Filed by The South Financial Group, Inc.
Pursuant to Rule 425 under the
Securities Act of 1933, as amended,
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934.
Subject Company: Pointe Financial Corporation
Commission File No. 0-24433
CORPORATE PARTICIPANTS
Marsha Smunt
The South Financial Group, Inc. - Director, Investor Relations
Mack Whittle
The South Financial Group, Inc. - President, CEO and Director
Tim Schools
The South Financial Group, Inc. - Head of Corporate Development
Bill Hummers
The South Financial Group, Inc - Vice Chairman, EVP, and Chief
Financial Officer
Mike Sperry
The South Financial Group - EVP, Chief Credit Officer
William Crawford
The South Financial Group, Inc - EVP, General Counsel
Andy Cheney
Mercantile Bank - President
CONFERENCE CALL PARTICIPANTS
Todd Hagerman
Fox-Pitt Kelton, Inc. - Analyst
John Kline
Sandler O'Neill & Partners L.P. - Analyst
Gerry Cronin
Sandler O'Neill Asset Management - Analyst
John Pancari
JP Morgan - Analyst
John Pandtle
Raymond James & Associates - Analyst
Jeff Davis
FTN Securities - Analyst
PRESENTATION
Operator
Good morning and welcome to The South Financial Group conference call. All
participants will be placed in a listen-only mode until the question-and-answer
session of this conference. The call is being recorded. If you have any
objections, you may disconnect at this time. I would like to introduce Ms.
Marsha Smunt, Director of Investor Relations for The South Financial Group. Ms.
Smunt, you may begin.
Marsha Smunt - The South Financial Group, Inc. - Director, Investor Relations
Good morning and thank you for joining us. We're having this conference call in
order to discuss our acquisition of Pointe Financial Corporation. In a few
moments, Mack Whittle, our CEO, will summarize the acquisition, the strategic
reasons behind it and its financial impact on TSFG. We'll follow Mack's remarks
with an analyst question-and-answer session. Andy Cheney, our Florida Bank
president, Mike Sperry, our chief credit officer, and Tim Schools, our head of
corporate development, are also with us and available for questions.
The presentation slides, which accompany this morning's remarks, are available
with our Webcast or in the investor relations section of our Web site under
presentations. Before we begin, I would direct your attention to page one of the
presentation, which discusses our inclusion of forward-looking statements and
non-GAAP financial information and certain other legal-related matters. Now, I'd
like to turn the presentation over to our president and CEO, Mack Whittle.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Thanks, Marsha, and good morning. I want to thank everyone again for joining
us. We obviously are very excited about our potential merger with Pointe
Financial, as you will learn as we go over our presentation this morning.
Consistent with our strategy that we've discussed with you on many occasions,
Pointe Financial is within our footprint. It is accretive to our demographics as
we've talked about many times. It has minimal impact on TSFG's capital, is
accretive to earnings within the first full year and it provides attractive
returns.
In addition, and probably most importantly, it is very much in a line with the
three-year plan that we discussed with you last year. From a strategic
standpoint, Pointe's strength in business and commercial banking will complement
TSFG's existing presence in Broward, Dade and Palm County areas, some of the
best banking markets in the country. They are a very well respected organization
in their communities and are led by many talented employees.
In our view, these employees are critical to the value of the company. As you
heard us say many times, our business is a people-driven business and the
bankers really are the critical part of what drives a financial institution. As
a result, we're pleased to report that we've already signed employment
non-compete agreements with several of the key officers. These are key revenue
producers, key customer relations persons. This will significantly reduce our
transaction risk in this deal.
On page two of our slides, hopefully you've had an opportunity to look at, we
summarized the transaction. We're acquiring Pointe for approximately 2.5 million
shares of TSFG common stock and $24.5 million in cash. We've given you the
implied price per share and transaction values based on three dates - October
14, which was our agreement in principal date, the 30-day average TSFG closing
price and third, yesterday's closing stock price.
As we will demonstrate later, on page 12, premiums calculated by any of these
methods are in line or below both the average and the median of comparable
Florida transactions in 2003 and 2004. Given the significant rise in our stock
price since October 14, which resulted from a strong third quarter earnings
report, I believe the 30-day average represents the best pricing comparison. I
also want to point out that we have completed our due diligence and we expect
this merger to close in the second quarter of 2005 - again, giving you two clean
quarters between acquisitions as we've discussed before.
Page three and four provide you a brief overview of Pointe. Like TSFG, Pointe is
a high growth community bank focused on small businesses and professionals. They
have built their business through hard work and good customer service. Pointe is
also unique in how it targets lawyers, accountants and sources of loans and
deposits. Not only do these accountants and lawyers serve as loan customers and
depositors, but they also bring clients to the bank. Because Pointe has
developed relationships with specific firms that it trusts, these firms act as a
natural filtering mechanism when contributing to the strong asset quality this
company has.
Their solid fundamentals and historical growth, presented on page four, are very
strong. Beyond being accretive in 2006 earnings and having minimal impact on
capital, here are why we think this transaction is a great opportunity for the
shareholders of The South Financial Group. First, Pointe is very similar to us.
Their emphasis is on small business and commercial loans. We expect The South
Financial Group's larger lending limit and enhanced products to give Pointe a
heads up in the markets that they're in, a little bit larger platform to operate
from and, obviously, a few more products and services to offer their customers.
Second, this merger advances our stated goal of continuing to grow in the
Florida market. With this acquisition, 43% of The South Financial Group's total
deposits will be in the high growth Florida markets. This will help The South
Financial Group approach its goal of having similar size Florida and South
Carolina operations. Following the close of the merger, South Carolina is
expected to represent about 48% of the total company's deposits. Our Florida
presence would comprise 63 locations, approximately $3.6 billion in deposits and
would put us 14th in deposit share for the State of Florida.
Number three - with the strong presence now in North and Central Florida, Pointe
will significantly strengthen our desirable markets where The South Financial
Group currently has limited presence. Number four - both Andy Cheney and Kendall
Spencer - Andy, President of our Florida Bank, and Kendall, head of our retail
bank for The South Financial Group - both have had significant experience
through Barnett in this south Florida market and share with us that this was one
of the most profitable markets for business banking in the old Barnett Bank.
And lastly, we believe that the integration risk is minimal, given the small
relative size, its solid fundamentals, our familiar strategies and the
complementary cultures. As I've indicated earlier, we've already signed up a
number of the key employees to employment non-compete agreements. I think page
10 is also a key page for this - of this entire presentation. Here, we've
outlined our current transaction, their relative size to TSFG, the estimated
cost saves, the efficiency ratio of the acquired institution. We expect to see
significant improvements in the Pointe's efficiency ratio when we combine the
two companies. And as you will see, Pointe has the second highest efficiency
ratio of the mergers that we have done.
A point here is that we have been successful in our cost saves that we've talked
to you about in the past and we think that this will be the case with the Pointe
as well. I should also mention that The South Financial Group was recognized in
CIO Magazine for its outstanding project methodology for mergers and
acquisitions. In short, our merger methodology has become a core competency of
our company. And as you can see from the pricing comparisons on page 12, we
continue to remain disciplined in our pricing. This transaction compares very
favorable with other recent similar size Florida transactions on book, deposit
and asset basis.
We've completed the due diligence, along with the Pointe team, and are
comfortable with the financial assumptions of the transaction. These are
summarized on page 13. Consistent with our past practice, we haven't included
any revenue assumptions. We also feel that the efficiency ratio targets are in
line with our past experience. Our credit review team reviewed a substantial
portion of their loans and are very pleased with their findings. Pointe has
maintained a strong loan loss reserve and has experienced minimal non-performing
assets and charge-offs over the years.
In summary, we believe these are realistic cost saves without considering the
benefit of potential revenue enhancements. This acquisition is expected to be
cash and GAAP accretive is 2006, as I mentioned earlier, and will have minimal
impact on our capital ratios. Page 14 again summarizes these calculations. On
page 16-20, we've provided you summary financial ratios for Pointe as well as a
demonstration of the shareholder cash stock allocation mechanics of this deal.
This concludes our prepared remarks and we've got our team here present to
answer any questions that you might have.
Marsha Smunt - The South Financial Group, Inc. - Director, Investor Relations
Michelle, we're ready to take questions.
QUESTION AND ANSWER
Operator
Thank you. We invite analysts to participate in the question-and-answer
session. If you would like to ask a question, please press star, one and provide
your name and company information. To withdraw your request, you may press star,
two. Once again, we invite the analysts to participate in the
question-and-answer session. One moment, please.
Todd Hagerman with Fox-Pitt. You may ask your question.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
Good morning, everybody.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Good morning, Todd.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
A couple questions for you, Mack. First off, can you just talk a little bit
more about south Florida and the decision to kind of build out there? You know,
earlier in the year, you kind of had your first entry into the south Florida
market and you seemed a little cautious just in terms of the future direction of
your south Florida presence. And I'm just kind of curious if you could just talk
a little bit more about, you know, what's kind of transpired over the last, you
know, several months with respect to south Florida. And you know, how we should,
you know, look at some of the other markets in Florida, particularly you say the
Panhandle region, which, in the past, has been off the radar screen.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Todd, as you pointed out, back earlier in this year, when we announced the
Florida Bank transaction, Florida Bank had two offices in south Florida.
Initially, the company focused primarily on I4 and north, which would be - the
Tampa, Orlando markets would be the southern part of where we felt we wanted to
be in Florida. We limited our Florida presence early on in the franchise because
we - Florida is a big state and we didn't want to spread, geographically, out to
where we became ineffective and didn't have large share in a lot of markets.
We're now almost a $4 billion bank in Florida. You know, we've expanded well in
those markets. We've got, we don't have the market share we're comfortable with
in Tampa and Orlando and Jacksonville, but we have built the branch network and
have the people and the management team in place. So, I think, as we built the
better and bigger management team in Florida and when the Florida Bank
opportunity came about with the two locations there, I think our comments at the
time we announced Florida Bank was that we would step back, study the south
Florida market.
As you know, we've got a large number of Barnett seasoned executives that work
in our company. We brought in some consultants and look at, really, what the
south Florida market could mean to us if we properly executed our strategy down
there and made a conscious decision in the early part of the summer that south
Florida would be a market to move in. So, we see this really as just kind of
expanding that footprint. It's not a big merger, as you can see. It gives us a
little bit more exposure down there.
You know, we don't even register 1% on the share of market in those markets that
we're in, but it does give us the platform to grow the company. So, we're going
to be cautious in south Florida. We think we've got a great team. You know,
we've talked about wealth management and some of the other products. And these
are prime locations for, you know, our wealth management products that we'll
begin to roll out at the end of this year. So, again, small, cautious, but yet
one of the most attractive markets in all of the U.S. for banking.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
That's helpful. And what about some of the other markets, you know, you've
mentioned in the past? You know, obviously, you desire to grow through
acquisitions. But the Panhandle was, again, another market that was mentioned as
kind of off the radar screen, so to speak. What should we expect just kind of
going forward as it relates to, you know, future acquisitions, particularly in
the Florida market?
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
I think, in the Florida markets in particular, we still need to kind of fill
out where we are. So, I think the Panhandle is something down the road. We see
the Panhandle to be a little more futuristic right now. We don't have a presence
in the Panhandle. You know, through the Florida Banks, it gave us a presence in
south Florida. And at that point, we had the option of either selling those
south Florida branches or beginning to expand that south Florida. And we knew
that, at some point, the company would want to move into the south Florida
market. So, I don't see us going into the Panhandle anytime in the near future.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
OK. And if I could ask just a second unrelated question, your mentioned your
three-year goals. Could you just update us in terms of, on a pro forma basis,
how Pointe fits into the three-year goals, just in terms of, you know, thinking
about ROA, ROE and the fee component. You mentioned that they don't have much in
the way of fee income, but just give us a sense of how this is going to look,
pro forma, with respect to your goals.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Let me make one other final point on your - on your question. Then I'll go back
to that. The - we went back through this process and really through looking at
third-quarter earnings. And we went back to '99 and we looked - the company was
about 4 billion and 99. We're pushing 14 billion today. And we looked at every
acquisition we had done.
And since '99, half of our growth has been organic and half of it's been through
acquisition, which is pretty much what we have been preaching to the Street,
that we though, on a go-forward basis, that acquisitions would be a part of our
strategy. They would be disciplined. They would be within the realm of our
three-year plan. You know, we give you a couple of clean quarters between them
so you could see the integration and the cost saves and the accretion as it
begins to come out of those. So, we feel like this was, you know, again, this is
a part of that strategy.
On the goals, this is really such a small transaction, it really won't move the
needle much at all. It is pretty much neutral to the tangible equity to assets,
maybe slightly - it affects that slightly in the first quarter or so. On the ROA
and the ROE, if you remember, our goal is to have a double - strong double digit
mid-teens EPS growth rate. We don't - we think this will - this will be
accretive to that, especially after a quarter or two. The ROA and the ROE were
affected slightly with the CNB and the Florida Banks transaction, but still on
line to be where we need to be at the end of the first year of our - of our
three-year plan. If you remember, that was a 130 ROA and a [15 to 17] ROE. But
we feel very comfortable with where we are - where we are with that.
This transaction won't move the needle at all on either one of those. It should
have no effect whatsoever. The cash return on tangible equity, if you remember,
our goal was to keep that at 20%. We finished the quarter at, you know, averaged
up to 20%. We don't see this materially affecting that at all. So, to answer
your question, we don't see any material effects to this transaction on our
three-year goals. What we stated in those goals is we've said, through one full
year we look for accretion.
If you'll go back and look at the last three transactions that we've done, the
CNB, the Florida Banks and the Mountain Bank transaction, you'll see, number
one, that we got cost saves that were at or better than 30%, number one. Number
two, we were able to get the cost saves out much quicker than we had given
guidance to. Look at the two transactions that were closed in the second quarter
of this year. Our efficiency ratio went up just slightly, but it still was below
55%. Both of those companies had efficiency ratios well above 60. So, we were
able to get the cost saves out and the efficiencies and the synergies of the
acquisition out much, much quicker than we have been able to earlier. Due, in
part, through the methodologies that we've got through our acquisition, our
acquisition team.
I hope that answers your question.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
That does. Thanks very much. I appreciate it. Very helpful.
Operator
John Kline with Sandler O'Neill. You may ask your question.
John Kline - Sandler O'Neill & Partners L.P. - Analyst
Hey, guys.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Good morning, John.
John Kline - Sandler O'Neill & Partners L.P. - Analyst
I had three questions. And the first one deals with Pointe's projected
earnings. And they all kind of are on page 14 of your presentation. I see that
you've projected - or the management of Pointe projected 5.9 million in net
income. And if you just take the first two quarters and annualize that, that
would imply a compound annualized growth rate of 35% when they've grown their
earnings at 13% compound over the last four years. And I'm just wondering how
they're going to get to that level.
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
This is Tim Schools and, you know, there's a lot of things that go into that.
They have had good loan growth with increasing margins and, you know, overcoming
securities much like we have, as well as they're taking on extra fee income
that's immature like we have. So, we spent a lot of time with their management
as well as our advisors in scrutinizing their budget and their long-term growth
plan. And that - those are the assumptions that we were comfortable with.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
John, also, if you may remember, we, I think, mentioned this on most of the
acquisitions we do. Usually, the first couple of quarters out there on
acquisition, we're able to go into some of these smaller banks and take
additional credit that we feel comfortable with. Many of these small banks don't
have the capacity to lend what their customers typically need, from a lending
standpoint. So, we only have a part of the credit.
So, in the first couple of quarters, you see our loan growth, you know, jump up
in the 30% as we saw in Mountain Bank. We're seeing some of that with CNB today,
where we go - in many cases, they're participation that we go bring the
participation back within the bank.
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
The other point is the footnote at the bottom is that they -- I guess it's a
footnote on this page, I think it's footnoted in the press release maybe.
They've had some litigation expenses where they've had a shareholder lawsuit and
we have William Crawford here that could speak to this better than me. But
there's litigation expenses in the second and third quarter of this year that
are in the numbers that you're annualizing, John, and if you adjust for those,
it's not the robust growth rate that you're talking about. It's much more in
line with our historical growth rate.
Unidentified Speaker
What are the litigation expenses?
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
William has that.
William Crawford - The South Financial Group, Inc - EVP, General Counsel
About 250 to $300 thousand.
Unidentified Speaker
And is that inclusive of both quarters or third quarter?
William Crawford - The South Financial Group, Inc - EVP, General Counsel
Sorry, what was the question again?
Unidentified Speaker
Is that cumulative for the two quarters or...?
William Crawford - The South Financial Group, Inc - EVP, General Counsel
Yes.
Unidentified Speaker
My second question is, Mack, in your analysis you've got a stand-alone GAAP
estimate -- well, it's not an estimate, but it just says 245 for '06. And if you
look at the consensus of 218, it implies the growth rate of about 12%. Is that
the type of strong double-digit earnings per share growth that you're looking
for or are you looking to do better than that?
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
John, you know us well; we always look to do better than that.
Unidentified Speaker
OK, yes. It just looked a little low to me. And then third question I have...
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
....just go back and look at the last 10 quarters; we always strive to do better.
Unidentified Speaker
I was just wondering if you're low-balling us a little bit. Then the last
question, Pointe net charge-offs. I don't have the third quarter debt (ph), I
was just looking at the second. But the net charge-offs look to be -- you know,
55 basis points is not the end of the world, but it kind of spiked up from the
second quarter. Wondering what's going on there, if you have the third quarter
number for us and if there's anything that we need to be concerned of regarding
asset quality.
Mike Sperry - The South Financial Group - EVP, Chief Credit Officer
John, this is Mike Sperry. I don't have a third quarter number and I don't have
the specific on that one item there.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
We can get them for you, though.
Mike Sperry - The South Financial Group - EVP, Chief Credit Officer
But we -- Mike Strickland and our credit audit team looked in great detail at
the portfolio and there really aren't any credit issues. 55 basis points down is
big on their scale, and is half of one basis point when you add it to our
company.
Unidentified Speaker
Right. But did you look into why the charge-offs were up? Do you feel
comfortable with what happened?
Mike Sperry - The South Financial Group - EVP, Chief Credit Officer
Yes, there's no underlying issue there that implies that there's a buildup of
charge-offs coming or anything of that nature.
Unidentified Speaker
OK, great. Thanks.
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
Hey, John, this is Tim Schools. I want to follow up. I knew it was in one of
the slides; it's on slide 12. If you look at the bottom it talked about Pointe's
last 12 months earnings excludes nonrecurring legal expenses of 3 cents and 6
cents per share in second and third quarter. So that's a 9 cent impact that 's
in the numbers the growth rate you need to adjust for.
Unidentified Speaker
OK.
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
Probably should have had that on page 14 as well, but it was on page 12.
Unidentified Speaker
OK, thanks.
Operator
Gerry Cronin (ph) with Sandler O'Neill Asset Management. You may ask your
question.
Gerry Cronin - Sandler O'Neill Asset Management - Analyst
Good morning, guys. I actually just wanted to follow up on John's question
about the earnings per share growth at Pointe Bank. And, Tim, on page 18 of your
presentation you actually do give that adjusted number for the 9 cents, so even
if you annualize the 111 core number, that gets you to maybe a 150 run rate for
'04. And my calculation is for '06, if you assume the estimates that you have on
page 14 are correct, that the company would earn 250 in '06. And again, to get
to John's point, that's 35, 40% earnings per share growth on a core basis. So
again, I'm trying to get my arms around just how a bank that has grown nowhere
near that historically will be growing at that.
And secondly I was wondering if you could just give a little bit of information
in terms of intangibles, what the amounts would be, projected amortization term,
and what your timetable is for cost savings. Thank you very much, guys.
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
I've got the intangibles I can walk through with you and I'd be happy to talk
with you and John offline. I mean these are the numbers we have right here; I
don't have the great detail again. Long term we pro forma'ed (ph), I believe,
12% earnings growth and there's the two adjustments for this year, which is --
we need to make sure that we're talking the same numbers to normalize. But other
than that, they're just -- they continue to have terrific growth.
Gerry Cronin - Sandler O'Neill Asset Management - Analyst
OK, but the...
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
....intangibles, basically the goodwill is going to be -- and again, these are
estimated out at the time of close -- 66.3 million of goodwill and about 6.8
million of core deposit(ph) intangibles. Now on a pre-tax basis over 10 years,
in the initial frontline years, it's about a million a year pre-tax and CDI
expense. Now obviously that tails down over the 10 years.
Gerry Cronin - Sandler O'Neill Asset Management - Analyst
So is it a -- some of the year digits?
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
Yes, over 10 years.
Elliot Kroner - Sandler O'Neill Asset Management - Analyst
Great. And just lastly on the cost savings, how much do you expect to achieve
in '05 and '06?
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
If you go back and look at what we have done -- this is Mack -- what we've done
with CNB and Florida banks and with Mountain Bank, we've gotten the methodology
down to where we feel pretty good about it. We got him --with much longer than
what we've actually been able to do, but in CNB we got probably -- and Florida
banks -- we got 80% of it out in the first quarter. In Florida banks we got 80%
of it out in the first quarter.
Elliot Kroner - Sandler O'Neill Asset Management - Analyst
OK, thanks a lot, guys.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
We'd like to think we could do that here, but that's not in our numbers nor are
there any revenue enhancements in these numbers.
Elliot Kroner - Sandler O'Neill Asset Management - Analyst
Very good. Appreciate the time. Thanks.
Operator
Jeff Davis with FTN Securities. You may ask your question.
Jeff Davis - FTN Securities - Analyst
Good morning. I joined late; you may have said it, Mack. Did the existing
Pointe management, did they work with Andy Cheney at Barnett?
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
There are some Barnett people in this company.
Jeff Davis - FTN Securities - Analyst
OK. And let's see, Andy never specifically -- did he ever have market
responsibility...?
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
He's on the phone, I think. Andy, do you want to answer this question?
Andy Cheney - Mercantile Bank - President
Sure. This is Andy Cheney.
Jeff Davis - FTN Securities - Analyst
Hi, Andy.
Andy Cheney - Mercantile Bank - President
I handled three of the markets in Florida, mainly in the -- Central Florida,
Tampa Bay and in Jacksonville in the headquarter bank in the end. I also had
numerous projects all over Florida in corporate banking, both with Barnett and
with resulting Bank of America for a couple of years. So I spent time down in
Broward, Palm Beach and Dade County with Pierce Corporate Projects. I never had
direct responsibility like Kendall Spencer who is with us and was with me at
Barnett, had specific small business responsibility for the state and the most
robust market in our company and small business was the South Florida market.
Jeff Davis - FTN Securities - Analyst
OK, great. That's all I had. Thanks.
Operator
John Pandtle with Raymond James & Associates. You may ask your question.
John Pandtle - Raymond James & Associates - Analyst
Thank you. Good morning, everyone.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Morning.
John Pandtle - Raymond James & Associates - Analyst
I wanted to go back to this 2006 projection for Pointe's net income. If you
look on page 4, your per management guidance you expect them to throw in $1.49
in '04, which looks like to me includes the add-back for the legal expenses. And
looks to me to be about 3.9 million of net income, going to 5.9 in two years,
which is 23% compound annual growth rate. So I'm just trying to understand what
are the changes? Is it balance sheet growth, better operating leverage? As you
look through their budget, what is driving the acceleration in growth?
And then the second question is can you comment on the GAAP and cash EPS impact
of the deal in 2005? Thank you.
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
OK, again -- I'm not sure if I'm following you -- but the chart on page 4 does
show the 22% historical growth. I believe their third quarter, while we don't
have all of their numbers, I believe the reported adjusted number for third
quarter was 37 or 38 cents operating. I believe that's correct from memory. And
it's just that the loan drivers and the upside for fee income is really
significant with the relationship with the attorneys and the customers. They
also had a very high efficiency ratio, which they're working on themselves, even
before the opportunity that we have addressed. So that goes -- what is in the
model as far as the assumptions in the short term.
Over the long term we assumed a 12% growth rate, which we think is very
reasonable, conservative, considering our own -- what we've had across Florida
as well as in the Carolinas.
On -- sorry, your second question?
John Pandtle - Raymond James & Associates - Analyst
Would you comment on the EPS impact of the deal for '05?
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
In the short term it was modestly dilative; I believe it was less than 1%. I
was going to say .8%, I think. And then what we showed, we laid out here for
'06, both on GAAP and cash for you. But I think it was .8% to be specific, but
it was less than 1%.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
And we model in the cost saves coming a little slower than what we've
historically been able to get.
John Pandtle - Raymond James & Associates - Analyst
OK, great. Thank you.
Operator
Todd Hagerman with Fox-Pitt. You may ask your question.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
Hi, good morning. Just a follow-up question. Mack, I was just kind of curious,
you mentioned a planned second quarter '05 closing for the transaction. That
seems to be a little bit far out on the time horizon. Given the size and the
nature I would expect that you'd be able to do it much faster than that. Can you
just comment on that?
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
You know we've had an unblemished acquisition string here and closing something
right at quarter end - year-end really creates a little -- regardless of the
size, it takes a certain amount of time and talent away from the day-to-day
operations. So we elected not to close it around the February, March timeframe
because of earnings releases, the year-end stuff that we typically have to deal
with, and felt that early in the second quarter probably was a little bit more
appropriate.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
OK.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
We think it gives you another clean quarter to see that we've gotten the cost
saves we talked about and begun to get the accretion that we talked about.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
I mean I'm not arguing with that. Certainly that's a positive point. I just
figured maybe you're -- I just can't really see the rationale between why it's
going to take a couple of quarters relative to your prior acquisitions, why you
were able to do it much quicker.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
I mean we could do it. We could do it faster, but there's more integration risk
associated with doing that, so we just elected to -- we feel like number one, it
minimizes the integration risk to pick an appropriate time within the queue of
the other things that our folks have got going on, number one. And number two
that it fulfills the obligation that we've made to you guys and that is we'd
give you two clean quarters to show that we are, yes, integrating properly,
we're getting the cost saves and that we're beginning to see the accretion that
we had talked about in these transactions.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
OK, so there's nothing with respect to their operating platform that gives you
pause or concern?
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Absolutely not.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
OK.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Absolutely not.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
OK. And then just a second question just on in terms of again your EPS
assumptions, were there any purchase accounting adjustments factored into those
assumptions in terms of the earnings accretions number that we should be
thinking about?
Tim Schools - The South Financial Group, Inc. - Head of Corporate Development
Yes, definitely. There's purchase accounting for the adjustments at the time of
close. I don't have the assumptions right in front of me, but there is impact in
the numbers.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
You're not able to quantify that right now then, Tim?
Bill Hummers - The South Financial Group, Inc - Vice Chairman, EVP, and
Chief Financial Officer
No, we don't have a final -- this is Bill Hummers. We don't have a final run on
exactly what the purchase accounting assumptions will be. They will obviously be
- -- you've got the CDI, which our best guess right now is, as Tim mentioned
earlier, is going to be about $1 million in the first year, amortization on that
which is billed already into the numbers. And given that we'll go through and we
will evaluate the loans and the deposits both, our kind of rule of thumb in this
is that the loans and deposits, premium and the discount on the loans and
deposits will kind of offset themselves until we're able to get in there and
actually look at the numbers themselves. But we don't expect any major purchase
accounting adjustments...
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
OK, that's helpful. Again, just -- yes, I'm thinking with respect to the net
income figures and the assumption...
Bill Hummers - The South Financial Group, Inc - Vice Chairman, EVP, and
Chief Financial Officer
You're absolutely right. And if you look at -- we used the same kind of
estimating process in the Florida Banks and CNB acquisitions in the third
quarter and we turned out to be approximately correct. There's some true-up that
you'll see, but nothing material.
Todd Hagerman - Fox-Pitt Kelton, Inc. - Analyst
Great. That's helpful, thanks, Bill.
Operator
Our final question comes from John Pancari (ph), JP Morgan. You may ask your
question.
John Pancari - JP Morgan - Analyst
Good morning, everyone.
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
Morning.
John Pancari - JP Morgan - Analyst
Just another question regarding the expenses for Pointe. I know you had
mentioned previously that the '06 numbers do take into account some improvement
in their efficiency ratio on a stand-alone basis at Pointe by '06, but I just
want -- I mean looking back at some of the historical data you gave us here for
Pointe, they've been averaging around high 70s to 80% efficiency ratio in the
past, going back to even 2000 you're giving here. And I just want to see what's
going to be driving that pretty sharp implied improvement ion efficiency by '06?
And then another second question to that would be can you just talk a little bit
about Pointe's operating model and what may be driving their lower operating
efficiency relative to TSFG just given their size or what else can you talk
about there?
Mack Whittle - The South Financial Group, Inc. - President, CEO and Director
I think there's a number of drivers here, but first let me remind you that
Florida banks had a 72 efficiency ratio when we acquired Florida banks. CNB's
was little better than that. Mountain Bank also had a much higher efficiency
ratio than we have. So this is not uncharacteristic for small 10-year old
community banks. And what we've done there is over the course of the next two
years normalized that to the efficiency ratio that we have in other operating
markets like Tampa and Jacksonville and some of the other markets in South
Carolina. So we've successfully done it with those banks in those markets and
the assumption here is that we will successfully do that between now and '06 in
those markets.
Bill Hummers - The South Financial Group, Inc - Vice Chairman, EVP, and
Chief Financial Officer
I'd just like to -- this is Bill Hummers again. Just a quick comment on their
efficiency ratio and why we think they're going to show earnings improvement as
well is we'll be able to get some cost saves. They're a $300 and some million
bank and they've got 10 branches. Their branch network is -- their advertised
branch is very small compared to what you see in Florida and what we see in our
operation. So as -- they build branches to get market coverage and what they're
doing now is they're building or increasing the average size of their branch and
thereby driving down their efficiency ratio and generating additional earnings
as they're able to increase the average size of -- the branch size they have.
It's a process that, as Mack said, you've seen a lot of community banks, where
they go off and take -- and we did it. We did it, too, and it took us -- it
takes awhile to build a branch size where it becomes more -- operates more
efficiently and you can gain both savings and income out of it. And that's
probably your biggest driver going forward of what we'll be able to do with them
is we've got to take this platform of 10 branches in these three counties,
leverage that up, put our product and services in that, put our deposit products
in there and gather additional deposits and make additional loans. And that's
their business model; they're just not into it as far as they will be. We'll be
able to jumpstart that as we go forward.
John Pancari - JP Morgan - Analyst
OK, great. Thanks.
Operator
Thank you. I will now turn the call back over to Ms. Marsha Smunt for closing
comments.
Marsha Smunt - The South Financial Group, Inc. - Director, Investor Relations
Thank you. From all of us at the South Financial Group, thank you for joining
us today and thank you for your interest. Please feel free to contact me if you
have any further questions.
Operator
This concludes today's conference call. Thank you for your participation on
this call. If you would like to hear the replay of this conference you may dial
1-866-360-7726 or dial toll 1-203-369-0178. Thank you. You may disconnect at
this time.
[MAP OMITTED]
THE SOUTH FINANCIAL GROUP
ACQUISITION OF
POINTEBANK
October 27, 2004
Forward-Looking Statements, Non-GAAP
Financial Information and Offering Matters
The forward-looking statements being made today are subject to risks and
uncertainties. TSFG's actual results may differ materially from those set forth
in such forward-looking statements. These statements include, but are not
limited to, factors that may affect earnings, return goals, expected financial
results for mergers, estimates of merger synergies and merger-related charges,
and credit quality assessment. Reference is made to TSFG's reports filed with
the Securities and Exchange Commission for a discussion of factors that may
cause such differences to occur. TSFG undertakes no obligation to release
revisions to these forward-looking statements or reflect events or circumstances
after today's presentation.
This presentation contains certain non-GAAP measures, which TSFG management uses
in its analysis of TSFG's performance. TSFG believes presentations of financial
measures excluding the impact of these items provide useful supplemental
information and better reflect its core operating activities. Management uses
operating measures, in particular, to analyze on a consistent basis and over a
longer period of time, the performance of which it considers to be its core
banking operations.
TSFG also provides data eliminating intangibles and related amortization in
order to present data on a "cash basis." Operating measures adjust GAAP
information to exclude the effects of non-operating items, such as
merger-related costs, gains or losses on certain asset sales, and non-operating
expenses. Cash basis items exclude intangibles and their amortization. The
limitations associated with utilizing operating measures and cash basis
information are the risk that persons might disagree as to the appropriateness
of items comprising these measures and different companies might calculate these
measures differently. Management compensates for these limitations by providing
detailed reconciliations between GAAP information and operating measures. These
disclosures should not be viewed as a substitute for GAAP operating results. A
reconciliation of GAAP results and non-GAAP performance measures is provided on
our web site, www.thesouthgroup.com, in the Investor Relations section under
Financial Information.
The following may be deemed to be offering materials of TSFG in connection with
TSFG's proposed acquisition of PNTE, on the terms and subject to the conditions
in the Agreement and Plan of Merger, dated October 27, 2004, between TSFG and
PNTE. This disclosure is being made in connection with Regulation of Takeovers
and Security Holder Communications (Release Nos. 33-7760 and 34-42055) adopted
by the Securities and Exchange Commission ("SEC"). Shareholders of PNTE and
other investors are urged to read the proxy statement/prospectus that will be
included in the registration statement on Form S-4, which TSFG will file with
the SEC in connection with the proposed merger because it will contain important
information about TSFG, PNTE, the merger, the persons soliciting proxies in the
merger and their interests in the merger and related matters. After it is filed
with the SEC, the proxy statement/prospectus will be available for free, both on
the SEC web site (http://www.sec.gov) and from TSFG and PNTE as follows: Marsha
L. Smunt, Director of Investor Relations, The South Financial Group, 104 South
Main Street, Greenville, SC 29601, Phone: (864) 255-4919,
marsha.smunt@thesouthgroup.com; and R. Carl Palmer, Jr., Chairman, President and
Chief Executive Officer, Pointe Financial Corporation, 21845 Powerline Road,
Boca Raton, Florida 33433, Phone: (561) 368-6300, RCPalmer@pointebank.com.
In addition to the proposed registration statement and proxy
statement/prospectus, TSFG files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by TSFG at the SEC's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549 or at the
SEC's other public reference rooms in New York and Chicago. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. TSFG's
filings with the SEC are also available to the public from commercial
document-retrieval services and on the SEC's web site at http://www.sec.gov.
1
Transaction Summary
Fixed merger consideration: 2.554 mm TSFG shares +
$24.5 mm cash
% stock / % cash(1): 77/23
Implied PNTE price per share / transaction value(2):
Based on 10-14 TSFG closing price (agreement in principle date) $37.25/$92.0 mm
Based on 30-day average TSFG closing price $38.19/$94.5 mm
Based on 10-27 TSFG closing price $40.90/$101.5 mm
Exchange ratio per share (x) / cash ($)(3): 0.9906x/$9.50
Assumed cost saves: 30% of PNTE's core cash non-interest expense base
Assumed merger-related charge: $6.3 mm
EPS accretion / (dilution):
2006 GAAP 0.8%
2006 Cash 1.1%
Internal rate of return: 18%
Break-up fee: $3.5 mm
Due diligence: Completed
Required approvals: Regulatory, PNTE shareholders
Board representation: 1 PNTE director to join Mercantile Bank
Board of Directors
Expected closing: Q2 2005
(1) See page 19 for example of pro ration mechanism.
(2) Aggregate transaction value is net of proceeds from assumed exercise of
outstanding PNTE options.
(3) Calculated by dividing each of the total number of TSFG shares being issued
(2,554,022) and the total cash being paid ($24,493,075) by the total PNTE
shares outstanding on a fully diluted basis (2,578,258).
2
PNTE Overview
* $430 million Boca Raton, Florida headquartered bank formed in 1993
- Operates 10 attractive locations in Dade, Broward and Palm Beach
counties
* Complementary banking philosophy
- Niche community bank focused on the small businesses and professional
community of South Florida
* Well respected and talented employees
* Strong fundamentals
- Solid net interest margin
- Attractive loan mix
- Pristine asset quality
- Low cost core deposits
- Strong capital position
[MAP OMITTED]
3
PNTE Stand-alone Performance
Loans ($mm)
1999 155
2000 176
2001 226
2002 218
2003 256
9/04 280
13% CAGR
- -----------------------------------
Deposits ($mm)
1999 146
2000 161
2001 226
2002 254
2003 264
9/04 315
18% CAGR
- ------------------------------------
Revenue ($mm)
1999 9
2000 10
2001 13
2002 15
2003 16
2004(1) 19
15% CAGR
- ------------------------------------
Diluted EPS ($)
1999 $0.56
2000 $0.85
2001 $0.81
2002 $0.82
2003 $1.08
2004(1) $1.49
22% CAGR
Source: PNTE documents
(1) 2004 Revenue and Diluted EPS are annualized based on 2004 YTD as of 9/04;
EPS excludes non-recurring legal expenses
4
STRATEGIC RATIONALE
5
TSFG - Building Franchise Value
* Consistent with TSFG's disciplined approach to acquisitions:
- In-market transaction
- Accretive to demographics
- Low execution risk
- Conservative assumptions
- Minimal impact to capital ratios
- Accretive to EPS in the first full year
- Attractive IRR
- Advances 3-year goals
[MAP OMITTED]
6
Pro Forma Florida Franchise
- ---------------------------
[MAP OMITTED]
Pro Forma Florida Market Share
- ------------------------------
Deposits
In Market Market
Rank Company Branches ($mm) Share
- ---- ------- -------- ---------- ------
1 Bank of America 741 $62,019 20.6%
2 Wachovia 900 57,435 19.1
3 SunTrust 447 30,716 10.2
4 Washington Mutual 169 10,662 3.5
5 AmSouth 213 7,618 2.5
6 Regions 145 7,044 2.3
7 Golden West 49 6,659 2.2
8 Colonial 137 6,170 2.1
9 Ohio Savings 15 5,002 1.7
10 Fifth Third 95 4,474 1.6
11 Citigroup 35 4,305 1.4
12 Ocean Bankshares 22 3,878 1.3
13 Northern Trust 28 3,675 1.2
[14] PRO FORMA TSFG 63 3,569 1.2
14 BankUnited 47 3,422 1.2
15 BB&T 92 3,282 1.1
16 TSFG 53 3,282 1.1
17 BankAtlantic 74 3,273 1.1
18 Fidelity
Bankshares 42 2,709 0.9
19 Mercantile
Servicios 10 2,544 0.9
20 Third FS&LA 14 2,258 0.8
21 Everbank 4 2,095 0.7
22 Synovus 44 2,058 0.7
23 City National 18 2,039 0.7
24 Harbor Florida 35 1,772 0.6
25 Riverside 47 1,607 0.5
77 Pointe 10 288 0.1
TSFG Geographic Distribution(1)
- -------------------------------
Current:
FL NC SC
40% 10% 50%
Pro Forma:
FL NC SC
43% 9% 48%
Source: SNL Financial; FDIC
Note: Deposits and market share as of June 30, 2004, pro forma for acquisitions;
PNTE includes branch opened August 2004
(1) % of total deposits by state
7
Household Growth(1)
- -------------------
PNTE(4) 9.5%
Broward 7.2%
Miami-Dade 5.6%
Palm Beach 10.0%
Pro Forma TSFG(5) 8.1%
U.S. Average 5.0%
Southeast Average(3) 7.0%
Average Household Income(2)
- ---------------------------
PNTE(4) $76,185
Broward $63,879
Miami-Dade $57,143
Palm Beach $74,304
Pro Forma TSFG(5) $56,478
U.S. Average $63,301
Souteast Average(3) $57,856
Average HH Income Growth(1)
- ---------------------------
PNTE(4) 10.2%
Broward 13.0%
Miami-Dade 10.2%
Palm Beach 12.1%
Pro Forma TSFG(5) 12.1%
U.S. Average 13.3%
Southeast Average(3) 13.2%
Source: SNL Financial, Claritas
(1) Projected growth for the period 2004-2009
(2) Estimated for 2004
(3) Southeast average includes the states of AL, FL, GA, MS, NC, SC, TN, VA and
WV
(4) Deposit-weighted by zip code
(5) Deposit-weighted by county
8
BROWARD COUNTY
- --------------
[MAP OMITTED]
Deposits
In Market Market
Rank Institution Branches ($mm) Share
- ---- ----------- -------- ----- -----
1 Bank of America 87 $8,134 26.7%
2 Wachovia 98 6,545 21.5
3 SunTrust 27 2,158 7.1
4 Washington Mutual 27 2,156 7.1
5 Ohio Savings 4 1,743 5.7
6 BankAtlantic 22 1,624 5.3
7 BankUnited 18 1,323 4.3
8 World Savings 7 1,236 4.1
9 Citigroup 11 840 2.8
10 Colonial 15 647 2.1
[18] PRO FORMA TSFG 3 139 0.5
29 TSFG 1 77 0.3
37 Pointe 2 62 0.2
Totals 426 $30,504 100.0%
MIAMI-DADE COUNTY
- -----------------
[MAP OMITTED]
Deposits
In Market Market
Rank Institution Branches ($mm) Share
- ---- ----------- -------- ----- -----
1 Bank of America 72 $10,509 16.8%
2 Wachovia 73 9,581 15.4
3 SunTrust 27 4,519 7.2
4 Ocean Bankshares 17 3,824 6.1
5 Washington Mutual 48 3,690 5.9
6 Regions 48 3,623 5.8
7 Citigroup 17 2,902 4.7
8 Mercantile
Servicios 8 2,479 4.0
9 City National 14 1,759 2.8
10 Northern Trust 6 1,483 2.4
[54] PRO FORMA TSFG 5 103 0.2
54 Pointe 5 103 0.2
Totals 572 $62,368 100.0%
PALM BEACH COUNTY
- -----------------
[MAP OMITTED]
Deposits
In Market Market
Rank Institution Branches ($mm) Share
- ---- ----------- -------- ----- -----
1 Wachovia 103 $6,907 22.3%
2 Bank of America 69 5,526 17.8
3 Washington Mutual 32 2,640 8.5
4 Fidelity
Bankshares 37 2,461 7.9
5 Ohio Savings 7 2,253 7.3
6 Golden West 9 1,555 5.0
7 SunTrust 28 1,424 4.6
8 Lydian Private Bank 2 948 3.1
9 BankAtlantic 24 839 2.7
10 BankUnited 8 724 2.3
[23] PRO FORMA TSFG 4 135 0.4
24 Pointe 3 123 0.4
51 TSFG 1 11 0.0
Totals 448 $30,988 100.0%
Source: U.S. Census Bureau, SNL Financial, FDIC
Note: Deposits and market share as of June 30, 2004, pro forma for acquisitions;
PNTE includes branch opened August 2004
9
TSFG's Project Methodology Lowers Execution Risk
[GRAPHIC OMITTED]
"Project methodology for mergers and acquisitions supports integration,
branding"and other conversion processes in 45 - 60 days. Scalable systems
instrumental to growth from $3 billion in assets to $11 billion in five years."
"CIO Magazine"
August 15, 2004
Target
Deal LTM
Announce Value % of Est. Cost Efficiency
Acquisition Date ($mm) TSFG Saves Ratio
- --------------------------------------------------------------------------------
Florida Banks 3/18/04 $168 8% 25% 76%
CNB Florida 1/21/04 155 8 20 62%
MountainBank 5/14/03 137 9 20 55%
Central Bank of Tampa 10/3/02 68 3 25 48%
Gulf West 3/31/02 116 7 25 65%
Anchor Financial 1/10/00 300 28 35 62%
Average $157 11% 25% 61%
Median 146 8% 25% 62%
Pointe 10/27/04 $101 3% 30% 74%
Source: SNL Financial and Company documents
10
TRANSATION PRICING AND
FINANCIAL IMPACT
11
TSFG Remains Price Disciplined
Announced Florida Transaction Greater than $50mm in 2003 and 2004
Price to:
-------------------------
Announce LTM Tang. Core Deposit
Buyer/Target Date Deal Value Earnings Book Book Premium
------------ ---- ---------- -------- ---- ---- --------
Colonial/Union Bank of Florida Sep-04 $ 233.0 26.8 x 3.1 x 3.1 x 30.5 %
Popular/Kislak Financial Aug-04 158.0 22.5 x 2.4 x 2.4 x 24.6 %
Fifth Third/FNB Florida Aug-04 1,530.2 42.1 x 2.6 x 6.1 x 38.7 %
FNB Florida/Southern Community Mar-04 289.8 44.3 x 4.1 x 4.1 x 30.1 %
Whitney/Madison Bancshares Mar-04 66.4 31.1 x 3.8 x 3.8 x 39.9 %
South Financial/Florida Banks Mar-04 168.0 36.7 x 2.9 x 2.9 x 32.9 %
SouthTrust/FloridaFirst Feb-04 154.0 24.7 x 1.5 x 1.6 x 15.5 %
South Financial/CNB Florida Jan-04 154.8 23.4 x 2.8 x 3.1 x 19.5 %
Colonial/P.C.B. Bancorp Dec-03 143.3 25.2 x 3.3 x 4.2 x 23.2 %
BB&T/Republic Bancshares Dec-03 432.6 44.3 x 2.0 x 2.2 x 12.6 %
Alabama National/Indian River Oct-03 112.8 22.6 x 3.1 x 3.1 x 21.8 %
Synovus/Peoples Florida Oct-03 77.6 28.2 x 4.8 x 4.8 x 38.8 %
F.N.B./Charter Feb-03 150.3 36.7 x 3.3 x 3.9 x 34.8 %
Average 31.4 x 3.0 x 3.5 x 27.9 %
Median 28.2 x 3.1 x 3.1 x 30.1 %
South Financial/Pointe - 10/14/04(2) Oct-04 $ 92.0 26.2 x 2.3 x 2.5 x 20.3 %
South Financial/Pointe - 30-day avg. Oct-04 $ 94.5 26.9 x 2.4 x 2.5 x 21.2 %
South Financial/Pointe - 10/27/04 Oct-04 $ 101.5 28.8 x 2.5 x 2.7 x 23.6 %
Source: SNL Financial and SEC filings
(1) PNTE LTM Earnings excludes non-recurring legal expenses ($0.03 and $0.06 per
share impact in Q2 and Q3 2004, respectively)
(2) Agreement in principle date
12
Conservative Assumptions / Considerable Upside
* Cost savings identified and achievable in the short-term
- 30% reduction, which is consistent with past experience
- Eliminating 30% brings PNTE's efficiency ratio down from 74% to 51%,
which is high for a division and slightly higher than TSFG overall
- Addressing synergies early in TSFG's two most recent deals enabled
TSFG to keep its efficiency ratio flat from the second quarter to the
third
* Revenue synergies identified but not included in deal analysis
- PNTE customers will have access to a much broader array of products
and services
- Increased scale will provide higher lending limits, more branch
locations and heightened brand awareness
- New branch opened in August 2004 has not yet reached profitability but
has significant upside
- Asset sensitive balance sheet position
- Limited non-interest income activity
13
Financial Impact
Pro Forma Results ($mm, except per share data)
EPS Impact: 2006 2007
- ---------- ---- ----
Stand-alone net income
TSFG(1) $172.1 $192.8
PNTE(2) 5.9 6.6
Pro forma net income $178.1 $199.4
Transaction adjustments (net of tax)
Add: merger cost savings $2.9 $3.0
Subtract: core deposit amortization 0.7 0.7
Subtract: other 0.6 0.5
Adjusted pro forma GAAP net income $179.6 $201.2
Cash adjustments (net of tax)
New amortization $0.7 $0.7
Existing amortization 3.5 3.0
Adjusted pro forma cash net income $183.8 $204.8
Pro forma average diluted share count 72.8 72.8
Pro forma GAAP EPS $2.47 $2.76
Stand-alone TSFG GAAP EPS $2.45 $2.74
Pro forma cash EPS $2.53 $2.81
Stand-alone TSFG cash EPS $2.50 $2.78
GAAP accretion 0.8% 0.8%
Cash accretion 1.1% 1.1
Capital Impact:
- --------------
Pre-acquisition tangible common equity to tangible assets (4/1/05) 6.1%
Pro-forma tangible common equity to tangible assets (4/1/05) 6.0
Pro-forma tangible common equity to tangible assets (12/31/05) 6.4
(1) Based on I/B/E/S median consensus EPS estimate of $2.19 in 2005 grown at the
consensus long-term growth rate of 12% for 2006 and 2007 multiplied by 70.3
million average fully diluted shares
(2) Based on PNTE management projections
14
APPENDIX
15
Summary PNTE Balance Sheet
($000)
2000 2001 2002 2003 9/04
Balance sheet ---- ---- ---- ---- -----
- -------------
Cash and balances due $7,616 $40,655 $35,648 $12,943 $43,862
Investment securities 56,631 57,612 66,009 71,738 96,982
Net loans 173,848 223,825 214,990 253,415 276,411
Intangible assets 0 3,461 3,216 2,974 2,793
Other assets 6,413 7,842 7,444 7,644 8,847
Total assets $244,508 $333,395 $327,307 $348,714 $428,895
Deposits $161,136 $225,825 $233,501 $263,866 $315,607
Other liabilities 56,642 79,023 61,475 49,931 76,393
Total liabilities $217,778 $304,484 $294,976 $313,797 $392,000
Total equity $26,357 $28,530 $33,271 $35,493 $36,895
Total liabilities & equity 244,508 333,395 327,307 348,714 428,895
Source: PNTE documents and filings
16
Complementary Loan and Deposit Books
Pro Forma Composition
- ---------------------
Deposits
- --------
South Financial
- ---------------
Demand 26%
Money Market and Savings 38%
Retail CDs 11%
Jumbo CDs 24%
TOTAL $7.8bn
Pointe
- ------
Demand 31%
Money Market and Savings 43%
Retail CDs 16%
Jumbo CDs 9%
TOTAL $0.3bn
For Forma
- ---------
Demand 26%
Money Market and Savings 38%
Retail CDs 11%
Jumbo CDs 24%
TOTAL $8.1bn
Loans
- -----
South Financial
- ---------------
Commercial RE 51%
C&I 26%
Consumer 22%
Mortgage 2%
TOTAL $8.0bn
Pointe
- ------
Commercial RE 38%
C&I 26%
Consumer 10%
Mortgage 25%
TOTAL $0.3bn
Pro Forma
- ---------
Commercial RE 50%
C&I 26%
Consumer 21%
Mortgages 3%
TOTAL $8.3bn
Source: TSFG and PNTE documents and filings; Data as of September 30, 2004
17
Summary PNTE Income Statement
($000)
YTD
2000 2001 2002 2003 9/04
---- ---- ---- ---- ----
Interest income $18,545 $21,707 $20,230 $18,444 14,998
Interest expense 9,305 10,453 7,583 5,039 3,404
Net interest income 9,240 11,254 12,647 13,405 11,594
Provision $685 $1,296 $811 $(100) $215
Non-interest income $1,215 $1,973 $2,541 $2,807 $2,580
Non-interest expense 7,185 10,190 12,126 13,077 10,421
Pre-tax income $2,462 $2,482 $2,593 $3,671 $3,538
Income taxes 821 814 829 1,178 1,124
Net income to common $1,641 $1,668 $1,764 $2,493 $2,414
Diluted EPS $0.85 $0.81 $0.82 $1.08 $1.02
Adj. diluted EPS(1) $0.85 $0.81 $0.82 $1.08 $1.11
Source: PNTE documents and filings
(1) PNTE Adjusted Diluted EPS excludes non-recurring legal expenses ($0.03
and $0.06 per share impact in Q2 and Q3 2004 respectively)
18
Summary PNTE Asset Quality
($000)
YTD
Allowance 2000 2001 2002 2003 9/04
---- ---- ---- ---- ----
Beginning balance $1,331 $1,792 $2,407 $3,519 $3,441
Provision 685 1,296 811 (100) 215
Net Charge-offs (224) (1146) 301 22 (336)
Acquisitions 0 465 0 0 0
Ending balance $1,792 $2,407 $3,519 $3,441 $3,320
Ratios
- ------
YTD
2000 2001 2002 2003 9/04
---- ---- ---- ---- ----
NPAs/loans + OREO 0.88% 0.45% 0.15% 0.28% 0.05%
Reserves to NPLs 116% 223% 1,075% 470% 2,790%
Reserves to loans 1.02% 1.06% 1.61% 1.34% 1.19%
NCOs to average loans 0.14% 0.54% (0.13)% (0.01)% 0.17%
Source: PNTE documents and filings
19
PNTE Shareholder Pro Ration Examples
Assumed TSFG Stock Price - Transaction Close
--------------------------------------------------------
$27.00 $29.00 $31.00 $33.00
Aggregate transaction value ($mm)(1) $89.5 $94.6 $99.7 $104.8
Per PNTE share $36.25 $38.23 $40.21 $42.19
Implied stock/cash mix 74/26 75/25 76/24 77/23
Election example - per share
- Full pro ration(2) 0.9906x/$9.50 0.9906x/$9.50 0.9906x/$9.50 0.9906x/$9.50
- 100% stock 1.3424x 1.3182x 1.2970x 1.2785x
- 100% cash $36.25 $38.23 $40.21 $42.19
(1) Aggregate transaction value is net of proceeds from assumed exercise of
outstanding PNTE options
(2) Assuming full pro ration. This is derived by dividing the fixed merger
consideration (2.554 mm TSFG shares + $24.5 mm) by the total number of PNTE
fully diluted shares
20
THE SOUTH FINANCIAL GROUP, INC. POINTEBANK
[LOGO OMITTED] [LOGO OMITTED]
104 South Main Street 21845 Powerline Road
Greenville, SC 29601 Boca Raton, FL 33433
864.255.4919 561-368-6300
NEWS RELEASE
DATE: October 27, 2004
RELEASE TIME: Immediate
THE SOUTH FINANCIAL GROUP TO ACQUIRE POINTE FINANCIAL;
STRATEGIC OPPORTUNITY TO EXPAND FLORIDA FRANCHISE
GREENVILLE, SC and BOCA RATON, FL - The South Financial Group, Inc. (Nasdaq/NM:
TSFG) and Pointe Financial Corporation (Nasdaq/NM: PNTE) announced today a
definitive agreement in which TSFG will acquire PNTE and its subsidiaries,
headquartered in Boca Raton, Florida. Pointe will complement TSFG's existing
locations in the Broward/Dade/Palm Beach county area by adding approximately
$316 million in deposits, $276 million in loans, and 10 additional banking
locations. Post merger, Pointe's operations will be conducted through TSFG's
Florida banking subsidiary, Mercantile Bank.
"We are pleased with the opportunity to selectively and steadily expand our
Florida presence with a quality institution like Pointe Financial," said Mack I.
Whittle, Jr., President and Chief Executive Officer of The South Financial
Group. "After increasing the size of our franchise initially in northern and
central Florida, this opportunity is a natural progression that strengthens our
existing small presence in select markets of southern Florida. Pointe's
experience in business banking will elevate our existing operations in this
market. We remain committed to a consistent and disciplined acquisition strategy
that adds value to our footprint, provides attractive internal rates of return,
is accretive to earnings in the first full year, and importantly, is aligned
with our three year plan."
The acquisition, which is subject to approval by regulatory authorities and by
Pointe Financial shareholders, is expected to close in the second quarter of
2005. The merger is expected to be cash and GAAP accretive to TSFG earnings
beginning in 2006 and have minimal impact on immediate capital levels.
Under the terms of the definitive agreement, which has been unanimously approved
by both boards of directors, TSFG will issue fixed consideration of 2,554,022
shares of TSFG common stock and $24,493,075 in cash for all outstanding PNTE
shares, calculated on a fully diluted basis. PNTE shareholders will have the
right to elect to receive cash, TSFG common stock, or a mixture of cash and TSFG
stock. Without giving effect to any elections, this equates to $9.50 cash and
0.9906 TSFG shares for each fully diluted PNTE share. Based on the $31.70
closing price of TSFG common stock on Wednesday, October 27, 2004, the
transaction is valued at $40.90 per PNTE share.
R. Carl Palmer, Jr., Chairman, President and Chief Executive Officer of PNTE,
said, "We are very enthusiastic about the opportunity to join The South
Financial Group and make a positive contribution. Our companies have
complementary skills in the way our talented and dedicated people serve
customers and contribute to our communities. We share a focus of delivering
exceptional service to small and medium-sized businesses and the professional
community. Together, our experienced and knowledgeable people will provide even
more winning solutions and deepen relationships with customers."
With the completion of this merger, Mercantile Bank is expected to have 63
branches, approximately $5.3 billion in assets, and the #14 deposit market share
in Florida. The South Financial Group entered Florida in 1999 with the
acquisition of Citizens First National and a de novo branch in Jacksonville.
Pointe represents The South Financial Group's 7th acquisition in Florida. With
the Pointe merger, the South Financial Group's Florida deposits represent 43% of
TSFG's total deposits.
The South Financial Group is a financial services company headquartered in
Greenville, South Carolina, which had total assets of approximately $13.7
billion at September 30, 2004. TSFG operates two primary subsidiary banks,
Carolina First Bank and Mercantile Bank, which conduct operations through
approximately 153 branch offices in South Carolina, Florida and North Carolina.
Mercantile Bank operates in Florida, principally in the Jacksonville, Orlando
and Tampa Bay markets. Carolina First Bank, the largest South Carolina-based
commercial bank, operates in South Carolina and North Carolina and on the
Internet under the brand name, Bank CaroLine. The South Financial Group's common
stock trades on the Nasdaq National Market under the symbol TSFG. Press releases
along with additional information may also be found at The South Financial
Group's website: www.thesouthgroup.com.
TRANSACTION SUMMARY(1)
Fixed merger consideration: 2.554 mm TSFG shares + $24.5 mm cash
Implied price per share/transaction value:(2)
Based on October 14 TSFG closing price -
(agreement in principle date) $37.25/$92.0 mm
Based on 30-day average TSFG close $38.19/$94.5 mm
Based on October 27 TSFG close $40.90/$101.5 mm
Exchange ratio per share (x)/cash ($):(3) 0.9906x/$9.50
Assumed cost saves: 30% of PNTE's core cash non-interest expense base
Anticipated merger-related charge: $6.3 million
2
EPS accretion / (dilution):
2006 GAAP 0.8%
2006 Cash 1.1%
Internal rate of return: 18%
Break-up fee: $3.5 million
Due diligence: Completed
Required approvals: Regulatory, PNTE's shareholders
Board representation: 1 PNTE director to join Mercantile Bank Board of
Directors
Expected closing: Q2 2005
Notes:
1 This summary is qualified in its entirety by the definitive Agreement
and Plan of Merger, a copy of which will be filed with the Securities
and Exchange Commission.
2 Total transaction value, net of aggregate option proceeds to be
received by TSFG upon exercise of PNTE options.
3 Calculated by dividing each of the total number of TSFG shares being
issued (2,554,022) and the total cash being paid ($24,493,075) by the
total PNTE shares outstanding on a fully diluted basis (2,578,258).
CONFERENCE CALL/WEBCAST INFORMATION
The South Financial Group will host a conference call on Thursday, October 28,
2004 at 9:00 a.m. (ET) to discuss the acquisition of PNTE and answer analyst
questions. It will also provide a live webcast of the call, which may be
accessed through The South Financial Group's Internet site at
www.thesouthgroup.com under the Investor Relations tab. Additional material
information, including forward-looking statements such as future projections,
may be discussed during the presentation. To participate in the conference call,
please call 1-888-405-5393 or 1-484-630-4135 using the access code "The South."
A 7-day rebroadcast of the call will be available via 1-866-360-7726 or
1-203-369-0178. The South Financial Group will also provide a copy of the
presentation in the Investor Relations section of its website.
Certain matters set forth in this news release may contain forward-looking
statements that are provided to assist in the understanding of anticipated
future financial performance. These statements, as well as other statements that
may be made by management in the conference call, include, but are not limited
to, factors which may affect earnings, return goals, expected financial results
for mergers, estimates of merger synergies and merger-related charges, and
credit quality assessment. However, such performance involves risks and
uncertainties, such as market deterioration, that may cause actual results to
differ materially from those in such statements. For a discussion of certain
3
factors that may cause such forward-looking statements to differ materially from
TSFG's actual results, see TSFG's Annual Report on Form 10-K for the year ended
December 31, 2003. The South Financial Group undertakes no obligation to release
revisions to these forward-looking statements or reflect events or circumstances
after the date of this release.
The foregoing may be deemed to be offering materials of TSFG in connection with
TSFG's proposed acquisition of PNTE, on the terms and subject to the conditions
in the Agreement and Plan of Merger, dated October 27, 2004, between TSFG and
PNTE. This disclosure is being made in connection with Regulation of Takeovers
and Security Holder Communications (Release Nos. 33-7760 and 34-42055) adopted
by the Securities and Exchange Commission ("SEC"). Shareholders of PNTE and
other investors are urged to read the proxy statement/prospectus that will be
included in the registration statement on Form S-4, which TSFG will file with
the SEC in connection with the proposed merger because it will contain important
information about TSFG, PNTE, the merger, the persons soliciting proxies in the
merger and their interests in the merger and related matters. After it is filed
with the SEC, the proxy statement/prospectus will be available for free, both on
the SEC web site (http://www.sec.gov) and from TSFG and PNTE as follows: Marsha
L. Smunt, Director of Investor Relations, The South Financial Group, 104 South
Main Street, Greenville, SC 29601, Phone: (864) 255-4919,
marsha.smunt@thesouthgroup.com; R. Carl Palmer, Jr., Chairman, President and
Chief Executive Officer, Pointe Financial Corporation, 21845 Powerline Road,
Boca Raton, Florida 33433, Phone: (561) 368-6300, RCPalmer@pointebank.com.
In addition to the proposed registration statement and proxy
statement/prospectus, TSFG and PNTE file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by TSFG or PNTE at the SEC's
public reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549 or at
the SEC's other public reference rooms in New York and Chicago. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
TSFG's and PNTE's filings with the SEC are also available to the public from
commercial document-retrieval services and on the SEC's web site at
http://www.sec.gov.
CONTACTS:
Marsha L. Smunt, TSFG Director of Investor Relations (864) 255-4919
R. Carl Palmer, Jr., PNTE Chairman, President and CEO (561) 368-6300
***END***