 65,572 $ 61,827 $60,716
Commercial real estate..................................... 19,374 17,628 10,894
Commercial loans........................................... 21,981 19,832 16,711
Consumer loans............................................. 6,893 7,372 3,604
-------- -------- -------
113,820 106,659 91,925
Deferred loan fees......................................... (151) (158) (175)
Allowance for loan losses.................................. (913) (848) (777)
-------- -------- -------
$112,756 $105,653 $90,973
======== ======== =======
</TABLE>
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- ------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........................ $848 $777 $777 $840 $528
---- ---- ---- ---- ----
Loans charged-off..................................... -- -- (58) (248) (29)
Recoveries............................................ -- 42 49 -- 5
---- ---- ---- ---- ----
Net loan recoveries (charge-offs)................... -- 42 (9) (248) (24)
---- ---- ---- ---- ----
Provision for loan losses............................. 65 11 80 185 336
---- ---- ---- ---- ----
Balance at end of period.............................. $913 $830 $848 $777 $840
==== ==== ==== ==== ====
</TABLE>
The following summarizes the collateral dependent amounts of impaired loans
(in thousands):
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, ----------------
1998 1997 1996
----------- ------ ----
(UNAUDITED)
<S> <C> <C> <C>
Loans identified as impaired:
Gross loans with no related allowance for losses.......... $ -- $ -- $ --
Gross loans with related allowance for losses recorded.... 1,428 1,428 222
Less: Allowances on these loans........................... (163) (163) (111)
------ ------ ----
Net investment in impaired loans............................ $1,265 $1,265 $111
====== ====== ====
</TABLE>
F-15
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(3) LOANS RECEIVABLE -- (CONTINUED)
The average net investment in impaired loans and interest income recognized
and received on impaired loans is as follows (in thousands):
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ------------------------
1998 1997 1997 1996 1995
------ ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Average investment in impaired loans................ $1,265 $110 $392 $111 $238
====== ==== ==== ==== ====
Interest income recognized on impaired loans........ $ 18 $ -- $ -- $ 32 $ --
====== ==== ==== ==== ====
Interest income received on impaired loans.......... $ 18 $ -- $ -- $ 32 $ --
====== ==== ==== ==== ====
</TABLE>
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, --------------------
1998 1997 1996
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage loan portfolios serviced for:
FHLMC..................................................... $ -- $ -- $ 1,136
FNMA...................................................... -- -- 4,937
Other investors........................................... 5,118 11,969 8,732
------ ------- -------
$5,118 $11,969 $14,805
====== ======= =======
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing was approximately $54,600, $28,200 and $6,400 at March 31, 1998
(unaudited), December 31, 1997 and 1996, respectively.
(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, were 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.
F-16
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(5) PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, ------------------
1998 1997 1996
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements...................................... $1,000 $1,000 $ 904
Furniture, fixtures and equipment........................... 3,115 3,108 2,873
------ ------ ------
Total, at cost............................................ 4,115 4,108 3,777
Less accumulated depreciation and amortization.............. (2,980) (2,883) (2,502)
------ ------ ------
Net book value............................................ $1,135 $1,225 $1,275
====== ====== ======
</TABLE>
The Company leases its banking offices. Rental expense was approximately
$107,000, $70,000, $420,000, $314,000 and $406,000 for the three months ended
March 31, 1998 and 1997 (unaudited) and the years ended December 31, 1997, 1996
and 1995, respectively. Approximate future minimum annual rental payments under
these noncancellable leases are as follows (in thousands):
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
YEAR ENDING MARCH 31, 1998 YEAR ENDING DECEMBER 31, 1997
- --------------------- ----------- ------------------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
1999........................... $ 557 1998........................... $ 554
2000........................... 561 1999........................... 563
2001........................... 424 2000........................... 514
2002........................... 441 2001........................... 512
2003........................... 183 2002........................... 371
Thereafter..................... 340 Thereafter..................... 368
------ ------
Total.......................... $2,506 Total.......................... $2,882
====== ======
</TABLE>
(6) DEPOSITS
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $12.0 million, $11.1 million and $9.5
million at March 31, 1998 (unaudited), December 31, 1997 and 1996, respectively.
The scheduled maturities of certificates of deposit are as follows (in
thousands):
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
YEAR ENDING MARCH 31, 1998 YEAR ENDING DECEMBER 31, 1997
- --------------------- ----------- ------------------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
1999........................... $23,336 1998........................... $32,999
2000........................... 12,068 1999........................... 19,000
2001........................... 12,068 2000........................... 5,136
2002........................... 7,562 2001........................... 402
2003 and thereafter............ 12,395 2002 and thereafter............ 7,162
------- -------
Total.......................... $67,429 Total.......................... $64,699
======= =======
</TABLE>
F-17
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(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 March 31, 1998 (unaudited), December 31, 1997 and
1996 the balance totaled $2,782,000, $1,791,000 and $774,000, respectively, and
the Company pledged as collateral for these agreements securities with a book
value of approximately $3,200,000, $3,011,000 and $4,001,000, respectively.
During 1996 and 1995, the Company 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 years ended December 31, 1996 and 1995 all of the
Company's transactions were fixed-coupon reverse repurchase agreements. At
December 31, 1996 there were no securities sold under reverse repurchase
agreements.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995
-------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Maximum borrowing at any month-end within the year.......... $1,385 $19,608
Average borrowing during the year........................... 803 7,643
Average interest cost during the year....................... 5.17% 6.27%
Average interest cost at end of the year.................... 5.08% 6.23%
</TABLE>
(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):
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, -------------------
INTEREST -----------
YEAR ENDING DECEMBER 31, RATE 1998 1997 1996
- ------------------------ -------- ----------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
1997................................................ 5.44% $ -- $ -- $ 5,000
1997................................................ 5.37% -- -- 5,000
1997................................................ 6.95% -- -- 1,672
1997................................................ 5.97% -- -- 5,000
1997................................................ 6.00% -- -- 1,300
1997................................................ 6.89% -- -- 5,000
1998................................................ 6.50% -- 4,400 --
1998................................................ 6.23% 2,300 -- --
2007................................................ 5.47% 5,000 -- --
------ ------ -------
Total............................................. $7,300 $4,400 $22,972
====== ====== =======
</TABLE>
At March 31, 1998 (unaudited) and December 31, 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.
(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.
F-18
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(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.
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
AT
AT DECEMBER 31,
MARCH 31, -----------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.............. $ 3,817 $ 3,817 $ 2,575 $ 2,575 $ 6,663 $ 6,663
Securities available for sale.......... 30,604 30,604 22,745 22,745 32,920 32,920
Securities held to maturity............ 7,735 7,609 7,764 7,478 8,204 7,879
Loans receivable, net.................. 112,756 113,990 105,653 107,076 90,973 91,084
Loans held for sale.................... 4,134 4,134 4,443 4,443 4,396 4,396
Accrued interest receivable............ 1,059 1,059 1,027 1,027 1,181 1,181
Restricted securities.................. 1,534 1,534 1,570 1,570 1,666 1,666
Financial liabilities:
Deposit liabilities.................... 136,148 136,402 124,995 126,537 112,498 112,474
Other borrowings....................... 2,782 2,782 1,791 1,791 774 774
Advances from Federal Home Loan Bank... 7,300 7,300 4,400 4,400 22,972 22,972
</TABLE>
F-19
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(10) FINANCIAL INSTRUMENTS -- (CONTINUED)
A summary of the notional amounts of the Company's financial instruments,
which approximate fair value, with off balance sheet risk follows (in
thousands):
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Unfunded loan commitments at fixed rates................... $ -- $1,930
====== ======
Unfunded loan commitments at variable rates................ $ 633 $ 118
====== ======
Available lines of credit.................................. $6,329 $8,237
====== ======
Standby letters of credit.................................. $ 682 $ 600
====== ======
</TABLE>
(11) CREDIT RISK
The Company grants a majority of its loans to borrowers primarily in Palm
Beach, Broward and 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.
F-20
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(12) INCOME TAXES
The income taxes (benefit) consisted of the following (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) ------- -------- -----
<S> <C> <C> <C>
Federal................................................... $185 $ (33) $ 152
State..................................................... 25 (6) 19
---- ----- -----
Total.................................................. $210 $ (39) $ 171
==== ===== =====
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED):
Federal................................................... -- 121 121
State..................................................... -- 18 18
---- ----- -----
Total.................................................. $ -- $ 139 $ 139
==== ===== =====
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)
==== ===== =====
YEAR ENDED DECEMBER 31, 1995:
Federal................................................... -- (321) (321)
State..................................................... -- (55) (55)
---- ----- -----
Total.................................................. $ -- $(376) $(376)
==== ===== =====
</TABLE>
The reasons for the differences between the statutory Federal income tax
rate and the effective tax rate are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
-------------- ------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax provision at statutory rate........................... 34% 34% 34% (34)% (34)%
Increase (decrease) in taxes resulting from:
State taxes............................................. 3 3 3 (4) (4)
Other................................................... (1) -- 1 1 1
-- -- -- --- ---
Income taxes (benefit).................................... 36% 37% 38% (37)% (37)%
== == == === ===
</TABLE>
F-21
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(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):
<TABLE>
<CAPTION>
AT
AT DECEMBER 31,
MARCH 31, -------------
1998 1997 1996
--------- ---- ------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $269 $241 $ 207
Depreciation.............................................. 139 145 176
Net operating loss carryforwards.......................... -- -- 461
Purchase accounting adjustments........................... 40 43 180
Other..................................................... 176 174 146
---- ---- ------
Total gross deferred tax assets........................ 624 603 1,170
---- ---- ------
Deferred tax liabilities:
FHLB stock................................................ 26 27 104
Deferred loan fees........................................ 332 349 418
Other..................................................... 3 3 27
---- ---- ------
Total gross deferred tax liabilities................... 361 379 549
---- ---- ------
Net deferred tax asset................................. $263 $224 $ 621
==== ==== ======
</TABLE>
(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 $737,000, $546,000 and $1,138,000 at March 31,
1998 (unaudited), December 31, 1997 and 1996, respectively, and deposits from
such related parties were approximately $2,277,000, $3,043,000 and $3,150,000,
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 $4,300, $250, $1,000, $4,400 and $15,800 for the three months
ended March 31, 1998 and 1997 (unaudited) and the years ended December 31, 1997,
1996 and 1995, respectively.
(15) DEFERRED COMPENSATION PLANS
The Company has deferred compensation plans for certain directors that
allow 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 are payable in a lump-sum payment or in monthly installments
for a period of 10 years. At March 31, 1998 (unaudited), December 31, 1997 and
1996, approximately $88,000, $118,000 and $177,000, respectively was deferred
and included in other liabilities on the consolidated balance sheets for the
Company's obligations under these agreements. During the three months ended
March 31, 1998 (unaudited) and the year ended December 31, 1997, certain
directors received lump-sum payments under these plans.
F-22
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(16) STOCK OPTIONS
Certain key employees and directors of the Company have options to purchase
shares of the Company's common stock under its stock option plan. Under the
plan, the total number of shares which may be issued is 300,000. At March 31,
1998 (unaudited) and December 31, 1997, 21,219 and 65,919 remain available for
grant. All per share amounts reflect the three-for-two stock split declared in
February, 1998. A summary of stock option transactions follows (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
RANGE
OF PER WEIGHTED-
SHARE AVERAGE AGGREGATE
NUMBER OF OPTION PER SHARE OPTION
SHARES PRICE PRICE PRICE
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 and 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 (unaudited)................................. 44,700 10.03 10.03 448
------- ------
Outstanding at March 31, 1998 (unaudited)................... 250,281 $9.55-10.52 $ 9.87 $2,470
======= ======
</TABLE>
The weighted-average remaining contractual life of the outstanding stock
options at March 31, 1998 (unaudited), December 31, 1997, 1996 and 1995 was
forty-eight months, forty-nine months, thirty-five months and thirty-two months,
respectively.
These options are exercisable as follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT DECEMBER 31, 1997
- -------------------------------------------------------- --------------------------------------------------------
YEAR ENDING NUMBER WEIGHTED-AVERAGE YEAR ENDING NUMBER WEIGHTED-AVERAGE
MARCH 31 OF SHARES EXERCISE PRICE MARCH 31 OF SHARES EXERCISE PRICE
---- ------- ------ ---- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
1999 142,139 $10.00 1998 127,341 $10.09
2000 32,370 9.68 1999 23,430 9.55
2001 31,320 9.68 2000 23,430 9.55
2002 25,725 9.71 2001 19,230 9.55
2003 18,727 9.78 2002 9,450 9.55
------- ------ 2003 2,700 9.55
250,281 $ 9.87 ------- ------
======= ====== 205,581 $ 9.84
======= ======
</TABLE>
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," which establishes
financial accounting and reporting standards for stock-based employee
compensation plans. As permitted by this Statement, the Company has elected to
continue utilizing the intrinsic value method of accounting defined in APB
Opinion No. 25. Due to the exercise price of the options approximating the
market value of the common stock at the date of grant, no compensation expense
has been recognized in the consolidated statements of operations.
The Statement requires pro forma fair value disclosures if the intrinsic
value method is being utilized. In order to calculate the fair value of the
options, it was assumed that the risk-free interest rate was 6.0%, there would
be no dividends paid by the Company over the exercise period, the expected life
of the options would be
F-23
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(16) STOCK OPTIONS -- (CONTINUED)
the entire exercise period and stock volatility would be zero due to the lack of
an active market for the stock. For purposes of pro forma disclosures, the
estimated fair value is included in expense in the period vesting occurs. The
following information pertains to the options granted to purchase common stock
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------- ------------
1998 1997 1997 1996
----- ----- ---- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Weighted-average grant-date fair value of options issued
during the period......................................... $ 29 -- $147 $ 133
==== ==== ==== =====
Pro forma net earnings (loss)............................... $272 -- $767 $(732)
==== ==== ==== =====
Pro forma basic earnings (loss) per share................... $.20 -- $.56 $(.60)
==== ==== ==== =====
</TABLE>
(17) PREFERRED STOCK
The Company has 56,026 and 54,116 outstanding shares at March 31, 1998
(unaudited) and December 31, 1997 of convertible, redeemable, cumulative
preferred stock Series A, $.01 par value ("preferred stock"). The preferred
stock can be redeemed by the Company at $20 per share. The preferred stock has a
8.5% cumulative dividend rate payable based on the $20 redemption value. Each
share of preferred stock is convertible at the option of the stockholder into
2.25 shares of common stock any time. For the three months ended March 31, 1998
(unaudited) the Company paid stock dividends on preferred stock of 1,410 shares
of preferred stock. During the quarter ended March 31, 1997 (unaudited), the
Company did not pay a dividend on preferred 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.
(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 March 31, 1998 (unaudited) and December 31,
1997, that the Bank meet all capital adequacy requirements to which they are
subject.
F-24
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(18) REGULATORY MATTERS -- (CONTINUED)
As of March 31, 1998 (unaudited) and December 31, 1997, 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 ratios
are also presented in the table (dollars in thousands).
<TABLE>
<CAPTION>
FOR CAPITAL FOR WELL
ADEQUACY CAPITALIZED
ACTUAL PURPOSES: PURPOSES:
--------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998 (unaudited):
Total capital (to Risk Weighted Assets).............. $14,897 15.51% $7,681 8.00% $9,602 10.00%
Tier I Capital (to Risk Weighted Assets)............. 13,984 14.56 3,841 4.00 5,761 6.00
Tier I Capital (to Average Assets)................... 13,984 9.05 6,181 4.00 7,726 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
As of December 31, 1996:
Total capital (to Risk Weighted Assets).............. $4,216 15.88% $2,134 8.00% $2,667 10.00%
Tier I Capital (to Risk Weighted Assets)............. 3,913 14.67 1,067 4.00 1,600 6.00
Tier I Capital (to Average Assets)................... 3,913 8.69 1,801 4.00 2,252 5.00
</TABLE>
As of December 31, 1996, the most recent notification from the Office of
Thrift Supervision categorized Pointe Federal as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized Pointe Federal had to maintain minimum regulatory capital as set
forth in the table. There were no conditions or events since that notification
that management believed changed Pointe Federal's category prior to being merged
with the Bank. Pointe Federal's actual capital amounts and ratios are also
presented in the table (dollars in thousands).
F-25
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(18) REGULATORY MATTERS -- (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM CAPITALIZED
FOR CAPITAL FOR PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
------------------- ----------------- -----------------
% AMOUNT % AMOUNT % AMOUNT
----- -------- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Stockholders' equity, and ratio to total assets...... 8.25% $ 8,744 -- -- -- --
Intangible assets.................................... -- -- -- -- --
--------
Tangible capital, and ratio to adjusted total
assets............................................. 8.25% $ 8,744 1.5% $1,589 -- --
======== ======
Tier 1 (core) capital, and ratio to adjusted total
assets............................................. 8.25% $ 8,744 4.0% $3,179 5.0% $5,299
======== ====== ======
Tier 1 capital, and ratio to risk--weighted assets... 17.38% 8,744 -- -- 6.0% $3,019
-------- ======
Allowance for loan losses............................ -- 474 -- -- -- --
--------
Tier 2 capital....................................... -- 474 -- -- -- --
--------
Total risk-based capital, and ratio to risk-weighted
assets............................................. 18.32% $ 9,218 8.0% $4,025 10.0% $5,031
======== ====== ======
Total assets......................................... $105,977
========
Adjusted total assets................................ $105,977
========
Risk-weighted assets................................. $ 50,311
========
</TABLE>
(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.
(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.
F-26
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(21) HOLDING COMPANY FINANCIAL INFORMATION
The Holding Company's financial information is as follows (in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, -----------------
1998 1997 1996
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 102 $ 127 $ 110
Investment in subsidiaries.................................. 13,957 13,722 12,419
Other assets................................................ 104 94 148
------- ------- -------
Total assets........................................... $14,163 $13,943 $12,677
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities........................................... 56 98 256
Stockholders' equity........................................ 14,107 13,845 12,421
------- ------- -------
Total liabilities and stockholders' equity............. $14,163 $13,943 $12,677
======= ======= =======
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------- ------------------------------
1998 1997 1997 1996 1995
---- ---- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $ -- $435 $ 665 $2,101 $1,353
Expenses.......................................... 7 467 752 2,182 1,653
---- ---- ------ ------ ------
Loss before earnings (loss) of subsidiaries..... (7) (32) (87) (81) (300)
Earnings (loss) of subsidiaries................. 308 264 1,001 (518) (327)
---- ---- ------ ------ ------
Net earnings (loss)............................. $301 $232 $ 914 $ (599) $ (627)
==== ==== ====== ====== ======
</TABLE>
F-27
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(21) HOLDING COMPANY FINANCIAL INFORMATION -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
---------------- -----------------------
1998 1997 1997 1996 1995
----- ----- ------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ 301 $ 232 $ 914 $(599) $(627)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
(Increase) decrease in other assets..................... (10) 133 54 7 (151)
(Decrease) increase in due to subsidiaries.............. -- -- -- (295) 271
(Decrease) increase in other liabilities................ (42) (111) (143) 14 207
----- ----- ------- ----- -----
Net cash provided by (used in) operating activities... 249 254 825 (873) (300)
----- ----- ------- ----- -----
Cash flows from investing activities:
Net (increase) decrease in investment in subsidiaries..... (308) (264) (1,187) 217 79
Dividends from subsidiary................................. -- -- -- -- 250
----- ----- ------- ----- -----
Net cash (used in) provided by investing activities... (308) (264) (1,187) 217 329
----- ----- ------- ----- -----
Cash flows from financing activities:
Proceeds from issuance of preferred stock................. 10 69 201 737 --
Proceeds from issuance of common stock.................... 24 -- 190 -- --
Cash dividends paid in preferred stock.................... -- -- (12) -- --
----- ----- ------- ----- -----
Net cash provided by investing activities............. 34 69 379 737 --
----- ----- ------- ----- -----
Net (decrease) increase in cash and cash equivalents........ (25) 59 17 81 29
Cash and cash equivalents at beginning of the period........ 127 110 110 29 --
----- ----- ------- ----- -----
Cash and cash equivalents at end of period.................. $ 102 $ 169 $ 127 $ 110 $ 29
===== ===== ======= ===== =====
Noncash transactions:
Change in investment in subsidiaries due to change in
accumulated other income, unrealized gain (loss) on
securities available for sale, net of
income tax.............................................. $ (73) $(128) $ 108 $(196) $ 625
===== ===== ======= ===== =====
Dividends payable on preferred stock...................... $ -- $ -- $ 4 $ 35 $ --
===== ===== ======= ===== =====
Stock dividends paid on preferred stock................... $ 27 $ -- $ 65 $ -- $ --
===== ===== ======= ===== =====
</TABLE>
(22) COMPREHENSIVE INCOME
During the year ended December 31, 1997, the Company adopted Financial
Accounting Standards Board Statement No. 130, Reporting Comprehensive Income.
This Statement requires the reporting of comprehensive income in addition to net
earnings from operations. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial information
that historically has not been recognized in the calculation of net earnings.
F-28
<PAGE>
POINTE FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
(22) COMPREHENSIVE INCOME -- (CONTINUED)
During the three months ended March 31, 1998 and 1997 (unaudited) and the
years ended December 31, 1997, 1996 and 1995, the Company held securities
classified as available-for-sale, which had unrealized gains (losses) of
$(73,000), $(128,000), $108,000, $(196,000), $625,000 before tax, respectively.
The before tax and after tax amount of these gains (losses), as well as the tax
(expense) benefit is summarized below (in thousands).
<TABLE>
<CAPTION>
TAX
BEFORE (EXPENSE) AFTER
TAX BENEFIT TAX
------ --------- -----
<S> <C> <C> <C>
At March 31, 1998 (unaudited):
Unrealized holding losses................................. $(107) $ 36 $ (71)
Reclassification adjustment for gains included in net
earnings............................................... (2) -- (2)
----- ----- -----
$(109) $ 36 $ (73)
===== ===== =====
At March 31, 1997 (unaudited):
Unrealized holding losses................................. (184) 59 (125)
Reclassification adjustment for gains included in net
earnings............................................... (4) 1 (3)
----- ----- -----
$(188) $ 60 $(128)
===== ===== =====
At December 31, 1997:
Unrealized holding gains.................................. 200 (74) 126
Reclassification adjustment for gains included in net
earnings............................................... (29) 11 (18)
----- ----- -----
$ 171 $ (63) $ 108
===== ===== =====
At December 31, 1996:
Unrealized holding losses................................. (227) 88 (139)
Reclassification adjustment for gains included in net
earnings............................................... (91) 34 (57)
----- ----- -----
$(318) $ 122 $(196)
===== ===== =====
At December 31, 1995:
Unrealized holding gains.................................. 938 (312) 626
Reclassification adjustment for gains included in net
earnings............................................... (1) -- (1)
----- ----- -----
$ 937 $(312) $ 625
===== ===== =====
</TABLE>
F-29
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations in connection with the offer
contained herein other than those contained this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, to any person
in any jurisdiction in which such an offer or solicitation is not authorized, or
in which the person making such offer or solicitation is not qualified to do so
or to any person to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Summary Consolidated Financial Data... 7
Risk Factors.......................... 9
Use of Proceeds....................... 17
Dividend Policy....................... 17
Dilution.............................. 17
Capitalization........................ 18
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Regulation and Supervision............ 49
Management............................ 54
Security Ownership of Certain
Beneficial Owners and Management.... 58
Certain Relationships and Related
Transactions........................ 60
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 62
Underwriting.......................... 63
Legal Matters......................... 64
Experts............................... 64
Available Information................. 65
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
869,565 SHARES
POINTE FINANCIAL CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
---------------------
KEEFE, BRUYETTE & WOODS, INC.
MCGINN, SMITH & CO., INC.
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article X of the Articles of Incorporation of the Company provides that the
Company shall indemnify its officers and directors to the fullest extent
permitted by law.
Section 607.0831 of the Florida Business Corporation Act provides, among
other things, that a director is not personally liable for monetary damages to a
company or any other person for any statement, vote, decision, or failure to
act, by the director, regarding corporate management or policy, unless the
director breached or failed to perform his or her duties as a director and such
breach or failure constitutes (a) a violation of criminal law, unless the
director had reasonable cause to believe his or her conduct was lawful or had no
reasonable cause to believe his or her conduct was unlawful; (b) a transaction
from which the director derived an improper personal benefit; (c) a circumstance
under which the liability provisions of Section 607.0834 of the Florida Business
Corporation Act (relating to the liability of the directors for improper
distributions) are applicable; (d) willful misconduct or a conscious disregard
for the best interest of the company in the case of a proceeding by or in the
right of the company to procure a judgement in its favor or by or in the right
of a shareholder; or (e) recklessness or an act or omission in bad faith or with
malicious purpose or with wanton and willful disregard for human rights, safety
or property, in a proceeding by or in the right of someone other than such
company or a shareholder.
Section 607.0850 of the Florida Business Corporation Act authorizes, among
other things, the Company to indemnify any person who was or is a party to any
proceeding (other than an action by or in the right of the Company) by reason of
the fact that he is or was a director, officer, employee or agent of the Company
(or is or was serving at the request of the Company in such a position for any
entity) against liability incurred in connection with such proceeding, if he or
she acted in good faith and in a manner reasonably believed to be in the best
interests of the Company and, with respect to criminal proceedings, had no
reasonable cause to believe his or her conduct was unlawful.
Florida law requires that a director, officer or employee be indemnified
for expenses (including attorneys' fees) to the extent that he or she has been
successful on the merits or otherwise in the defense of any proceeding. Florida
law also allows expenses of defending a proceeding to be advanced by a company
before the final disposition of the proceedings, provided that the officer,
director of employee undertakes to repay such advance if it is ultimately
determined that indemnification is not permitted.
Florida law states that the indemnification and advancement of expenses
provided pursuant to Section 607.0850 is not exclusive and that indemnification
may be provided by a company pursuant to other means, including agreements or
bylaw provisions. Florida law prohibits indemnification or advancement of
expenses, however, if a judgment or other final adjudication establishes that
the actions of a director, officer or employee constitute (i) a violation of
criminal law, unless he or she had reasonable cause to believe his or her
conduct was lawful or had no reasonable cause to believe his or her conduct was
unlawful; (ii) a transaction from which such person derived an improper personal
benefit; (iii) willful misconduct or conscious disregard for the best interests
of the company in the case of a derivative action or a proceeding by or in the
right of a shareholder; or (iv) in the case of a director, a circumstance under
which the liability provisions of Section 607.0834 of the Florida Business
Corporation Act (relating to the liability of directors for improper
distributions) are applicable.
The Company has purchased director and officer liability insurance that
insures directors and officers against liabilities in connection with the
performance of their duties.
The Purchase Agreement filed herewith as Exhibit 1.1 contains provisions by
which each underwriter agrees to indemnify the Registrant, each person, if any,
who controls the Registrant within the meaning of Section 15 of the Securities
Act of 1933 (the "Act"), each Director of the Registrant, and each officer of
the Registrant who signs this Registration Statement, with respect to
information furnished in writing by and concerning such underwriter specifically
for use in the Registration Statement.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the underwriting discounts and commissions, if any.
<TABLE>
<S> <C>
SEC Registration Fees....................................... $ 4,720
NASD Filing Fee............................................. $ 2,100
NASDAQ Listing Fee.......................................... $ 48,750
Transfer Agent's Fees and Expenses.......................... $ 4,500
Blue Sky Registration Fees and Expenses..................... $ 10,000
Legal Fees and Expenses..................................... $ 75,000
Accounting Fees............................................. $ 45,000
Printing, Engraving and Mailing Expenses.................... $ 55,000
Miscellaneous............................................... $ 50,000
--------
TOTAL:.................................................... $295,070
========
</TABLE>
- ------------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In a private placement which commenced in December 1995 and concluded in
March 1998, the Registrant sold 50,000 shares of Preferred Stock, Series A (the
"Preferred Stock"), at an offering price of $20.00 per share. The $1,000,000
proceeds of the sale was utilized by the Registrant for working capital.
On each of the quarterly dividend payment dates of the Preferred Stock,
holders of the Preferred Stock were permitted to elect to receive in lieu of the
specified cash dividend an equivalent value of additional shares of Preferred
Stock, valued at $20.00 per share. In these private placements an aggregate of
3,616 additional shares of Preferred Stock had been issued to holders of
Preferred Stock as of March 31, 1998.
The shares of such securities were exempt from the provisions of Section 5
of the Securities Act of 1933, as amended (the "Act"), pursuant to the
provisions of Section 4(2) of the Act because of the limited number of
participants in such transactions and the relationship of such participants to
the Registrant. Sales of securities in these offerings were made only to persons
who were "accredited investors" within the meaning of Rule 501 promulgated under
the Act. In addition, all such participants agreed to acquire their securities
for investment and not with a view to the distribution thereof, and the
certificates representing the securities issued to each such participant contain
a legend to the effect that such securities are not registered under the Act and
may not be transferred except pursuant to a registration statement which has
become effective under the Act, or an exemption from such registration
requirement. Stop transfer instructions have been given to the Registrant's
transfer agent with respect to such securities. The issuance of such securities
was not underwritten, and no commissions or other remuneration were paid or
given, directly or indirectly, in connection with such sales.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1.1* Form of Purchase Agreement
2.1** Plan of Merger and Merger Agreement dated February 14, 1997
by and between Pointe Federal Savings Bank and Pointe Bank
3.1 Articles of Incorporation of the Registrant
3.2** By-Laws of the Registrant
4.1 Specimen Common Stock Certificate
5.1 Opinion of Stuzin and Camner, P.A.
10.1 1994 Non-Statutory Stock Option Plan
10.2** Deferred Compensation Plan
10.3** Office Lease Agreement dated October 8, 1986 by and between
Centrum Pembroke, Inc. and Flamingo Bank.
10.4** Lease dated as of July 15, 1992 between Konrad Ulmer and
Pointe Savings Bank
10.5** Lease Agreement dated January 23, 1995 by and between
Hollywood Associates VI and Pointe Bank
10.6** Credit Agreement dated August 18, 1997 between Independent
Bankers' Bank of Florida and Pointe Bank
10.7** Credit Agreement dated October 14, 1997 between SunTrust
Bank/Miami, N.A. and Pointe Bank
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
10.9** Equipment Sales and Software License Agreements between
Information Technology, Inc. and Pointe Financial
Corporation
10.10** Master Equipment Lease Agreement dated May 7, 1997 between
Leasetec Corporation and Pointe Financial Corporation
10.11 Letter Agreement dated March 9, 1995 between Pointe
Financial Corporation and R. Carl Palmer, Jr.
10.12 1998 Incentive Compensation and Stock Award Plan
21.1** Subsidiaries of the Registrant
23.1 Consent of Stuzin and Camner, P.A. (included in Exhibit 5.1)
23.2 Consent of Hacker, Johnson, Cohen & Grieb PA
24** Power of Attorney
27** Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment.
** Previously filed.
ITEM 28. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide the
underwriters at the closing specified in the purchase agreement certificates in
such denominations and registered in such names as required by the underwriters
to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
II-3
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 1
to Registration Statement to be signed on its behalf by the undersigned, in the
City of Boca Raton, State of Florida, on June 4, 1998.
POINTE FINANCIAL CORPORATION
By:/s/ R. Carl Palmer, Jr.
--------------------------------
R. CARL PALMER, JR.
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement was signed by the following persons in
the capacities indicated on this 4th day of June, 1998.
<TABLE>
<CAPTION>
NAME AND TITLE SIGNATURE
-------------- ---------
<S> <C>
ROBERTO KASSIN, Chairman of the Board */s/ ROBERTO KASSIN
---------------------------------
R. CARL PALMER, JR., President, Chief /s/ R. CARL PALMER, JR.
Executive Officer and Director (Principal ---------------------------------
Executive Officer)
TIMOTHY MCGINN, Director */s/ TIMOTHY MCGINN
---------------------------------
MORRIS MASSRY, Director */s/ MORRIS MASSRY
---------------------------------
BRADLEY R. MEREDITH, Senior Vice President /s/ BRADLEY R. MEREDITH
and Chief Financial Officer (Principal ---------------------------------
Financial and Accounting Officer)
STEVEN A. ELIAS, Director ---------------------------------
RICHARD MEAD, Director ---------------------------------
PARKER D. THOMSON, Director ---------------------------------
*By: /s/ BRADLEY R. MEREDITH
---------------------------------
Bradley R. Meredith
Attorney in Fact
</TABLE>
II-5
STATE OF FLORIDA LOGO
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Articles of
Incorporation, as amended to date, of POINTE FINANCIAL CORPORATION, a
corporation organized under the laws of the State of Florida, as shown by the
records of this office.
The document number of this corporation is P93000070976.
GREAT SEAL OF THE STATE OF FLORIDA Given under my hand and the
Great Seal of the State of Florida
at Tallahassee, the Capitol, this the
Twenty-fourth day of February, 1998
/s/ Sandra B. Mortham
-----------------------------
Sandra B. Mortham
Secretary of State
<PAGE>
ARTICLES OF INCORPORATION
FOR
POINTE FINANCIAL CORPORATION
The undersigned, acting as incorporator of a corporation under the
Florida Business Corporation Act, adopts the following Articles of
Incorporation:
ARTICLE I
---------
The name of the corporation is "POINTE FINANCIAL CORPORATION" (the
"Corporation").
ARTICLE II
----------
The principal office and mailing address of this Corporation is 21845
Powerline Road, Boca Raton, Florida 33433.
ARTICLE III
-----------
The duration of this Corporation is to be perpetual.
ARTICLE IV
----------
The Corporation may engage in any activity or business permitted under
the laws of the State of Florida.
ARTICLE V
---------
The total number of shares of all classes of stock that the Corporation
is authorized to issue is 3,500,000 shares, of which 2,500,000 shall be Common
Stock, $.01 par value, and 1,000,000 shall be Preferred Stock, $.01 par value.
No holder of the Corporation's stock shall have any preemptive right to acquire
the Corporation's securities.
Common Stock. The maximum number of shares of Common Stock which
the Corporation is authorized to have outstanding is 2,500,000 shares
at a par value of $.01 per share. Holders of Common Stock are entitled
to vote on all questions required by law on the basis of one vote per
share.
Preferred Stock. The maximum number of shares of Preferred Stock
which the Corporation is authorized to have outstanding is 1,000,000
shares at a par value of $.01 per share. The Preferred Stock may be
issued from
<PAGE>
time to time in one or more series as specified in Section 607.0602, Florida
Statutes (or in such other manner as may be permitted by law), as determined
from time to time by the Board of Directors and stated in the resolution or
resolutions providing for the issuance of the Preferred Stock adopted by the
Board of Directors pursuant to authority hereby vested in it, each series to be
appropriately designated, prior to the issuance of any shares thereof, by some
distinguishing letter, number, or title. The Board of Directors is hereby
expressly granted authority to fix the authorized number of shares of each
series of Preferred Stock, and to fix the terms of such series, including but
not limited to, the following:
(a) the rate or manner of payment of dividends;
(b) whether shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption;
(c) the amount payable upon shares in the event of voluntary or
involuntary liquidation;
(d) sinking fund provisions, if any, for the redemption or purchase of
shares;
(e) the terms and conditions, if any, on which shares may be converted;
(f) voting rights, if any; and
(g) the other special rights, if any, and the qualifications,
limitations or restrictions thereof, of the shares of such series.
The designation of each particular series of Preferred Stock and its terms in
respect of the foregoing particulars shall be fixed and determined by the Board
of Directors in any manner permitted by law and stated in the resolution or
resolutions providing for the issuance of such shares adopted by the Board of
Directors pursuant to authority hereby vested in it, before any shares of such
series are issued. The Board of Directors may from time to time increase (but
not above the total number of authorized shares of the class) the number of
shares of any series of Preferred Stock already created by providing that any
unissued Preferred Stock shall constitute part of such series, or may decrease
(but not below the number of shares thereof then outstanding) the number of
shares of any series of Preferred Stock already created by providing that any
unissued shares previously
-2-
<PAGE>
assigned to such series shall no longer constitute part thereof. The Board
of Directors is hereby empowered to classify or reclassify any unissued
Preferred Stock by fixing or altering the terms thereof in respect of the above
mentioned particulars and by assigning the same to an existing or newly created
series from time to time before the issuance of such shares
ARTICLE VI
----------
The street address of the initial registered office is 21845 Powerline
Road, Boca Raton, Florida 33433. The name of the corporation's registered agent
at such address is Stephen H. Barnett.
ARTICLE VII
-----------
The number of directors constituting the Board of Directors shall be
fixed as provided by the bylaws, but shall not be less than one.
ARTICLE VIII
------------
The number of directors constituting the initial Board of Directors is
five, whose names and addresses are as follows:
Stephen H. Barnett
21845 Powerline Road
Boca Raton, Florida 33433
Roberto Kassin
21845 Powerline Road
Boca Raton, Florida 33433
Raymond Monteleone
21845 Powerline Road
Boca Raton, Florida 33433
Stuart Reich
21845 Powerline Road
Boca Raton, Florida 33433
Alvin Stein
21845 Powerline Road
Boca Raton, Florida 33433
ARTICLE IX
----------
The name and address of the incorporator is Suzanne M. Legon, 1221
Brickell Avenue, 25th Floor, Miami, Florida 33131.
-3-
<PAGE>
ARTICLE X
---------
This corporation shall indemnify and may insure its officers and
directors to the fullest extent permitted by law currently in effect or
hereinafter enacted.
ARTICLE XI
----------
These Articles of Incorporation may be amended in the manner authorized
by law at the time of amendment.
_____________________________
IN WITNESS WHEREOF, I, Suzanne M. Legon, being the Incorporator of
Pointe Financial Corporation, make and file these Articles of Incorporation as
of the 28th day of September, 193.
By: /s/ Suzanne M. Legon
--------------------
Suzanne M. Legon
-4-
<PAGE>
CERTIFICATE OF DESIGNATION
REGISTERED AGENT/REGISTERED OFFICE
Pursuant to the provisions of section 607.0501, Florida States, the undersigned
corporation, organized under the laws of the state of Florida, submits the
following statement in designating the registered office/registered agent, in
the state of Florida.
1. The name of the corporation is: Pointe Financial Corporation
____________________________________________________________________________.
2. The name and address of the registered agent and office is:
Stephen H. Barnett
____________________________________________________________________________
(NAME)
21945 Powerline Road
____________________________________________________________________________
(P.O. BOX NOT ACCEPTABLE)
Boca Raton, Florida 33433
____________________________________________________________________________
CITY/STATE/ZIP
SIGNATURE /s/ illegible
----------------------------
(corporate officer)
TITLE President
DATE October , 1993
HAVING BEEN NAMED AS REGISTERED AGENT AND TO ACCEPT SERVICE OF PROCESS FOR THE
ABOVE STATED CORPORATION AT THE PLACE DESIGNATED IN THIS CERTIFICATE, I HEREBY
ACCEPT THE APPOINTMENT AS REGISTERED AGENT AND AGREE TO ACT IN THIS CAPACITY. I
FURTHER AGREE TO COMPLY WITH THE PROVISIONS OF ALL STATUTES RELATING TO THE
PROPER AND COMPLETE PERFORMANCE OF MY DUTIES, AND I AM FAMILIAR WITH AND ACCEPT
THE OBLIGATIONS OF MY POSITION AS REGISTERED AGENT.
SIGNATURE /s/ illegible
----------------------------
DATE October , 1993
REGISTERED AGENT FILING FEE: $35.00
<PAGE>
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION
OF POINTE FINANCIAL CORPORATION
ESTABLISHING SERIES/CLASS OF SHARES
Pursuant to the provisions of Section 607.0602 of the Florida Business
Corporation Act, Pointe Financial Corporation (the "Company") adopts the
following Articles of Amendment to the Articles of Incorporation, which
establish a series/ class of shares:
1. The name of the corporation is Pointe Financial Corporation.
2. The amendment determining the class/series of shares is as follows:
Pursuant to the authority vested in the Board of Directors of the Company
in accordance with provisions of Article V of the Articles of Incorporation of
the Company, a series of Preferred Stock of the Company known as Preferred Stock
- - Series A be, and it hereby is, created, classified, authorized and the
issuance thereof provided for, and that the designation and number of shares,
and relative rights, preferences and limitations thereof, shall be as follows:
1. Designation: ranking. A total of fifty thousand (50,000) shares of the
Company's preferred stock are hereby designated as the Preferred Stock - Series
a, $.01 par value per share (the "Series A Preferred"), and shall have the
relative powers, preferences, rights, qualifications, limitations and
restrictions contained in this Amendment. Terms used but not defined herein
shall have the meanings ascribed to them in the Articles of Incorporation of the
Company, as amended from time to time. The Series A Preferred shall rank senior,
both as to payment of dividends and as to distributions of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, to all of the Company's now or hereinafter issued common stock.
2. Voting. The holders of Series A Preferred shall not have any right to
vote, except that as to any matter on which holders of Series A Preferred are
required to have a vote under applicable law: (i) each holder of record shall be
entitled to one vote for each share of Series a Preferred standing in his name
on the books of the Company and (ii) except as required by applicable law, the
holders of Series A Preferred and (to the extent of any voting rights) shall
vote together as a single class on all matters as to which holders of Series A
Preferred are entitled to vote. Also, if the Company fails to pay a dividend on
a Dividend Payment date to the holders of Series A Preferred, then and
thereafter until all past dividends are paid, the holders of Series A Preferred
shall have voting rights equal to one vote per amount of common stock into which
the Series A Preferred could be converted
<PAGE>
(that is, one and one-half votes per share of Series A Preferred). At such time
as all cumulative dividends have been paid in full, the voting rights of the
holders of Series A Preferred shall, without further action, terminate, subject
to reinstatement if thereafter the Company fails to pay a dividend on a dividend
Payment Date.
3. Dividends. The holders of each issued and outstanding share of Series a
Preferred shall be entitled to receive, when and as declared by the Board of
directors out of any funds legally available therefor, dividends on the purchase
price per share of Series a Preferred, at the rate of eight and one-half percent
(8.5%) per annum (computed on the basis of actual days elapsed and a three
hundred sixty-five (365) day year) ( the "8.5% Dividends"). The 8.5% dividends
will accrue and be cumulative to the extent unpaid, but without interest
thereon, whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Company legally available for the payment
of dividends. The 8.5% Dividends shall become due and payable with respect to
any share of Series a Preferred upon January 1, 1997 and quarterly thereafter (a
"Dividend Payment Date"), or upon any redemption or conversion of such share of
Series A Preferred into common stock. All numbers relating to the calculation of
8.5% dividends shall be subject to equitable adjustment in the event of any
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the Series A Preferred.
4. Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary (a "Liquidation Event"), each
holder of outstanding shares of Series A Preferred shall be entitled to be paid
out of the assets of the Company available for distribution to stockholders,
whether such assets are capital, surplus, or earnings as follows, and before any
amount shall be paid or distributed to the holders of any class of common stock
or of any other stock ranking on liquidation junior to the Preferred Stock -
Series A and amount equal to $20.0 purchase price per share (adjusted
appropriately for stock splits, stock dividends and the like) (the "Series A
Liquidation Amount") together with any accrued and unpaid 8.5% Dividends. Such
amount shall be paid in cash or in property taken at its fair market value, or
both, at the election of the Board of Directors of the Company. However, if upon
any Liquidation Event the amounts payable with respect to the Series A Preferred
and any other stock ranking as to any such distribution on a parity with the
Series A Preferred are not paid in full, the holders of the Series A Preferred
and such common stock shall share ratably in any distribution of assets in
corporation to the full respective preferential amount to which they are
entitled). Neither the consolidation or merger of the Company into or with
another entity or entities. nor the sale, lease or transfer of all or
substantially all of the assets of the Company to whether entity o
-2-
<PAGE>
entities shall be deemed a liquidation, dissolution or winding up of the
affairs of the Company within the meaning of this Paragraph 4.
5. Conversion Into Common Stock.
(a) Conversion Rate. The shares of Series A Preferred shall be
convertible at any time after issue at the option of the record holder hereof,
in the manner hereinafter provided, into fully paid and nonassessable shares of
common stock of the Company at the rate of 1.5 shares of common stock for each
share of Series A Preferred, provided, however, that as to any shares of Series
A Preferred which shall have been called for redemption, the right of
conversion shall terminate at the close of business on the fifth full business
day prior to the date fixed for redemption. No payment or adjustment shall be
made for dividends accrued on any shares of Series Preferred A that shall be
converted or for dividends on any shares of common stock that shall be issuable
upon such conversion, but all dividends accrued and unpaid on such shares of
Series A Preferred up to the dividend payment date immediately preceding the
date of conversion shall be payable in cash to the converting shareholder, and
no such dividend shall be paid upon the shares of common stock until the same
shall be paid or sufficient funds set apart for the payment thereof.
(b) Conversion Rate Adjustments. The conversion rate provided for above
shall be subject to the following adjustments:
(i) In case the Company shall declare and pay to the holders of
the shares of common stock a dividend in shares of common stock, the conversion
rate in effect immediately prior to the time fixed for the determination of
shareholders entitled to such dividend shall be proportionately increased
(adjusted to the nearest, or if there shall be no nearest then to the next
lower, one-thousandth of a share of common stock), such adjustment to become
effective immediately after the time fixed for such determination.
(ii) In case the Company shall subdivide the outstanding shares of
common stock into a greater number of shares of common stock or combine the
outstanding shares of common stock into a smaller number of shares of common
stock, the conversion rate in effect immediately prior to such subdivision or
combination, as the case may be, shall be proportionately increased or decreased
(adjusted to the nearest, or if there shall be no nearest then to the next
lower, one-thousandth of a share of common stock), as the case may require, such
increase or decrease, as the case may be, to become effective when such
subdivision or combination becomes effective.
-3-
<PAGE>
(iii) In case of any reclassification or change of outstanding
shares of common stock issuable upon conversion of the shares of Series A
Preferred, or in case of any consolidation or merger of the Company with or into
another corporation, or in case of any sale or conveyance to another corporation
of all or substantially of all of the property of the Company, the holder of
each share of Series A Preferred then outstanding shall have the right
thereafter, so long as his conversion right hereunder shall exist, to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of shares of common stock of the
Company into which such shares of Series a Preferred might have been converted
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance, and shall have no other conversion rights under these provisions.
the Articles of Incorporation of the resulting, surviving, or successor
corporation or otherwise, shall be amended so that the provisions set forth
herein shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of the shares of Series A Preferred remaining outstanding or other
convertible preferred shares received by the holders in place thereof. In case
securities or property other than shares or common stock shall be issuable or
deliverable upon conversion as aforesaid, then all references in this paragraph
shall be deemed to apply, so far as appropriate and as nearly as may be, to such
other securities or property. The subdivision or combination of shares of common
stock at any time outstanding into a greater or lesser number of shares of
common stock (whether with or without par value) shall not be deemed to be a
reclassification of the common stock of the Company for the purpose of this
subparagraph c.
(c) Surrender of Certificates on conversion. In order to convert shares
of Series A Preferred into shares of common stock, the holder thereof shall
surrender the certificate or certificates for shares of Series A Preferred, duly
endorsed to the Company or in blank (or accompanied by duly executed stock
powers relating thereto), at the office of any transfer agent for the shares of
Series A Preferred (or such other place as may be designated by the Company),
and shall give written notice to the Company at such office that the elects to
convert the same and shall state in writing therein the name or names in which
he wishes the certificate or certificates for shares of common stock to the
issued. The Company shall, as soon as practicable thereafter, deliver at such
office to such holder of shares of Series A Preferred or to his nominee or
nominees, a certificate or certificates for the number of full shares of common
stock to which he shall be entitled as aforesaid and shall make appropriate
payment in cash for any fractional shares. Shares of Series A Preferred shall be
deemed to have been converted as of the date of
-4-
<PAGE>
the surrender of such shares for conversion as provided above, and the person or
persons entitled to receive the shares of common stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares or common stock on such date.
(d) No Fractional Shares. No fractions of shares of common stock shall
be issued upon conversion, but in lieu thereof the Company shall adjust such
fractional interest by payment to the holders of an amount in cash equal to the
prorata share of the purchase price of the Series A Preferred not converted.
(For example, .5 share of common stock would be .5/1.5 = 1/3 x 20 = $6.67.).
(e) Reservation of Common Stock. A number of authorized shares of
common stock sufficient to provide for the conversion of shares of series a
Preferred outstanding upon the bases here provided shall at all times be
reserved for such conversion.
6. Option Redemption.
(a) Redemption. The Company may at its option, to the extent it may do
so under applicable law, redeem one hundred percent (100%) of the then
outstanding shares of Series a Preferred on or after January 1, 1999.
(b) Redemption Price. The redemption price (the "Redemption Price") for
each share of the Series A Preferred redeemed pursuant to this Section 5 shall
be the sum of (a) the Series a Liquidation Amount, plus (b) the amount of any
accrued and unpaid 8.5% Dividends. The Redemption Price shall be paid in cash or
immediately available funds within thirty (30) days after the Redemption Date.
(c) Surrender of Certificates. Each holder of shares of Series a
Preferred to be redeemed shall surrender the certificate or certificates
representing such shares to the Company, duly assigned or endorsed for transfer
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Company or the offices of the transfer agent
for the Series A Preferred or such office or offices as may from time to time be
designated by notice to the holders of Series A Preferred, and thereupon the
Redemption Price for such shares shall be paid to the order of the person whose
name appears on such certificate or certificates and each surrendered
certificate shall be cancelled and retired.
7. Preemptive Rights. Each holder of Series A Preferred shall have the
preemptive right to purchase or subscribe for their prorata share of capital
stock of the Company for all new issue of any class of stock of the Company, no
matter when
-5-
<PAGE>
authorized, and for whatever consideration is contemplated to be received by the
Company, including but not limited to cash, other property, services, the
acquisition of other Company shares or property through merger or the
extinguishment of debts. These preemptive rights shall apply to any Company
obligation which is convertible to or exchangeable for any stock of the Company,
or where there is attached to such obligation any stock warrants or rights which
allow the holder to acquire by subscription or purchase any stock of the
Company. Preemptive rights shall not apply to the reissuance of redeemed or
otherwise acquired shares which are not restored to the status of authorized but
unissued shares. Preemptive rights shall not apply to capital stock issued in
connection with stock option plans or employee stock benefit plans, or stock
issued in connection with any acquisition of any business or entity.
3. The amendment was adopted by the Board Directors effective as of
December 20, 1995.
4. the amendment was duly adopted by the Board of Director.
Dated: December 20, 1995.
POINTE FINANCIAL CORPORATION
By: /s/ R. Carl Palmer, Jr.,
-------------------------------
R. Carl Palmer, Jr.,
President and Chief Executive Officer
-6-
<PAGE>
Articles of Amendment
to
Statement of Designation
of
Preferred Stock, Series A
of
Pointe Financial Corporation
Pursuant to the provisions of Section 607.0602 of the Florida Business
Corporation Act, Pointe Financial Corporation (the "Company") adopts the
following Articles of Amendment to the Statement of Designation of Preferred
Stock, Series A, of the Company (filed with the Florida Department of State as
Articles of Amendment to the Company's Articles of Incorporation on April 11,
1996) (the "Statement of Designation");
1. The name of the corporation is Pointe Financial Corporation.
2. The text of the amendment (the "Amendment") to the Statement of
Designation of Preferred Stock, Series A of Pointe Financial
Corporation is that the first sentence of Paragraph 1 of the
Statement of Designation is amended to provide in its entirely as
follows:
"1. Designation Ranking. A total of sixty thousand (60,000)
shares of the Company's preferred stock are hereby designated
as the Preferred Stock - Series A, $.01 per value per share
(the "Series A Preferred"), and shall have the relative
powers, preferences, rights, qualifications, limitations and
restrictions contained in this Amendment."
3. The Amendment was duly adopted by the Board of Directors of the
Company on April 16, 1997.
4. No shareholder action was required to adopt the Amendment.
IN WITNESS WHEREOF, these Articles of Amendment have been executed on
behalf of the Company by the undersigned member of the Company's Board of
Directors this 1st day of April, 1998.
Pointe Financial Corporation
By: R. Carl Palmer, Jr.
-------------------------------
R. Carl Palmer, Jr.
President and Chief Executive Officer
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
POINTE FINANCIAL CORPORATION
I.
The name of the corporation is Pointe Financial Corporation (the
"Corporation").
II.
The text of the amendment to the Articles of Incorporation is that
the first four sentences of Article V of the Articles of Incorporation of the
Corporation are hereby amended to read in their entirety as follows:
"Article V
----------
The total number of shares of all classes of stock that the corporation
is authorized to issue is 6,000,000 shares, of which 5,000,000 shall be Common
Stock, $.01 par value, and 1,000,000 shall be Preferred Stock, $.01 par value.
No holder of the Corporation's stock shall have any preemptive right to acquire
the Corporation's securities.
Common Stock. The maximum number of shares of Common Stock
which the Corporation is authorized to have outstanding is 5,000,000
shares at a par value of $.01 per share. Holders of Common Stock are
entitled to vote on all questions required by law on the basis of one
vote per share."
III.
This amendment to the Articles of Incorporation was duly adopted
pursuant to Section 607.1003 of the Florida Business Corporation Act by the
Board of Directors of the Corporation on February 27, 1998 and by the
affirmative vote of a majority of the holders of the issued and outstanding
shares of Common Stock of the Corporation on April 27, 1998, which number of
votes was sufficient for approval of this amendment.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed on this 12th day of May, 1998.
By: R. Carl Palmer, Jr.
-------------------------
R. Carl Palmer, Jr.
President
THIS SECURITY IS NOT A SAVINGS ACCOUNT
OR DEPOSIT AND IT IS NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION.
NUMBER SHARES
COMMON STOCK, $.01 PAR VALUE SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
CUSIP 73084p 10 0
POINTE FINANCIAL LOGO
ORGANIZED UNDER THE LAWS OF THE STATE OF FLORIDA
This certifies that_____________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
is the registered holder of______________________________.
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
POINTE FINANCIAL CORPORATION transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon the surrender of
this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar. Witness the facsimile seal of the
Corporation and the signatures of its duly authorized officers.
Countersigned and Registered
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
By:
Authorized Signature
Dated:
Attest: POINTE FINANCIAL CORPORATION
CORPORATE SEAL 1993 FLORIDA
/s/ B.P. Chambers By: R. Carl Palmer
- ------------------ -------------------------------------
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
POINTE FINANCIAL CORPORATION
The Corporation will furnish to any
shareholder upon request and without charge a full statement of the
designations, relative rights, preferences and limitations of the shares of each
class or series of stock authorized to be issued, the variations in the relative
rights and preferences between the shares of each such class or series, and the
authority of the Board of Directors to fix and determine the relative rights,
preferences and limitations of the shares of each such class or series.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of the Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF TRANSFER MIN ACT - ______Custodian ______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Transfers to Minors
survivorship and not as Act _____________________________________
tenants in common (State)
Additional abbreviations may also be used although not in the above list.
------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned hereby sells, assigns, and transfers unto:
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________________________________________________________________________
____________________________________________________________________________________________________
(Print or type name and address, including zip code, of assignee)
____________________________________________________________________________________________________
______________________________________________________________________________________________Shares
represented by the within Certificate, and all rights thereunder, hereby irrevocably consulting and
appointing:
____________________________________________________________________________________________Attorney,
to transfer said Certificate on the books of the Corporation, with full power of substitution in the
premises.
Dated:_____________________________________
_________________________________________________________
NOTICE: The signature of this assignment must correspond
with the name as written upon the face of the certificate
in every particular, without alteration or enlargement of
any change whatsoever.
SIGNATURE(S) GUARANTEED:_________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO B.E.C. RULE 17Ad-15.
</TABLE>
EXHIBIT 5.1
Pointe Financial Corporation
21845 Powerline Road
Boca Raton, Florida 33433
Gentlemen:
We are acting as your counsel with regard to the offering by Pointe
Financial Corporation (the "Company") of shares of its common stock, $.01 par
value (the "Common Stock"). The Common Stock is being offered pursuant to a
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission on April 9, 1998, and all amendments thereto (collectively, the
"Registration Statement"). The Common Stock will be issued and delivered as
described in the Registration Statement.
We are familiar with the relevant documents and materials used in
preparing the Registration Statement. Based on our review of such relevant
documents and materials, and of such other documents and materials as we have
deemed necessary and appropriate, we are of the following opinion:
The Common Stock, when issued and delivered in the manner
described in the Registration Statement against payment of the
applicable consideration therefor, will be legally issued, fully
paid and non-assessable.
We hereby consent to the use of our opinion as an Exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus that is a part of the Registration Statement.
Very truly yours,
STUZIN AND CAMNER,
PROFESSIONAL ASSOCIATION
/s/ Stuzin and Camner,
Professional Association
POINTE FINANCIAL CORPORATION
NON-STATUTORY
1994 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Pointe Financial Corporation
Non-Statutory 1994 Stock Option Plan (the "Plan") is to advance the interest of
Pointe Financial Corporation and its subsidiaries (collectively referred to
herein as the "Company"), by encouraging and enabling the acquisition, through
option granted under the Plan, of a personal and financial interest in the
Company by certain officers and other employees of the Company or its
subsidiaries and by Directors and Directors Emeriti who are not officers or
employees of the Company or its subsidiaries ("Outside Directors"), to retain
present employees, to compete effectively with other enterprises for the
services of new employees, to stimulate the efforts of said employees on their
employer's behalf, to provide Outside Directors with an incentive to achieve
long-term objectives of the Company, to attract and retain non-employee
directors of outstanding competence, and to provide such Outside Directors with
an opportunity to acquire an equity interest in the Company.
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), subject to and in accordance with the
following provisions:
(a) The Board shall have the power, subject to and within the
limitations of the express provisions of the Plan:
(i) to determine from time to time which of the eligible persons
designated in Paragraph 4 hereof shall be granted options under the
Plan (the "Optionees") and the time or times when and the number of
shares for which options (the "Options") shall be granted to them;
(ii) to construe and interpret the Plan and to define the terms
used therein, and to prescribe and establish, amend, rescind and
revoke rules and regulations relating to the administration of the
Plan;
(iii) to determine the duration and purpose of the leaves of absence
which may be granted to Optionees, without constituting the
termination of their employment for purposes of the Plan;
(iv) pursuant to and in the exercise of the powers contained
herein, to correct any defect or supply any omission, or reconcile
any inconsistency in the Plan or any Option agreement, in the
manner and to the extent it shall deem necessary or expedient to
make the Plan effective;
<PAGE>
(v) to prescribe the terms and provisions (not inconsistent with
the Plan) of each Option granted under the Plan (which need not be
identical); and
(vi) to make all other determinations necessary or advisable for
the administration of the Plan and to exercise such power and to
perform such actions deemed necessary or expedient to promote the
best interests of the Company with respect to the Plan.
The Board shall have the final power to determine all questions of
policy or expediency which may arise in the administration of the Plan, and such
determinations of the Board in the matters referred to in the foregoing clause
or otherwise in the Plan shall be conclusive and binding upon the applicable
parties. All power and authority of the Board and all determinations made by
the Board in its sole discretion.
(b) The Board, by resolution, may delegate the administration of the
Plan to three or more persons (the "Committee"). If administration is delegated
as aforesaid, the delegates, as the Committee, shall have, in connection with
the administration of the Plan, the powers theretofore possessed by the Board in
its capacity as the administrator of the Plan, subject, however, to the exercise
of such power not being inconsistent with the provisions of the Plan as from
time to time may be adopted by the Board to determine all questions of policy
and expediency in administration of the plan. The Board at any time, by
resolution, may abolish the Committee and revest the administration of the Plan
in the Board.
(c) The Board shall hold its meetings at such times and such places as
it deems advisable and a majority of its members shall constitute a quorum. All
actions of the Board shall be taken by majority vote of its members entitled to
vote upon the matter before it. In lieu of a meeting, any such action may also
be taken by the written consent of all members of the Board entitled to vote
on the matters before it.
3. STOCK. The shares of stock of the Company available for the grant of
Options under this plan shall consist of the Company's authorized but unissued
Common Stock (the "Common Stock") or shares of Common Stock held by the Company
in its treasury or the number or kind of shares of stock or other securities
which shall be substituted for said shares or to which said shares shall be
adjusted, as provided in Paragraph 7 below. The number of shares for which
Options may be granted shall not exceed 20,000 shares per year for a total of
100,000 shares (subject to adjustment as provided in Paragraph 7 of the Plan).
In the event that any outstanding Option under the Plan for any reason shall
lapse, expire or terminate, the shares of Common Stock allocable to the
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<PAGE>
unexercised portion of such Option may again be made available for the granting
of an Option under this Plan without being deemed to cause a reduction in the
balance of shares of Common Stock available for the granting of Options.
4. PARTICIPANTS. "Participant" shall be defined to mean those persons
who are employed by or serve the Company or its subsidiaries as an officer or
employee (whether or not they are directors or otherwise compensated) and those
persons who are members of the Board of Directors of the Company or any of its
subsidiaries. "Optionee" shall be defined to mean a Participant who, as a valued
officer, employee, or Director of the Company or its subsidiaries, or if
designated as Director Emeritus, for so long as so designated, has been selected
for and granted an Option or Options by the Board in accordance with the
provisions of the Plan. For purposes hereof, the terms "employed by" and
"employment" shall include service as a Director or designation as Director
Emeritus. Any Participant may be granted more than one Option by the Board.
Notwithstanding anything to the contrary contained in the Plan, nothing
contained in this Plan nor in any option granted pursuant to the Plan shall be
deemed or construed as imposing upon the Company or any of its subsidiaries an
obligation or responsibility to continue the affiliation or employment of any
Optionee or Participant, nor limit in any way the right of the Company or its
subsidiaries, as applicable, to terminate the Optionee's or Participant's
employment or position or position with the Company or its subsidiaries, nor
confer upon or be construed as permitting an Optionee or Participant any right
to continue in the employ or service of the Company or any of its subsidiaries,
nor to interfere in any way with the right of the Company or any of its
subsidiaries to reduce any Optionee's or Participant's compensation and benefits
from that existing from time to time, including that as existing at the time of
the adoption of the Plan or of the granting of any Option. So long as Optionee
shall continue to serve or be employed by the Company or its subsidiaries, his
Option shall not be affected by any change of deputy or position or by any
temporary leave of absence approved by the Board.
5. GRANT AND TERMS OF OPTIONS. The Board may, from time to time, grant
Options to purchase Common Stock to eligible Participants in accordance with the
provisions of the Plan and upon such other terms and conditions as are not
inconsistent with the provisions and purposes of the Plan. The Board shall
determine the number of shares, if any, to be granted in any year, the
Participants to whom such Options shall be granted, the number of shares to be
granted to each Participant selected by the Board, and all other matters
pertaining thereto. All options granted pursuant to the Plan shall be evidenced
by Option agreements ("Option Agreements") which need not be identical but which
shall be made by the Board in accordance with the following provisions:
-3-
<PAGE>
(a) Terms of Options. No Option shall expire later than five (5) years
from the date it is granted, but each such Option shall be subject to earlier
termination as provided in subparagraph (g) below.
(b) Exercise of Options. Each Option granted under the Plan shall be
exercisable on such date or dates and during such period and for such number of
shares as shall be determined by the Board. Each Option may be exercisable in
one or more "installments" (which need not be equal) and/or in total and at such
times as the Board shall determine. To the extent not exercised, installments
may, if provided by the Board, accumulate and be exercised in whole or in part
at any time after installments become exercisable but not later than the date
the Option, or any such installment right to exercise the option, expires as
determined by the Board.
(c) Price. The purchase price per share of Common Stock shall be the
"fair market value per share" of the Common Stock on the date the Option is
granted. For purposes of the Plan, the term "fair market value per share" shall
be defined to mean the total equity available to the holders of the Common Stock
divided by the total number of outstanding shares of Common Stock, except that,
notwithstanding the foregoing, if any arm's length trades in the Common Stock
were made in the three (3) months preceding the date on which the Option was
granted, "fair market value per share" shall be defined to mean the average
price per share of any such trades. The price per share shall be subject to
adjustment, as applicable under Paragraph 7 hereof. All price computations shall
be subject to the final determination of the Board, which shall be conclusive
upon all parties, and the Board shall further have the right to establish
different methods of computation of "Fair market value per share" if the
circumstances shall make the foregoing methods impractical or if the Board shall
determine that a different method shall be appropriate and equitable.
(d) Number of Shares. The number of shares granted for each Option
shall be determined by the Board but shall not be less than fifty (50) shares
and, furthermore, no Option may be exercised for the purchase of less than
twenty-five (25) shares at any one time unless, by virtue of such exercise, the
balance of all unpurchased shares available to be purchased under the Option are
then purchased. No fractional shares shall be issued.
(e) Payment. The purchase price of the Common Stock sold pursuant to an
Option shall be paid in cash or in such other manner as may be determined by the
Board.
(f) Notice of Exercise. To the extent that the right to purchase shares
has accrued thereunder, Options may be exercised from time to time by notice to
the Company, as the Board may prescribe or approve, stating the number of shares
for which the Option is being exercised. The date the notice is received by the
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<PAGE>
Company shall be the exercise date. Any cash payment and other appropriate
evidence of payment for the shares purchased under the terms of the Option shall
be made within five (5) business days after the exercise data. At the time of
such payment, or as soon as reasonable thereafter, the Company shall deliver to
the applicable Optionee a certificate or certificates for the shares of Common
Stock purchased and shall pay any transfer or issue tax therefor.
(g) Termination of Service. Subject to the Board's right to extend the
period during which the Option may be exercised as provided below, immediately
upon termination of the Optionee's employment with the Company or any of its
subsidiaries, as applicable, all rights of the Optionee to exercise such Option
shall then lapse, cease, and be terminated, unless the Board shall have provided
expressly to the contrary by incorporating exceptions in the Optionee's Option
Agreement in accordance with and as limited by the following provisions (i) and
(ii).
(i) Reitirement or Disability. The Board may provide in the Option
Agreement for a period not exceeding any one (1) year during which
the Optionee shall have the right to exercise his Option following
termination of employment if the Optionee's employment was
terminated because of retirement under any pension or retirement
plan of the Company or any of its subsidiaries, or with the
approval of the Board, or because of disability, as determined by
the Board.
(ii) Death, The Board may provide in the Option Agreement, for a
period not exceeding one (1) year, during which, if an Optionee's
employment is terminated by his death, the person or persons to
whom such Optionee's rights under such Options shall pass by
applicable laws of descent and distribution, or his estate, as
applicable, shall have the right to exercise such Option to the
extent such Option was exercisable by the Optionee immediately
prior to his death.
(h) Non-Transferability of Options. Options shall not be transferred
nor assigned except by will or by laws of descent and distribution. During the
lifetime of the Optionee only the Optionee may exercise his Option, except said
Option may be exercised by a person appointed under a durable power of attorney
as power of attorney or attorney in face, made by the Optionee, pursuant to
section 709.08, Florida Statutes, or by his duly appointed guardian in the event
of his adjudication of incompetency. If the Optionee shall die, his Option shall
be exercised only by his personal representative or administrator or his estate
or by a person or persons to whom such Optionee's rights under such Option is
passed by will or under the laws of descent or distribution, as applicable.
Except as provided above, the Option
-5-
<PAGE>
shall not be transferred, pledged or hypothecated in any way; shall not be
assigned by operation of law; and shall not be subject to execution, attachment,
or similar process.
(i) Non-Transferability of Stock Acquired. The Board shall have the
right to impose, as a condition of purchasing the Common Stock under any Option
granted hereunder, a restrictions on the transfer of shares acquired through the
exercise of such Option.
(j) Other Terms and Conditions. Options may contain such other
provisions which may not be inconsistent with any of the foregoing terms as the
Board may determine to be appropriate.
6. USE OF PROCEEDS FROM OPTION. Proceeds from the sale of the Common
Stock under the Options shall constitute general funds of the Company to be used
for general corporate purposes.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) If any shares of the Company's Common Stock are increased,
decreased or changed into, exchanged for, or a dividend is declared consisting
of, a different number or kind of shares or securities, whether through merger,
consolidation, separation, reorganization, recapitalization, reclassification,
stock dividend, stock, split, reverse split, combination of shares, exchange or
shares, spin-off, change in corporate structure or the like, an appropriate and
proportionate adjustment shall be made in the number and kinds of shares subject
to unexercised Options or portions thereof granted prior to any such change and
in all other numbers of shares provided for herein. Any such adjustment in an
outstanding Option, however, may be made with or without a change in the total
price applicable to the unexercised portion of the Option or with or without a
corresponding adjustment in the price for each share covered by the Option, as
the Board deems appropriate.
(b) Notwithstanding the foregoing, upon dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation or other change
in corporate structure in which the Company is not the surviving corporation, or
pursuant to which the Company becomes a more than fifty percent (50%) subsidiary
or another corporation, or upon the sale of substantially all of the property of
the Company to another corporation, the Options issued hereunder shall
terminate, unless provision was made by the Board in the Option Agreement
granted by the Board or is made in connection with such transaction for the
assumption of Options theretofore granted, or for the substitutions of such
Options for new Options of the successor corporation or a parent or subsidiary
thereof, with appropriate adjustment as to the number and kind of shares and the
per share exercise prices. Adjustments under this paragraph shall be made by the
Board, whose determinations as to
-6-
<PAGE>
what adjustment shall be made, and the extent thereof, shall be conclusive.
(c) In adjusting the Common Stock as described in subparagraphs (a) and
(b) above, or in determining that no such adjustment is necessary, the Board may
rely upon the advice of counsel and accountants of the Company and the
determination of the Board shall be conclusive. Whether or not the Board
determines to make any such adjustment, it may nevertheless accelerate the
exercisability of Options then outstanding for a limited period prior to the
occurrence of any of such events or in other circumstances where the Board
determines such acceleration appropriate. No fractional shares of Common Stock
shall be issued under the Plan on account of any adjustment specified above.
(d) Notwithstanding anything to the contrary contained in the foregoing
provisions of this Paragraph 7, the Board shall have the right to:
(i) waive any adjustment as described in subparagraphs (a) and (b)
above, because of the issuing of any shares for the acquisition of
any corporation or assets by the Company; for the satisfaction of
this or any other stock option plan; or for any new issue of
corporation stock constituting a public offering or a private
placement;
(ii) provide in any Option Agreement (without requiring similar
provisions in any other Option Agreement) that in the event of a
dissolution or liquidation of the Company or upon any merger or
consolidation or other change in corporate structure in which the
Company is not the surviving corporation, or pursuant to which the
company becomes a more than fifty percent (50%) subsidiary of
another corporation, the Optionee shall have the right immediately
prior to such liquidation, dissolution, merger or consolidation, or
other change in corporate structure, to exercise his Options in
whole or in part.
8. TERMINATION AND AMENDMENT OF THE PLAN. The Board shall have the
right at any time, without approval or further action on the part of the
shareholders of the Company, to suspend, modify, amend or terminate the Plan
and, with consent of the Optionee, to make such modification of the terms and
conditions of his Option as the Board shall determine, and further to adopt such
rules and regulations for carrying out the Plan, all as the Board shall
determine; provide, however, no amendment or modification of the Plan shall be
made by the Board which would: (i) materially increase the number of shares
which may be issued under the Plan; or (ii) materially modify the requirements
as to eligibility for Participants in the Plan; or (iii) materially increase the
benefits accruing to Participants under the Plan; unless such amendment or
modification shall be first approved by a majority of the total
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votes eligible to be case by the holders of the voting stock of the Company.
Except as provided in Paragraph 7, rights and obligations under any Option
granted before amendment or modification of the Plan or prior to any suspension
or termination of the Plan shall not be altered or impaired by such amendment,
modification, alteration or suspension except with the consent of the person to
whom the Option was granted. Notwithstanding the foregoing, the Board may grant
to an Optionee, if otherwise eligible, extensions of or additional Options, or,
with consent of the Optionee, grant a new Option in lieu of the outstanding
Option, for a number of shares, at an Option price and for a term which in any
respect may be greater or less than that of the prior Option, subject, however,
to the provisions of the Plan as set forth herein.
9. REGULATORY REQUIREMENTS. No Option granted pursuant to the Plan
shall be exercisable in whole or in part if at any time the Board shall
determine that the listing, registration, of qualification of the shares of
Common Stock subject to such Option on any securities exchange or under
applicable governmental laws, rules or regulations, or the consent or approval
of a governmental regulatory body, is necessary or desirable as a condition of
or in connection with, the granting of such Option or the issuance of shares
thereunder, unless (i) such listing, registration, qualification, consent, or
approval shall have been effected or obtained for of any condition not
acceptable to the Board; or (ii) the Board shall determine upon evidence
satisfactory to it that the holder of such Option will not transfer such shares
except pursuant to a registration required thereunder and/or an opinion of
counsel, acceptable to the Board and its counsel, has been received by the Board
to the effect that such registration is not required. Any determination in this
connection by the Board and its counsel may require the imprinting of a legend
upon any shares issued pursuant to an Option if it determines such to be
necessary or appropriate under applicable laws and regulations or otherwise to
comply with restrictions provided pursuant to Plan. The Company may, at its
cost, register any securities issued under the Plan pursuant to applicable laws
and regulations as determined by the Board. The Company shall not be obligated
to take any other affirmative action in order to cause the exercise of any
Option or the issuance of share pursuant thereto comply with any law or
regulations of any governmental authority.
10. TAX WITHHOLDING. The Board shall have the right to require the
deduction such sums which, under federal or state laws, will be required to be
withheld with respect to the exercise of any Option; provided, however, in the
alternative, the Board may require the Option holder or other person exercising
such Option to pay such sums with its payment for the Option. Neither the
Company nor any of its subsidiaries or affiliates shall have any obligation to
advise any Option holder of the existence or the amount of such tax which may be
required.
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11. RIGHTS AS STOCKHOLDERS. No Optionee shall have rights of
stockholders with respect to shares of Common Stock covered by the Option until
the date of issuance of a stock certificate for such shares and the delivery
thereof to the Optionee after the exercise of his Option.
12. EFFECTIVENESS OF THE PLAN. The Plan as originally adopted by the
Board was approved by the stockholders of Pointe Federal Savings Bank ("Pointe
Federal") on _______________________; the Plan has become the stock option plan
of the Company as a result of the Company's acquisition of Pointe Federal,
which acquisition was approved by the Pointe Federal stockholders on April 29,
1994. No Common Stock shall be issued hereunder contrary to the provisions of
the Company's Articles of Incorporation.
13. MISCELLANEOUS.
(a) Whenever the singular number is used herein, the same shall include
the plural; and the masculine and/or feminine and natural and/or artificial
person shall include all genders whenever and wherever the context so requires
or permits.
(b) References herein to the terms: (i) "subsidiary" shall mean any
company which is controlled by the Company or by a company which is a subsidiary
of the Company; and (ii) "company" shall mean any corporation, partnership,
joint venture, or other legal entity.
For purposes hereof, the Company shall be deemed to have "control" of
the applicable company if the Company directly or indirectly or through one or
more subsidiaries owns, controls or holds with power to vote to proxies
representing, fifty percent (50%) or more of the voting shares or interests in
such company.
14. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Florida. In the event any provision of
this Plan shall be deemed invalid, the remainder of this Plan, or the
application of such provision to persons or circumstances other than those to
which it is held invalid, shall not be affected thereby and shall continue to be
binding and in force.
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FIRST AMENDMENT TO
POINTE FINANCIAL CORPORATION
NON-STATUTORY
1994 STOCK OPTION PLAN (THE "PLAN")
APRIL 30, 1996
Paragraph 3 of the Plan is deleted and the following is substituted in
its entirely:
"Stock. The shares of stock of the Company available for the grant of
Options under this Plan shall consist of the Company's authorized but unissued
Common Stock (the "Common Stock") or shares of Common Stock held by the Company
in its treasury or the number of kind of shares of stock or other securities
which shall be substituted for said shares or to which said shares shall be
adjusted, as provided in Paragraph 7 below. The number of shares for which
Options may be granted shall not exceed a total of 200,000 shares (subject to
adjustment as provided in Paragraph 7 of the Plan). In the event that any
outstanding Option under the Plan for any reason shall lapse, expire or
terminate, the shares of Common Stock allocable to the unexercised portion of
such Option may again be made available for the granting of an Option under this
Plan without being deemed to cause a reduction in the balance of shares of
Common Stock available for the granting of Options."
POINTE FINANCIAL CORPORATION POINTE FINANCIAL LOGO
- --------------------------------------------------------
21845 POWERLINE ROAD
BOCA RATON, FL 33433
407/368-6300
800/542-2266
407/394-4289 FAX
March 9, 1995
Mr. R. Carl Palmer, Jr.
280 Gulf Shore Blvd. S.
Naples, FL. 33940
Dear Carl:
We are pleased to offer you the position of Director, President and Chief
Executive Officer of Pointe Financial Corporation and Pointe Federal Savings
Bank and Director of Pointe Bank, reporting to both Boards of Directors and
subject to final regulatory approvals.
The compensation and benefits are as follows:
1. $15,833.34 monthly or,
$7,916.67 bi-monthly,
2. Participation in a performance based incentive pay program as we
discussed (based on achievement of mutually established goals) and
eligible for up to $50,000,
3. Monthly auto/phone allowance of $1,000,
4. Moving allowance of $40,000,
5. Employee benefits including:
a. participation in 401(k) plan upon completion of one year of service
(Pointe currently contributes 25% of first 5% of elective deferral),
b. Health and dental coverage, (subject to annual adjustment):
MEDICAL MEDICAL
(HMO) (PPO)
SINGLE $ 25.00 $ 50.00
FAMILY $125.00 $225.00
(Monthly employee contribution amounts)
c. Life insurance (two times annual salary) and based on medical
approval if in excess of guarantee issue amount,
d. Short and long-term disability (provided by company),
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e. Four weeks vacation per year,
f. Sick day eligibility as per policy,
g. Personal day eligibility as per policy,
6. Deferred compensation/retirement package (based on director's program),
7. Participation in stock option program (to be finalized),
8. Buy-In provision for 90 days,
9. Severance guarantee as follows:
- termination within the first 3 months - 30 day salary continuation,
- termination within the first 6 months - 60 day salary continuation,
- termination within the first 12 months - 90 day salary continuation,
All terms payable for no/cause any cause.
I look forward to your acceptance of our offer. We know you will make a
significant positive contribution as we embark upon new and exciting ventures.
Sincerely,
/s/Roberto Kassin
- ---------------------------
Roberto Kassin,
Chairman of the Board
ACCEPTED: /s/R. Carl Palmer, Jr.
-------------------------
R. Carl Palmer, Jr.
EXHIBIT 10.12
POINTE FINANCIAL CORPORATION
1998 INCENTIVE CON2ENSATION AND STOCK AWARD PLAN
1. Purpose. The purpose of this 1998 Incentive Compensation and Stock Award
Plan (the "Plan") is to assist Pointe Financial Corporation (the "Company") and
its subsidiaries and affiliates in attracting, motivating, retaining and
rewarding high-quality executives and other employees, officers, directors and
affiliates by enabling such persons to acquire or increase a proprietary
interest in the Company in order to strengthen the mutuality of interests
between such persons and the Company's shareholders, and providing such persons
with annual and long term performance incentives to expend their maximum efforts
in the creation of shareholder value.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a participating
employer under the Plan, provided that such entity is controlled by or under
common control with the Company.
(b) "Award" means any Option, Restricted Stock, Restricted Stock Units,
Stock Bonus or Stock Award in Lieu of Cash, or Other Stock-Based Award granted
to a Participant under the Plan.
(c) "Award Agreement" means any written agreement contract or other
instruments or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts which have
been designated by such Participant in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under this Plan upon the death of the Participant or, if there is no designated
Beneficiary or surviving designated Beneficiary, then the person, persons, trust
or trusts entitled by will or the laws of descent and distribution to receive
such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Change in Control" means Change in Control as defined with related
terms in Section 8.
(g) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
(h) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that Committee action shall be taken by act of such members
specified in, and otherwise in accordance with, Section 3(b). The Committee
shall consist solely of two or more directors of the Company. In appointing
members of the Committee, the Board will consider whether each member will
qualify as a "non-employee director" within the meaning of Rule 16b-3(b)(3), but
such members are not required to so qualify at the time of appointment or during
their term of service on the Committee.
(i) "Company" means Pointe Financial Corporation, a corporation
organized under the laws of the State of Florida, or any successor corporation.
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(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act shall
be deemed to include successor provisions thereto and regulations thereunder.
(k) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee. Unless otherwise determined by the Committee, the Fair
Market Value of Stock as of any given date shall mean the per share value of
Stock as determined by using the average of the mean of the closing prices of
such Stock as quoted on the Nasdaq Stock Market's National Market on each of the
immediately preceding five days on which the stock was traded, as reported for
such dates in the table contained in The Wall Street Journal or an equivalent
successor table.
(i) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "NQSO" means any Option that is not an ISO.
(n) "Option" means a right, granted to a Participant under Section
6(b), to purchase Stock or other Awards. An Option may be either an ISO or an
NQSO.
(o) "Participant" means a person who, as an executive officer, officer,
director, or employee or independent contractor of the Company (which includes
employees of Subsidiaries or Affiliates), has been granted an Award under the
Plan.
(p) "Restricted Stock" means an award of shares of Stock to a
Participant under Section 6(d) that may be subject to certain restrictions and
to a risk of forfeiture.
(q) "Restricted Stock Unit" means a right, granted to a Participant
under Section 6(d), to receive Stock or cash at the end of a specified deferral
period.
(r) "Plan" means this 1998 Incentive Compensation and Stock Award Plan.
(s) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(t) "Stock" means the Common Stock, of the Company or such other
securities as may be substituted or resubstituted therefor pursuant to
Section 5.
(u) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
3. Administration.
(a) Authority of the Committee. Except as otherwise provided herein,
the Plan shall be administered by the Committee. The Committee shall have full
and final authority to take the following actions, in each case subject to and
consistent with the provisions of the Plan:
(i) to select Participants to whom Awards may be granted;
(ii) to designate Affiliates;
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(iii) to determine the type or types of Awards to be granted to
each Participant;
(iv) to determine the type and number of Awards to be granted, the
number and type of shares of Stock to which an Award may relate, the terms and
conditions of any Award granted under the Plan (including, but not limited to,
any exercise price, grant price, or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability, or settlement of an Award, and
waivers or accelerations thereof, and waivers of performance conditions relating
to an Award, based in each case on such considerations as the Committee shall
determine), and all other matters to be determined in connection with an Award;
(v) to determine whether, and to what extent, the right of a
Participant to exercise or receive a grant or settlement of any Award, and the
timing thereof, may be subject to such performance conditions as may be
specified by the Committee. The Committee may use such business criteria and
other measures of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to reduce or increase
the amounts payable under any Award subject to performance conditions;
(vi) to determine whether, to what extent, and under what
circumstances an Award may be settled or the exercise price of an Award may be
canceled, forfeited, exchanged, or surrendered;
(vii) to determine whether, to what extent, and under what
circumstances an Award will be deferred either automatically, at the election of
the Committee, or at the election of the Participant, and whether to create
trusts and deposit Stock or other property therein,
(viii) to prescribe the form of each Award Agreement, which need
not be identical for each Participant;
(ix) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(x) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Award,
rules and regulations, Award Agreement or other instrument hereunder; and
(xi) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board may perform any
function of the Committee under the Plan, including without limitation for
the purpose of ensuring that transactions under the Plan by Participants who are
then subject to Section 16 of the Exchange Act in respect of the Company are
exempt under Rule 16b-3. In any case in which the Board is performing a function
of the Committee under the Plan, each reference to the Committee herein shall be
deemed to refer to the Board.
(b) Manner of Exercise of Committee Authority. At any time that a
member of the Committee is not a Non-Employee Director as defined in Rule 16b-3,
any action of the Committee relating to an Award granted or to be granted to a
Participant who is then subject to Section 16 of the Exchange Act in respect of
the Company may be taken either (i) by a subcommittee, designated by the
Committee, composed solely of two or more members who are Non-Employee
Directors, or (ii) by the Committee but with each such member who is not a
Non-Employee Director abstaining or recusing himself or herself from such
action; provided, however, that, upon such abstention or recusal, the Committee
remains composed solely of two or more members who are Non-Employee Directors.
Such action, authorized by such a subcommittee or by the Committee upon the
abstention or recusal of such non-qualifying member(s), shall be the action of
the Committee for purposes of the Plan. Any action of the Committee with respect
to the Plan shall be final, conclusive, and binding on all persons, including
the Company, Subsidiaries, Affiliates,
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Participants, any person claiming any rights under the Plan from or through any
Participant and shareholders. The express grant of any specific power to the
Committee, and the taking of any action by the Committee, shall not be construed
as limiting any power or authority of the Committee. The Committee may delegate
to officers or managers of the Company or any Subsidiary the authority, subject
to such terms as the Committee shall determine, to perform administrative
functions and such other functions as the Committee may determine, to the extent
permitted under applicable law, and in the case of a Participant then subject to
Section 16 of the Exchange Act with respect to the Company, to the extent that
such delegation will not result in the loss of an exemption under Rule
16b-3(d)(1).
(c) Limitation of Liability. Each member of the Committee
shall be entitled, in good faith, to rely or act upon any report or other
information furnished to him or her by any officer or other employee of the
Company or any Subsidiary or Affiliate, the Company's independent certified
public accountants, or other professional retained by the Company to assist in
the administration of the Plan. No member of the Committee, nor any officer or
employee of the Company acting on behalf of the Committee, shall be personally
liable for any action, determination, or interpretation taken or made in good
faith with respect to the Plan, and all members of the Committee and any officer
or employee of the Company or its Subsidiaries acting on their behalf shall, to
the extent permitted by law, be fully indemnified and protected by the Company
with respect to any such action, determination, or interpretation.
4. Eligibility. Executive Officers, officers, directors and employees
of the Company, including employees of the Company's Subsidiaries and Affiliates
who are responsible for or contribute to the management, growth and/or
profitability of the business of the Company or its Subsidiaries are eligible to
be granted Awards under the Plan.
5. Stock Subject to the Plan; Adjustment.
(a) Number of Shares. The number of shares of Common Stock for
which Options, Stock Bonuses, Stock Awards, Restricted Stock and Restricted
Stock Units in lieu of cash or other Stock-Based Awards may be granted under the
Plan shall be 200,000.
(b) Manner of Counting Shares. If any shares subject to an
Award are forfeited, canceled, exchanged, or surrendered or such Award otherwise
terminates without a distribution of shares to the Participant such number of
shares will again be available for Awards under the Plan. The Committee may make
determinations and adopt regulations for the counting of shares relating to any
Awards to ensure appropriate counting avoid double counting (in the case of
tandem or substitute awards), and provide for adjustments in any case in which
the number of shares actually distributed differs from the number of shares
previously counted in connection with such Award.
(c) Type of shares Distributable. Any shares of Stock
distributed pursuant to an Award may consist, in whole or in part, of authorized
and unissued shares or treasury shares, including shares acquired by purchase in
the open market or in private transactions.
(d) Adjustments. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Stock, or other property) which is special, large, and non-recurring,
recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall make such
equitable changes or adjustments as it deems appropriate and, in such manner as
it may deem equitable, adjust any or all of (i) the number and kind of shares of
Stock which may thereafter be issued in connection with Awards, (ii) the number
of and kind of shares of Stock issued or issuable in respect of outstanding
Awards or, if deemed appropriate, make provisions for payment of cash or other
property with respect to any outstanding Award, (iii) the per-person limit,
number and kind of shares subject to Options which may be granted pursuant to
Section 4(b) and (iv) the exercise price, grant price, or purchase price
relating to any Award; provided, however, in each case that, with respect to
ISO's, such adjustment shall be made in accordance with Section 424(h) of the
Code, unless the Committee determines otherwise. In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the criteria
and performance objectives included in Awards, in recognition of unusual or
non-recurring events (including, without
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limitation, events described in the preceding sentence, as well as acquisitions
and dispositions of businesses and assets) affecting the Company or any
Subsidiary, or business unit, or the financial statements thereof, or in
response to changes in applicable laws, regulations, accounting principles, tax
rates and regulations, or business conditions or in view of the Committee's
assessment of the business strategy of the Company, a Subsidiary, or business
unit thereof, performance of comparable organizations, economic and business
conditions, personal performance of a Participant, and any other circumstances
deemed relevant.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and
conditions set forth in this Section 6. In addition, the Committee may impose on
any Award or the exercise thereof, at the date of grant or thereafter (subject
to Section 9(e)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including terms
regarding forfeiture of Awards or continued exercisability of Awards in the
event of termination of employment by the Participant.
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. Unless otherwise required by
applicable law, the exercise price per share of Stock purchasable under
an Option shall be determined by the Committee; provided, however,
that, except as provided in Section 7(a), such exercise price shall be
not less than the Fair Market Value of a share on the date of grant of
such Option.
(ii) Time and Method of exercise. The Committee shall
determine at the date of grant or thereafter the time or times at which
an Option may be exercised in whole or in part, the methods by which
such exercise price may be paid or deemed to be paid, the form of such
payment, including without limitation, cash, Stock, other Awards, notes
or other property, and the methods by which Stock will be delivered or
deemed to be delivered to Participants (including, without limitation,
deferral of delivery of shares under a deferral arrangement).
(iii) ISO's. The terms of any ISO granted under the Plan
shall comply in all respects with the provisions of Section 422 of the
Code.
(c) Restricted Stock. The Committee is authorized to grant
Restricted Stock or Restricted Stock Units ("RSU") to Participants on the
following terms and conditions:
(i) Issuance and Restrictions. Restricted Stock and RSU
shall be subject to such restrictions on transferability and other restrictions,
if any, as the committee may impose at the date of grant or thereafter, which
restrictions may lapse separately or in combination at such times, under such
circumstance, in such installments, or otherwise, as the Committee may
determine. Except to the extent restricted under the Award Agreement relating to
the Restricted Stock or RSU, a Participant granted Restricted Stock or RSU shall
have all of the rights of a shareholder including, without limitation, the right
to vote Restricted Stock and the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the
Committee, at the date of grant or thereafter, upon termination of employment
(as determined under criteria established by the Committee) during the
applicable restriction period, Restricted Stock or RSU, and any accrued but
unpaid dividend(s) that is or are then subject to a risk of forfeiture shall be
forfeited; provided, however, that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Restricted Stock or RSU
will be waived in whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in whole or in part
the forfeiture of Restricted Stock.
(iii) Certificates for Stock Restricted Stock or RSU
granted under the Plan may be evidenced in such manner as the Committee shall
determine. If certificates representing Restricted Stock are registered
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in the name of the Participant, such certificates shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, the Company shall retain physical possession of the
certificate, and the Company may require the Participant to deliver a stock
power, endorsed in blank, relating to the Restricted Stock. Upon expiration of
the deferral period specified for RSU by the Committee (or, if permitted by the
Committee, as elected by the Participant) the stock underlying such RSU shall be
delivered.
(iv) Dividends. Dividends paid on Restricted Stock or RSU
shall be either paid at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of such
dividends, or the payment of such dividends shall be deferred or the amount or
value thereof automatically reinvested in additional Restricted Stock, RSU,
other Awards, or other investment vehicles, as the Committee shall determine or
permit the Participant to elect. Stock distributed in connection with a Stock
split or Stock dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeit= to the same extent as the
Restricted Stock or RSU with respect to which such Stock or other property has
been distributed.
(d) Stock Bonuses and Stock Awards in Lieu of Cash Awards.
The Committee is authorized to grant Stock as a bonus, or to grant other
Awards, in lieu of Company commitments to pay cash under other plans or
compensatory arrangements. Stock or Awards granted hereunder shall have such
other terms as shall be determined by the Committee.
(e) Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Stock or other securities,
as deemed by the Committee to be consistent with the purposes of the Plan,
including, without limitation, rights convertible or exchangeable into Stock or
such securities, purchase rights for Stock or such other securities, and Awards
with value or payment contingent upon performance of the Company, or a
Subsidiary, or upon any other factor or performance condition designated by the
Committee. The Committee is authorized to make cash awards pursuant to this
Section 6(e) as an element of or supplement to any other Award under the Plan.
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem and Substitute Awards.
Awards granted under the Plan may, in the discretion of the Committee, be
granted either alone or in addition to, in tandem with, or in exchange or
substitution for, any other Award granted under the Plan or any award granted
under any other plan of the Company, any Subsidiary or Affiliate, or any
business entity to be acquired by the Company or a Subsidiary or Affiliate, or
any other right of a Participant to receive payment from the Company or any
Subsidiary or Affiliate. Awards may be granted in addition to or in tandem with
such other Awards or awards and may be granted either as of the same time as or
a different time from the grant of such other Awards or awards. The per share
exercise price of any Option, or purchase price of any other Award conferring a
right to purchase Stock which is granted, in connection with the substitution of
awards granted under any other plan of the Company or any Subsidiary or
Affiliate or any business entity to be acquired by the Company or any Subsidiary
or Affiliate, shall be determined by the Committee, in its discretion.
(b) Terms of awards. The term of each Award shall be for such
period as may be determined by the Committee; provided, however, that in no
event shall the term of any ISO exceed a period of ten years from the date of
its grant (or such shorter period as may be applicable under Section 422 of the
Code).
(c) Form of payment Under Awards. Subject to the terms of the
Plan and any applicable Award Agreement, payments to be made by the Company upon
the grant, maturation, or exercise of an Award may be made in such forms as the
Committee shall determine at the date of grant or thereafter, including, without
limitation, cash, Stock, or other property, and may be made in a single payment
or transfer, in installments, or on a deferred basis. The Committee may make
rules relating the installment or deferred payments with respect to Awards,
including the rate of interest to be credited with respect to such payments.
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(d) Rule ]6b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could
otherwise dispose of equity securities, including derivative securities,
acquired under the Plan without incurring liability under Section 16(b) of the
Exchange Act, equity securities acquired under the Plan must be held for a
period of six months following the date of such acquisition, provided that this
condition shall be satisfied with respect to a derivative security if at least
six months elapse from the date of acquisition of the derivative security to the
date of disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a
Participant who is then subject to Section 16 of the Exchange Act in respect of
the Company, the Committee shall implement transactions under the Plan and
administer the Plan in a manner that will ensure that each transaction by such a
Participant is exempt from liability under Rule 16b-3, except that such a
Participant may be permitted to engage in a non-exempt transaction under the
Plan if written notice has been given to the Participant regarding the
non-exempt 1. nature of such transaction. Unless otherwise specified by the
Participant, equity securities, including derivative, securities, acquired
under the Plan which are disposed of by a Participant shall be deemed to be
disposed of in the order acquired by the Participant.
8. Change in Control Provisions.
(a) Acceleration Upon Change in ControL In the event of a "Change in
Control," as defined in this Section:
(i) any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully exercisable and vested; and
(ii) the restrictions, deferral limitations, and forfeiture
conditions applicable to any other Award granted under the Plan shall lapse and
such Awards shall be deemed fully vested, and any performance conditions imposed
with respect to Awards shall be deemed to be fully achieved.
(b) "Change in Control" Defined. For purposes of the Plan, a "Change
in Control" shall have occurred if:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company; any trustee or other
fiduciary holding securities under an employee benefit plan of the Company; any
corporation owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company;
or any person or group of persons who as of the date of approval of this Plan by
the Board of Directors of the Company owns, directly or indirectly 100/o or more
of the combined voting power of the securities of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding voting securities;
(ii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving or parent entity) 50% or more of the combined voting power of the
voting securities of the Company or such surviving or parent entity outstanding
immediately after such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquired 50% or more of the
combined voting power of the Company's then outstanding securities; or
A-7
<PAGE>
(iii) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets (or any
transaction having a similar effect).
9. General Provisions.
(a) Compliance with Legal and Exchange Requirements. The
Company shall not be obligated to take any action under the Plan and any Award
Agreemen4 unless and until it is satisfied that all applicable federal and
state laws, rules and regulations, and approvals by any regulatory or
governmental agency have been complied with or obtained. The Company, in its
discretion, may postpone the issuance or delivery of Stock under any Award until
completion of such stock exchange listing or registration or qualification of
such Stock or other required action under any state, federal or foreign law,
rule or regulation as the Company may consider appropriate, and may require any
Participant to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Stock in
compliance with applicable laws, rules and regulations.
(b) Nontransferability. Except as otherwise provided in
this Section 9(b), Awards shall not be transferable by a Participant other than
by will or the laws of descent and distribution or pursuant to a designation of
a Beneficiary, and Awards shall be exercisable during the lifetime of a
Participant only by such Participant or his guardian or legal representative. In
addition, except as otherwise provided in this Section 9(b), no rights under the
Plan may be pledged, mortgaged, hypothecated, or otherwise encumbered, or
subject to the claims of creditors. The foregoing notwithstanding, the Committee
may, in its sole discretion, provide that Awards (or rights or interests
therein) other than ISOs shall be transferable, including but not limited to
permitting transfers to a Participant's immediate family members (i.e., spouse,
children, or grandchildren, as well as the Participant), to trusts for the
benefit of such family members or other transfers deemed by the Committee to be
not inconsistent with the purposes of the Plan.
(c) No Right to Continued Employment. Neither the Plan nor
any action taken thereunder shall be construed as giving any Participant the
right to be retained in the employ or service of the Company or any of its
Subsidiaries or Affiliates, nor shall it interfere in any way with the right of
the Company or any of its Subsidiaries or Affiliates to terminate any
Participant's employment or services at any time.
(d) Taxes. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Award granted, any payment relating to an Award
under the Plan, including from a distribution of Stock, or any payroll or other
payment to a Participant, amounts of withholding and other taxes due in
connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend,
alter, suspend, discontinue, or terminate the Plan or the Committee's authority
to grant Awards under the Plan without the consent of shareholders or
Participants, except that any such amendment alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Company's shareholders within one year after such Board action if such
shareholder approval is required by any federal law or regulation or the rules
of any stock exchange or automated quotation system on which the Stock may then
be listed or quoted; provided, however, that, without the consent of an affected
Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may materially adversely affect the rights of such
Participant under any Award theretofore granted to him or her. The Committee may
waive any conditions or rights under, or amend, alter, suspend, discontinue, or
terminate any Award theretofore granted and any Award Agreement relating
thereto; provided, however, that, without the consent of an affected
Participant, no such amendment alteration, suspension, discontinuation, or
termination of any Award may materially adversely affect the rights of such
Participant under such Award. Following the occurrence of a Change in Control,
the Board may not terminate this Plan or amend this Plan in any manner adverse
to Participants.
A-8
<PAGE>
(f) No Right to Awards; No Shareholder Rights. No
Participant or employee shall have any claim to be granted any Award under the
Plan, and there is no obligation for uniformity of treatment of Participants and
employees. No Award shall confer on any Participant any of the rights of a
shareholder of the Company unless and until Stock is duly issued or transferred
to the Participant in accordance with the terms of the Award.
(g) Unfunded Status of awards and Trusts. The Plan is
intended to constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to a Participant
pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor of
the Company; provided, however, that the Committee may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Stock, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant. If an to the extent authorized by the
Committee, the Company may deposit into such a trust Stock or other assets for
delivery to the Participant in satisfaction of the Company's obligations under
any Award. If so provided by the Committee, upon such a deposit of Stock or
other assets for the benefit of a Participant, there shall be substituted for
the rights of the Participant to receive delivery of Stock and other payments
under the Plan a right to receive the assets of the trust (to the extent that
the deposited Stock or other assets represented the full amount of the Company's
obligation under the Award at the date of deposit). The trustee of the trust may
be authorized to dispose of trust assets and reinvest the proceeds in
alternative investments, subject to such terms and conditions as the Committee
may specify and in accordance with applicable law.
(h) Nonexclusivity of the Plan. Neither the adoption of the
Plan by the Board nor its submission to the shareholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including without limitation, the granting of stock options and other awards
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock
shall be issued or delivered pursuant to the Plan or any Award. The Committee
shall determine whether cash, other Awards, or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction, and effect of
the Plan, any rules and regulations relating to the Plan, and any Award
Agreement shall be determined in accordance with the laws of the state of
Florida, without giving effect to principles of conflicts of laws, and
applicable federal law.
(k) Effective Date and approval Date; Plan Termination. The
Plan shall become effective upon approval by the Board of Directors (the
"Effective Date"), provided, however, that the Plan shall be subject to the
subsequent approval by the affirmative votes of the holders of a majority of
voting securities present in person or represented by proxy, and entitled to
vote on the subject matter, at a meeting of Company shareholders duly held in
accordance with the Florida Corporation Code, or any adjournment thereof in
accordance with applicable provisions of the Florida Corporation Code, such
shareholder(s) approval to be obtained not later than one year after the
Effective Date (the "Approval Date"). Any Awards granted under the Plan prior to
such approval of shareholders shall be subject to such approval and in the
absence of such approval, such Awards shall be null and void. Unless earlier
terminated by the Board, the Plan will terminate at such time as the Company has
no further obligations with respect to any Award granted under the Plan;
provided, however, that ISOs may not be granted later than 10 years after the
Effective Date.
(1) Title and headings. The titles and headings of the
sections in the Plan are for convenience of reference only. In the event of any
conflict, the text of the Plan, rather than such titles or headings, shall
control.
A-9
Accountants' Consent
The Board of Directors
Pointe Financial Corporation
Boca Raton, Florida:
We consent to the use of our report dated February 14, 1998 relating to the
consolidated balance sheets as of December 31, 1997 and 1996 and the related
consolidated statements of operations, comprehensive income, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997 of Pointe Financial Corporation and to the use of our name
under the caption of "Experts", in the Amendment No. 1 to Registration Statement
on Form SB-2 of Pointe Financial Corporation.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
June 4, 1998
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