1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Mark One)
[X] AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to_______________
Commission file number: 0-20960
HAMILTON BANCORP INC.
(Exact Name of Registrant as Specified in Its Charter)
FLORIDA 65-0149935
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3750 N.W. 87TH AVENUE, MIAMI, FLORIDA 33178
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (305) 717 - 5500
Indicate by check [X] whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes[ ] No [X].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
2
Item 1 and Item 2 of Part I of the Registrant's Form 10Q for the quarterly
period ended March 31, 2000 are hereby amended to read as follows:
ITEM 1
PART I. FINANCIAL INFORMATION
HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands) (Unaudited)
As Restated, see Note 5 As Restated, see Note 5
March 31, December 31,
----------------------- -----------------------
2000 1999
----------------------- -----------------------
ASSETS
CASH AND DEMAND DEPOSITS WITH OTHER BANKS $ 35,529 $ 21,710
FEDERAL FUNDS SOLD 94,697 63,400
---------- ----------
Total cash and cash equivalents 130,226 85,110
INTEREST EARNING DEPOSITS WITH OTHER BANKS 151,398 187,685
SECURITIES AVAILABLE FOR SALE 295,772 274,277
LOANS-NET 1,096,514 1,091,976
DUE FROM CUSTOMERS ON BANKERS ACCEPTANCES 35,569 27,767
DUE FROM CUSTOMERS ON DEFERRED PAYMENT LETTERS OF CREDIT 3,497 5,835
PROPERTY AND EQUIPMENT-NET 5,066 5,209
ACCRUED INTEREST RECEIVABLE 20,231 19,111
GOODWILL-NET 1,614 1,658
OTHER ASSETS 19,065 22,672
---------- ----------
TOTAL $1,758,952 $1,721,300
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $1,550,951 $1,535,606
TRUST PREFERRED SECURITIES 12,650 12,650
BANKERS ACCEPTANCES OUTSTANDING 35,569 27,767
DEFERRED PAYMENT LETTERS OF CREDIT OUTSTANDING 3,497 5,835
OTHER LIABILITIES 13,034 5,544
---------- ----------
Total liabilities 1,615,701 1,587,402
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 75,000,000 shares authorized, 10,081,147 shares
issued and outstanding at March 31, 2000 and December 31, 1999 101 101
Capital surplus 60,702 60,708
Retained earnings 76,284 67,871
Accumulated other comprehensive income 6,164 5,218
---------- ----------
Total stockholders' equity 143,251 133,898
---------- ----------
TOTAL $1,758,952 $1,721,300
========== ==========
See accompanying notes to consolidated financial statements.
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HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data) (Unaudited)
As Restated,
see Note 5
Three Months Ended March 31,
----------------------------------
2000 1999
------------ ------------
INTEREST INCOME:
Loans, including fees $ 29,405 $ 25,529
Deposits with other banks 3,841 3,241
Investment securities 3,052 2,756
Federal funds sold 703 466
------------ ------------
Total 37,001 31,992
INTEREST EXPENSE:
Deposits 20,166 18,168
Trust preferred securities 308 302
Federal funds purchased and other borrowing 1 105
------------ ------------
Total 20,475 18,575
------------ ------------
NET INTEREST INCOME 16,526 13,417
PROVISION FOR CREDIT LOSSES 750 900
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES 15,776 12,517
------------ ------------
NON-INTEREST INCOME:
Trade finance fees and commissions 2,765 2,990
Structuring and syndication fees 1,488 577
Customer service fees 400 415
Gain (loss) on sale of assets 1,349 188
Other 102 117
------------ ------------
Total 6,104 4,287
------------ ------------
OPERATING EXPENSES:
Employee compensation and benefits 3,284 3,344
Occupancy and equipment 1,298 960
Other 4,431 2,864
------------ ------------
Total 9,013 7,168
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 12,867 9,636
PROVISION FOR INCOME TAXES 4,454 3,567
------------ ------------
NET INCOME $ 8,413 $ 6,069
============ ============
NET INCOME PER COMMON SHARE:
BASIC $ 0.84 $ 0.60
============ ============
DILUTED $ 0.82 $ 0.59
============ ============
AVERAGE SHARES OUTSTANDING:
BASIC 10,081,147 10,056,111
============ ============
DILUTED 10,221,121 10,283,235
============ ============
See accompanying notes to consolidated financial statements.
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HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)
As restated,
see Note 5
Three Months Ended March 31,
2000 1999
------------ ------------
NET INCOME $ 8,413 $ 6,069
OTHER COMPREHENSIVE INCOME, Net of tax:
Net change in unrealized loss on securities available for sale during period 1,618 344
Less: Reclassification adjustment on realized gain on sale of assets (672) --
Less: Reclassification adjustment for write off of a foreign bank stock -- (187)
------------ ------------
Total 946 157
------------ ------------
COMPREHENSIVE INCOME $ 9,359 $ 6,226
============ ============
See accompanying notes to consolidated financial statements
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HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
As Restated, see Note 5
(Dollars in thousands, except per share data)
Unaudited
Accumulated
Common Stock Other Total
------------------------ Capital Retained Comprehensive Stockholders'
Shares Amount Surplus Earnings Income Equity
---------- ---------- ---------- ---------- ------------- ------------
Balance, December 31, 1999 10,081,147 $ 101 $ 60,708 $ 67,871 $ 5,218 $ 133,898
Adjustment of tax liabilities
due to stock options exercized (6) (6)
Net change in unrealized gain on
securities available for sale, net of taxes 946 946
Net income for the three months ended
March 31, 2000 8,413 8,413
---------- ---------- ---------- ---------- ---------- ----------
Balance as of March 31, 2000 10,081,147 $ 101 $ 60,702 $ 76,284 $ 6,164 $ 143,251
========== ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
As Restated,
see Note 5
For Three Months Ended March
-------------------------------
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,413 $ 6,069
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 429 369
Provision for credit losses 750 900
Deferred tax provision 163 28
Write off of available for sale security -- 187
Net (gain) loss on sale of assets (1,118) (188)
Proceeds from the sale of bankers acceptances and loan participations 393 5,715
Decrease (increase) in accrued interest receivable and other assets 4,044 (11,237)
Increase in other liabilities 7,483 2,638
---------- ----------
Net cash provided by operating activities 20,557 4,481
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increases in interest-earning deposits with other banks 36,286 83,756
Purchase of securities available for sale (105,105) (293,385)
Purchase of securities held to maturity -- (6,261)
Proceeds from sales and maturities of securities available for sale 86,949 229,612
Proceeds from paydowns of securities held to maturity -- 1,074
Proceeds from sale of loans -- 11,148
(Increase) decrease in loans-net (8,677) 40,063
Purchases of property and equipment-net (239) (119)
---------- ----------
Net cash provided by investing activities 9,214 65,888
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 15,345 (91,337)
Proceeds from trust preferred securities offering -- 1,650
Payment of other borrowing -- (6,116)
Net proceeds from exercise of common stock options -- 205
---------- ----------
Net cash provided by (used in) financing activities 15,345 (95,598)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 45,116 (25,229)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 85,110 111,790
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 130,226 $ 86,561
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 10,686 $ 18,821
========== ==========
Income taxes paid during the period $ 9 $ 45
========== ==========
See accompanying notes to consolidated financial statements.
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HAMILTON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1: BASIS OF PRESENTATION
The consolidated statements of condition for Hamilton Bancorp Inc. and
Subsidiary (the "Company") as of March 31, 2000 and December 31, 1999, the
related consolidated statements of income, comprehensive income, stockholders'
equity and the cash flows for the three months ended March 31, 2000 and 1999
included in the Form 10-Q have been prepared by the Company in conformity with
the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore,
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The statements
are unaudited except for the consolidated statement of condition as of December
31, 1999.
The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 1 to the consolidated financial
statements appearing in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1999 as filed with the Securities and Exchange Commission.
NOTE 2: NET INCOME PER COMMON SHARE
Basic earnings per share is computed by dividing the Company's net income by the
weighted average number of shares outstanding during the period.
Diluted earnings per share is computed by dividing the Company's net income by
the weighted average number of shares outstanding and the dilutive impact of
potential common stock, primarily stock options. The dilutive impact of common
stock is determined by applying the treasury stock method.
NOTE 3: STOCK OPTIONS
On January 3, 2000, the Company granted 96,759 options at an exercise price of
$17.75. These options vest in thirds twelve, eighteen and twenty-four months
after the grant if the individual is then employed with the Company.
NOTE 4: REGULATORY CAPITAL
The Company is subject to risk-based capital and leverage guidelines issued by
the Board of Governors of the Federal Reserve System. These guidelines are used
to evaluate capital adequacy and include required minimums. Following an
examination conducted by the Federal Reserve examiners, the Company was directed
by the Federal Reserve to file required reports following generally accepted
accounting principles and not in accordance with the regulatory accounting
interpretations of the Office of the Comptroller of the Currency ("OCC"). The
Bank was directed by the OCC to record certain adjustments for regulatory
reporting purposes discussed in the Capital Resources section. These adjustments
amount to $29,548,000 and $32,720,000 for March 31, 2000 and December 31, 1999,
respectively. During the first quarter, these adjustments were reduced by a
reduction of the allocated transfer risk reserve of $3,172,000.
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NOTE 5: RESTATEMENT
Subsequent to the filing of the Company's quarterly report on Form 10Q for the
quarter ended March 31, 2000, the Company determined that the purchase of
certain securities and the sale of certain loans entered into by the Company in
1998 should have been recorded as an exchange transaction in accordance with
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and that a loss of $22,223,000 ($14,304,000
after tax) should have recorded on the exchange. The Company had previously
accounted for the purchases of the securities and sales of the loans as separate
unrelated transactions. The purchases were recorded at cost and the sales were
recorded based on the proceeds received for the loans sold, with no gain or loss
being recognized. During the second quarter of 2000 the OCC, through a temporary
cease and desist order dated April 25, 2000, required the Company to re-file its
regulatory reports to account for the purchase and sale transactions referred to
above as related transactions and to record a loss on such transactions. The
Company's Audit Committee, with the assistance of independent counsel, conducted
an investigation that began in August 2000 and was completed during December
2000 into these transactions, including the consideration of certain additional
information that the Company received from the OCC. After evaluating the results
of the investigation, the Company concluded that the above transactions should
have been accounted for as an exchange (i.e., one related transaction) rather
than as separate transactions and that a loss should be recorded. As a result
the Company restated its 1998 consolidated financial statements. The loss on
exchange created a lower cost basis, by a like amount, for the assets purchased.
Such assets had been designated as available for sale as of December 31, 1999
and were marked to market at that date. As a result, accumulated other
comprehensive (loss) income as of December 31, 1999 has been restated, however,
total stockholders' equity as of March 31, 2000 remains unchanged. Certain of
those assets were also sold during the quarter ended March 31, 2000 which
results in an increased gain on sale due to a lower restated basis and no change
in total stockholders' equity.
The following table summarizes the items that have been restated in the March
31, 2000 consolidated financial statements as a result of the loss on exchange
in 1998, (dollars in thousands):
AS PREVIOUSLY AS
REPORTED RESTATED
------------- --------
AS OF MARCH 31, 2000:
Retained earnings $ 89,378 $76,284
Accumulated other comprehensive (loss) income (6,930) 6,164
-------- -------
Total 82,448 82,448
======== =======
FOR THE QUARTER ENDED MARCH 31, 2000:
Gain (loss) on sale of assets (92) 1,349
Income before provision for income taxes 11,426 12,867
Provision for income taxes 4,223 4,454
Net income 7,203 8,413
Net income per common share:
Basic 0.71 0.84
Diluted 0.70 0.82
Net change in unrealized gain (loss) on securities
available for sale 2,156 946
AS OF DECEMBER 31, 1999:
Retained earnings 82,175 67,871
Accumulated other comprehensive (loss) income (9,086) 5,218
-------- -------
Total 73,089 73,089
======== =======
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Hamilton Bancorp Inc. ("Bancorp") is a bank holding company which conducts
operations principally through its 99.8 percent subsidiary, Hamilton Bank, N.A.
(the "Bank" and, collectively with Bancorp, the "Company"). The Bank is a
national bank which specializes in financing trade flows between domestic and
international companies on a global basis, with particular emphasis on trade
with and between South America, Central America, the Caribbean (collectively,
the "Region") and the United States. The Bank has a network of nine FDIC-insured
branches with eight Florida locations in Miami, Sarasota, Tampa, West Palm
Beach, Winter Haven and Weston, and a branch in San Juan, Puerto Rico.
RESTATEMENT
Subsequent to the filing of the Company's quarterly report on Form 10Q for the
quarter ended March 31, 2000, the Company determined that the purchase of
certain securities and the sale of certain loans entered into by the Company in
1998 should have been recorded as an exchange transaction in accordance with
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and that a loss of $22,223,000 ($14,304,000
after tax) should have recorded on the exchange. The Company had previously
accounted for the purchases of the securities and sales of the loans as separate
unrelated transactions. The purchases were recorded at cost and the sales were
recorded based on the proceeds received for the loans sold, with no gain or loss
being recognized. During the second quarter of 2000 the OCC, through a temporary
cease and desist order dated April 25, 2000, required the Company to re-file its
regulatory reports (the "Call Reports") to account for the purchase and sale
transactions referred to above as related transactions and to record a loss on
such transactions. The Company's Audit Committee, with the assistance of
independent counsel, conducted an investigation that began in August 2000 and
was completed during December 2000 into these transactions, including the
consideration of certain additional information that the Company received from
the OCC. After evaluating the results of the investigation, the Company
concluded that the above transactions should have been accounted for as an
exchange (i.e., one related transaction) rather than as separate transactions
and that a loss should be recorded. As a result the Company restated its 1998
consolidated financial statements. The loss on exchange created a lower cost
basis, by a like amount, for the assets purchased. Such assets had been
designated as available for sale as of December 31, 1999 and were marked to
market at that date. As a result, accumulated other comprehensive (loss) income
as of December 31, 1999 has been restated, however, total stockholders' equity
as of March 31, 2000 remains unchanged. Certain of those assets were also sold
during the quarter ended March 31, 2000 which results in an increased gain on
sale due to a lower restated basis and no change in total stockholders' equity.
See Note 5 of the notes to the unaudited consolidated financial statements for a
discussion of these restatements.
In addition, as part of this process, the Company will again re-file its Call
Reports to reflect the same accounting treatment and loss described above. This
action is being taken as the original loss of $24,602,000, which amount was
based on a directive of the OCC (under a temporary cease and desist order),
recorded by the Company for regulatory purposes in the previously re-filed Call
Reports differed from the Company's final conclusions and recording of the
$22,223,000 loss described above, which amount was based on management's
determination of the fair value of the assets acquired. The Company's
determination of the fair value was agreed to by the OCC in recent discussions
with the OCC. Therefore, the Company's restated consolidated financial
statements and the Company's re-filed Call Reports will be consistent as it
relates to this loss on exchange.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations for the quarter ended March 31, 2000 presented herein have been
adjusted to reflect the restatement described above.
FINANCIAL CONDITION - MARCH 31, 2000 VS. DECEMBER 31, 1999.
Total consolidated assets increased $37.7 million, or 2.2 percent, during the
first three months of 2000, which included an increase of $21.0 million in
interest earning assets and $16.6 million in non-interest earning assets. The
increase in consolidated assets reflects increases of $45.1 million in cash and
cash equivalents and an increase in securities available for sale of $21.5
million. During the quarter, the Company's asset composition reflected greater
liquidity due largely to a decrease in interest earning deposits with other
banks.
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CASH, DEMAND DEPOSITS WITH OTHER BANKS AND FEDERAL FUNDS SOLD
Cash, demand deposits with other banks and federal funds sold are considered
cash and cash equivalents. Balances of these items fluctuate daily depending on
many factors which include or relate to the particular banks that are clearing
funds, loan payoffs, deposit gathering and reserve requirements. Cash, demand
deposits with other banks and federal funds sold were $130.2 million at March
31, 2000 compared to $85.1 million at December 31, 1999.
INTEREST-EARNING DEPOSITS WITH OTHER BANKS AND INVESTMENT SECURITIES
Interest-earning deposits with other banks decreased to $151.4 million at March
31, 2000 from $187.7 million at December 31, 1999. These deposits are placed
with correspondent banks in the Region, generally on a short-term basis (less
than 365 days), to increase yields and enhance relationships with the
correspondent banks. The level of such deposits has diminished as the exposure
in the Region has decreased during the three months ended March 31, 2000. The
short-term nature of these deposits allows the Company the flexibility to later
redeploy assets into a higher yielding domestic loan component.
Investment securities increased to $295.8 million at March 31, 2000 from $274.3
million at December 31, 1999. The increase has been primarily in U.S. government
agency securities and to a lesser extent U. S. government mortgage backed
securities classified as available for sale. The government agency securities
are short term in nature and allow the Company the flexibility of liquidity and
the ability to convert these assets into higher yielding loans as these become
accessible. The mortgage backed securities diversify the Company's portfolio,
are eligible collateral for securing public funds and qualify as a Community
Reinvestment Act investment.
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LOANS
The Company's gross loan portfolio increased slightly by $3.6 million, during
the first three months of 2000 in relation to the year ended December 31, 1999.
Commercial-foreign loans increased by $37.7 million or 11.1 percent and domestic
acceptances discounted increased by $9.5 million or 16.2 percent. This was
offset by decreases in loans to banks and other financial institutions - foreign
of $19.3 million, loans to foreign government and official institutions of $12.8
and foreign acceptances discounted of $9.6 million. Details on the loans by type
are shown in the table below. At March 31, 2000 approximately 41.4 percent of
the Company's portfolio consisted of loans to domestic borrowers and 58.6
percent of the Company's portfolio consisted of loans to foreign borrowers. The
Company's loan portfolio is relatively short-term, as approximately 76.7 and
81.6 percent of loans at March 31, 2000 were short-term loans with average
maturities of less than 180 and less than 365 days, respectively. See "Interest
Rate Sensitivity Report".
The following table sets forth the loans by type in the Company's loan portfolio
at the dates indicated.
LOANS BY TYPE
(in thousands)
March 31, 2000 December 31, 1999
-------------- -----------------
Domestic:
Commercial (1) $ 392,884 $ 394,841
Acceptances discounted 68,587 59,040
Residential mortgages 2,113 2,140
----------- -----------
Subtotal Domestic 463,584 456,021
----------- -----------
Foreign:
Banks and other financial institutions 204,845 224,155
Commercial and industrial (1) 376,121 338,411
Acceptances discounted 49,646 59,256
Government and official institutions 25,569 38,358
----------- -----------
Subtotal Foreign 656,181 660,180
----------- -----------
Total Loans $ 1,119,765 $ 1,116,201
=========== ===========
(1) Includes pre-export financing, warehouse receipts and refinancing of
letter of credits.
The following tables largely reflect both the Company's growth and
diversification in financing trade flows between the United States and the
Region in terms of loans by country and cross-border outstandings by country.
The aggregate amount of the Company's crossborder outstandings by primary credit
risk include cash and demand deposits with other banks, interest earning
deposits with other banks, investment securities, due from customers on bankers
acceptances, due from customers on deferred payment letters of credit and
loans-net. Exposure levels in any given country at the end of each period may be
impacted by the flow of trade between the United States (and to a large extent
Florida) and the given countries, as well as the price of the underlying goods
or commodities being financed.
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At March 31, 2000 approximately 28.4 percent in principal amount of the
Company's loans were outstanding to borrowers in four countries other than the
United States: Panama (12.3 percent), Guatemala (6.2 percent), El Salvador (5.4
percent) and Jamaica (4.5 percent).
Panama loan exposure continues to be over 10 percent of loans and has increased
to 12.3 percent of total loans at March 31, 2000. The bulk of the credit
relationships in Panama are related to financing short-term trade transactions
with companies operating out of the Colon Free Zone. The latter represents the
second largest free trading zone in the world after Hong Kong. The companies
operate largely as importers and exporters of consumer goods such as electronic
goods and clothing.
LOANS BY COUNTRY
(Dollars in thousands)
March 31, 2000 December 31, 1999
------------------------------ ------------------------------
Percent of Percent of
Country Amount Total Loans Amount Total Loans
----------- ----------- ----------- ------------
United States $ 463,584 41.4% $ 456,021 40.9%
Argentina 24,053 2.1% 35,494 3.2%
Brazil 40,384 3.6% 49,214 4.4%
British West Indies (1) -- -- 22,082 2.0%
Colombia 26,862 2.4% 28,437 2.5%
Dominican Republic 35,855 3.2% 41,604 3.7%
Ecuador 38,298 3.4% 43,622 3.9%
El Salvador 60,180 5.4% 45,847 4.1%
Guatemala 69,578 6.2% 66,531 6.0%
Honduras 38,614 3.4% 42,352 3.8%
Jamaica 50,546 4.5% 28,628 2.6%
Panama 137,269 12.3% 127,419 11.4%
Peru 24,359 2.2% 29,648 2.7%
Venezuela 17,330 1.5% 17,842 1.6%
Other (2) 92,853 8.3% 81,460 7.2%
----------- ----- ----------- -----
Total $ 1,119,765 100.0% $ 1,116,201 100.0%
=========== ===== =========== =====
(1) These countries had loans in periods presented which did not exceed 1
percent of total assets.
(2) Other consists of loans to borrowers in countries in which loans did
not exceed 1 percent of total assets.
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At March 31, 2000 approximately 29.0 percent in cross-border outstandings were
outstanding to borrowers in five countries other than the United States: Brazil
(9.3 percent), Panama (7.0 percent), Guatemala (4.4 percent), Argentina (4.2
percent), and Ecuador (4.1 percent).
TOTAL CROSS-BORDER OUTSTANDINGS BY COUNTRY
(Dollars in millions)
March 31, 2000 December 31, 1999
------------------------------ --------------------------
% of Total % of Total
Amount Assets Amount Assets
----------- ----------- ----------- ----------
Argentina $ 73 4.2% $ 113 6.6%
Bahamas 21 1.2% 21 1.2%
Bolivia 13 0.7% 18 1.0%
Brazil 164 9.3% 173 10.1%
BritishWest Indies (1) 17 1.0% -- --
Colombia 47 2.7% 48 2.8%
Costa Rica (1) 13 0.7% -- --
Dominican Republic 40 2.3% 55 3.2%
Ecuador 72 4.1% 78 4.5%
El Salvador 52 3.0% 44 2.6%
Guatemala 77 4.4% 68 4.0%
Honduras 42 2.4% 43 2.5%
Jamaica 58 3.3% 35 2.0%
Mexico 13 0.7% 20 1.2%
Panama 124 7.0% 116 6.7%
Peru 35 2.0% 42 2.4%
Suriname 31 1.8% 32 1.9%
United Kingdom 15 0.9% 15 0.9%
Venezuela 17 1.0% 17 1.0%
Other (2) 40 2.3% 75 4.4%
----------- ---- ----------- ----
Total $ 964 54.9% $ 1,013 59.0%
=========== ==== =========== ====
(1) These countries had outstandings in periods presented which did not
exceed 1 percent of total assets.
(2) Other consists of cross-border outstandings to countries in which such
cross-border outstandings did not exceed 0.75 percent of the Company's
total assets at any of the dates shown.
(3) Cross-border outstandings could be less than loans by country since
cross-border outstandings may be netted against legally enforceable,
written guarantees of principal or interest by domestic or other
non-local third parties. In addition, balances of any tangible, liquid
collateral may also be netted against cross-border outstandings of a
country if they are held and realizable by the lender outside of the
borrower's country.
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CONTINGENCIES - COMMERCIAL LETTERS OF CREDIT
(in thousands)
The following table sets forth the total volume and average monthly volume of
the Company's export and import letters of credit for each of the periods
indicated. As shown by the table, the volume of commercial letters of credit
increased by 35.6 percent to $143.6 million for the three months ended March 31,
2000 when compared to the same period in 1999. This increase is due to greater
financing of domestic import activities, which increased by 49.2 percent, and to
a lesser extent, the export financing, which increased by 17.4 percent.
Three Months Ended March 31, Year Ended
----------------------------------------------------- ------------------------
2000 1999 December 31, 1999
------------------------- ------------------------ ------------------------
Average Average Average
Total Monthly Total Monthly Total Monthly
Volume Volume Volume Volume Volume Volume
--------- --------- --------- --------- --------- ---------
Export Letters of Credit (1) $ 53,187 $ 17,729 $ 45,313 $ 15,104 $ 227,904 $ 18,992
Import Letters of Credit (1) 90,473 30,158 60,654 20,218 296,943 24,745
--------- --------- --------- --------- --------- ---------
Total $ 143,660 $ 47,887 $ 105,967 $ 35,322 $ 524,847 $ 43,737
========= ========= ========= ========= ========= =========
(1) Represents certain contingent liabilities not reflected on the
Company's balance sheet.
13
15
The following table sets forth the distribution of the Company's contingent
liabilities by country of the applicant and issuing bank for import and export
letters of credit, respectively. As shown by the table, contingent liabilities
decreased by 3.7 percent from December 31, 1999 to March 31, 2000. Individual
fluctuations reflect relative changes in the flow of trade or instruments used
in financing such trade as well as the cyclical nature of certain trade
activities.
CONTINGENT LIABILITIES (1)
(in thousands)
March 31, 2000 December 31, 1999
----------------- -----------------
Aruba (2) $ -- $ 3,720
Costa Rica 2,452 9,893
Dominican Republic 6,367 4,707
El Salvador (2) -- 2,734
Guatemala 6,301 9,475
Guyana 2,890 4,165
Haiti 2,021 5,705
Honduras 3,720 4,174
Jamaica (2) 9,383 --
Panama 8,904 14,242
Peru 2,111 3,573
Suriname 6,506 5,677
United States 88,398 74,643
Venezuela 1,622 2,593
Other (3) 5,191 6,143
--------- ---------
Total $ 145,866 $ 151,444
========= =========
(1) Includes export and import letters of credit, standby letters of credit
and letters of indemnity.
(2) These countries had contingencies which represented less than 1 percent
of the Company's total contingencies at periods presented in the above
dates.
(3) Other includes those countries in which contingencies represent less
than 1 percent of the Company's total contingencies at each of the
above dates.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses reflects management's judgment of the level of
allowance adequate to provide for reasonably foreseeable losses, based upon the
following factors: (i) the economic conditions in those countries in the Region
in which the Company conducts trade finance activities; (ii) the credit
condition of its customers and correspondent banks, as well as the underlying
collateral, if any; (iii) historical experience; and (iv) the average maturity
of its loan portfolio.
In addition, although the Company's credit losses have been relatively limited
to date, management believes that the level of the Company's allowance should
reflect the potential for political and economic instability in certain
countries of the Region and the possibility that serious economic difficulties
in a country could adversely affect all of the Company's loans to borrowers in
or doing business with that country.
14
16
In addition to the factors previously mentioned as well as management's ongoing
review of the Bank's assets, the Company's board of directors meets on a monthly
basis through its Loan Review Committee to assess the overall credit quality of
the loan portfolio. This Committee reviews: 1) loans greater than 30 days past
due, 2) overdrafts greater than 30 days, 3) criticized assets based on an
internal grading system, this process includes reviewing the appropriate level
of allowance for any specific loan based on the underlying collateral and
financial strength of each borrower, and 4) reviewing country limits and
exposures as well as consideration of appropriate country ratings.
On a quarterly basis, the Bank will assess the adequacy of the allowance for
credit losses utilizing a disciplined and systematic approach which includes the
application of various methodologies that consider historical loss factors such
as charge-offs to average loans, portfolio composition including borrowers by
type as well as security and the duration of the portfolio. These methodologies
are impacted by loan growth, the level of criticized assets and loan write-offs.
In addition, to the aforementioned methodologies, management conducts a review
of the criticized loans and allocates a portion of the allowance based on the
underlying security and financial condition of the borrower. In general, the
Bank assigns an allowance factor to a criticized loan and if loan is down graded
due to deteriorating conditions the allowance factor is increased.
Determining the appropriate level of the allowance for credit losses requires
management's judgment, including application of the factors described above to
assumptions and estimates made in the context of changing political and economic
conditions in many of the countries of the Region. Accordingly, there can be no
assurance that the Company's current allowance for credit losses will prove to
be adequate in light of future events and developments. At March 31, 2000 the
allowance for credit losses was approximately $20.6 million.
15
17
The following table provides certain information with respect to the Company's
allowance for credit losses, provision for credit losses, charge-off and
recovery activity for the periods shown.
CREDIT LOSS EXPERIENCE
(in thousands)
Three Months Ended Year Ended
March 31, 2000 December 31, 1999
------------------ -----------------
Balance of allowance for credit losses at beginning of period $ 21,411 $ 12,794
Charge-offs:
Domestic:
Commercial (36) (3,299)
Acceptances -- --
Installment -- (5)
---------- ----------
Total Domestic (36) (3,304)
---------- ----------
Foreign:
Banks and other financial institutions (200) (2,330)
Commercial and industrial (1,394) (6,216)
---------- ----------
Total Foreign (1,594) (8,546)
---------- ----------
Total charge-offs (1,630) (11,850)
---------- ----------
Recoveries:
Domestic:
Commercial 3 4
Foreign:
Banks and other financial institutions 41 163
---------- ----------
Total recoveries 44 167
---------- ----------
Net (charge-offs) recoveries (1,586) (11,683)
Provision for credit losses 750 20,300
---------- ----------
Balance at end of the period $ 20,575 $ 21,411
========== ==========
Average loans $1,242,750 $1,181,865
Total loans $1,119,765 $1,116,201
Net charge-offs to average loans 0.13% 1.00%
Allowance to total loans 1.84% 1.92%
16
18
The following tables set forth an analysis of the allocation of the allowance
for credit losses by category of loans and the allowance for credit losses
allocated to foreign loans. The allowance is established to cover potential
losses inherent in the portfolio as a whole or is available to cover potential
losses on any of the Company's loans.
The allowance for credit losses decreased from $21.4 million at December 31,
1999 to $20.6 million as of March 31, 2000, or 5.6%. A relatively small decrease
was experienced in the allowance due to the following factors: a) no significant
growth in loans from December 31, 1999 to March 31, 2000, b) no significant
increase in non-performing loans from December 31, 1999 to March 31, 2000, c)
relatively low charge-offs to average loans for the quarter and d) the
application of the Bank's methodologies utilized in estimating the adequacy of
the allowance for loan losses did not reveal a need to increase the allowance.
17
19
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
(in thousands)
As of As of
March 31, 2000 December 31, 1999
-------------- -----------------
Allocation of the allowance by category of loans:
Domestic:
Commercial $ 2,986 $ 3,199
Acceptances 285 269
Residential 9 10
-------- --------
Total domestic 3,280 3,478
Foreign:
Government and official institutions 3,752 1,496
Banks and other financial institutions 3,511 5,152
Commercial and industrial 9,825 11,015
Acceptances discounted 207 270
-------- --------
Total foreign 17,295 17,933
Total $ 20,575 $ 21,411
======== ========
Percent of loans in each category to total loans:
Domestic:
Commercial 35.1% 35.4%
Acceptances 6.1% 5.3%
Residential 0.2% 0.2%
-------- --------
Total domestic 41.4% 40.9%
Foreign:
Banks and other financial institutions 18.3% 20.1%
Commercial and industrial 33.6% 30.3%
Acceptances discounted 4.4% 5.3%
Government and official Institutions 2.3% 3.4%
-------- --------
Total foreign 58.6% 59.1%
Total 100.0% 100.0%
======== ========
18
20
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES ALLOCATED TO FOREIGN LOANS
(in thousands)
March 31, 2000 December 31, 1999
----------------- -----------------
Balance, beginning of year $ 17,933 $ 11,379
Provision for credit losses 956 14,937
Net charge-offs (1,594) (8,383)
-------- --------
Balance, end of period $ 17,295 $ 17,933
======== ========
The Company does not have a rigid charge-off policy but instead charges off
loans on a case-by-case basis as determined by management and approved by the
Board of Directors. In some instances, loans may remain in the nonaccrual
category for a period of time during which the borrower and the Company
negotiate restructured repayment terms.
The Company attributes its favorable asset quality to the short-term nature of
its loan portfolio, the composition of its borrower base, the importance that
borrowers in the Region attach to maintaining their continuing access to
financing for foreign trade and the Company's loan underwriting policies.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for
Impairment of a Loan. Under these standards, individually identified impaired
loans are measured based on the present value of payments expected to be
received, using the historical effective loan rate as the discount rate.
Alternatively, measurement may also be based on observable market prices or, for
loans that are solely dependent on the collateral for repayment, measurement may
be based on the fair value of the collateral. The Company evaluates commercial
loans individually for impairment, while groups of smaller-balance homogeneous
loans (generally residential mortgage and installment loans) are collectively
evaluated for impairment.
The following table sets forth information regarding the Company's nonperforming
loans at the dates indicated.
NONPERFORMING LOANS
(in thousands)
March 31, 2000 December 31, 1999
---------------- -----------------
Domestic:
Non accrual $ 681 $ 6,995
Past due over 90 days and accruing 2,349 --
-------- --------
Total domestic nonperforming loans 3,030 6,995
-------- --------
Foreign:
Non accrual 15,795 9,588
Past due over 90 days and accruing 69 1,992
-------- --------
Total foreign nonperforming loans 15,864 11,580
-------- --------
Total nonperforming loans $ 18,894 $ 18,575
======== ========
Total nonperforming loans to total loans 1.69% 1.66%
Total nonperforming assets to total assets 1.25% 1.08%
Nonperforming loans remained relatively unchanged from December 31, 1999 to
March 31, 2000. However, the level of foreign nonperforming loans increased from
$11.6 million as of December 31, 1999 to $15.9 million as of March 31, 2000 or
$4.3 million. The increase in foreign nonperforming loans was due to a
reclassification of a domestic loan to a foreign loan, due to the underlying
security and primary source of repayment for this obligation.
19
21
This amount represented $6.4 million that was offset by foreign charge-offs of
$1.6 million during the quarter. Domestic nonperforming loans decreased from
$7.0 million at December 31, 1999 to $3.0 million at March 31, 2000. This
decrease was largely attributable to the previously mentioned reclassification
of a domestic loan to a foreign loan, offset by an increase of $2.4 million in
past due loans over 90 days and accruing loans. This $2.4 million consisted
largely of one borrower that subsequently satisfied the obligation.
At March 31, 2000, the Company had $3.1 million in nonperforming investment
securities and other assets compared to no nonperforming investment securities
and other assets at December 31, 1999. Nonperforming investment securities at
March 31, 2000 totaled $1.2 million and consisted of a foreign debt security
available for sale. The value of this security was determined by applying fair
value guidance of SFAS 115 and a write-off was not deemed necessary.
DUE FROM CUSTOMERS ON BANKERS' ACCEPTANCES AND DEFERRED PAYMENT LETTERS OF
CREDIT.
Due from customers on bankers' acceptances and deferred payment letters of
credit were $35.6 million and $3.5 million, respectively, at March 31, 2000
compared to $27.8 million and $5.8 million, respectively, at December 31, 1999.
These assets represent a customer's liability to the Company while the
Company's" corresponding liability to third parties is reflected on the balance
sheet as "Bankers Acceptances Outstanding" and "Deferred Payment Letters of
Credit Outstanding".
DEPOSITS
The primary sources of the Company's domestic time deposits are its eight Bank
branches located in Florida and one in Puerto Rico. In pricing its deposits, the
Company analyzes the market carefully, attempting to price its deposits
competitively with the other financial institutions in the area.
Total deposits were $1.55 billion at March 31, 2000 compared to $1.53 billion at
December 31, 1999. The increase in deposits during the three month period was
largely in certificates of deposits over $100,000 which increased by $61.2
million and in non interest bearing demand deposit which increased by $15.3
million. These increases were offset by a decrease in certificates of deposit
under $100,000 of $56.0 million.
The following table indicates the maturities and amounts of certificates of
deposit and other time deposits issued in denominations of $100,000 or more as
of March 31, 2000:
MATURITIES OF AND AMOUNTS OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS
$100,000 OR MORE
(in thousands)
Certificates of Deposit Other Time Deposits
$100,000 or More $100,000 or More Total
----------------------- ----------------------- -----------------------
Three months or less $ 158,703 $ 26,641 $ 185,344
Over 3 through 6 months 119,853 3,101 122,954
Over 6 through 12 months 106,697 4 106,701
Over 12 months 85,374 -- 85,374
--------- --------- ---------
Total $ 470,627 $ 29,746 $ 500,373
========= ========= =========
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22
STOCKHOLDERS' EQUITY
The Company's stockholders' equity at March 31, 2000 was $143.3 million compared
to $133.9 million at December 31, 1999. During this period stockholders' equity
increased by $9.4 million primarily due to the retention of net income and the
recovery in market value of the securities available for sale.
INTEREST RATE SENSITIVITY
The following table presents the projected maturities or interest rate
adjustments of the Company's earning assets and interest-bearing funding sources
based upon the contractual maturities or adjustment dates at March 31, 2000. The
interest-earning assets and interest-bearing liabilities of the Company and the
related interest rate sensitivity gap given in the following table may not be
reflective of positions in subsequent periods.
INTEREST RATE SENSITIVITY REPORT
(Dollars in thousands)
0 to 30 31 to 90 91 to 180 181 to 365 1 to 5 Over 5
Days Days Days Days Years Years Total
--------- ---------- ---------- ---------- --------- --------- ----------
Earning Assets:
Loans $ 552,250 $ 151,093 $ 155,507 $ 54,778 $ 176,318 $ 29,819 $1,119,765
Federal funds sold 94,697 94,697
Investment securities 43,797 93,975 40,651 12,258 19,578 80,248 290,507
Interest earning deposits with
other banks 27,013 43,227 39,825 41,333 151,398
--------- ---------- ---------- ---------- --------- --------- ----------
Total 717,757 288,295 235,983 108,369 195,896 110,067 1,656,367
--------- ---------- ---------- ---------- --------- --------- ----------
Funding Sources:
Savings and transaction deposits 29,776 67,942 40,443 138,161
Certificates of deposits of $100 or more 33,510 125,193 119,853 106,697 85,374 470,627
Certificates of deposits under $100 78,432 132,175 174,019 264,231 111,942 38 760,837
Other time deposits 23,179 3,462 3,101 595 30,337
Funds overnight 60,010 60,010
Trust preferred securities 12,650 12,650
--------- ---------- ---------- ---------- --------- --------- ----------
Total $ 224,907 $ 328,772 $ 337,416 $ 371,523 $ 197,316 $ 12,688 $1,472,622
========= ========== ========== ========== ========= ========= ==========
Interest sensitivity gap $ 492,850 $ (40,477) $ (101,433) $ (263,154) $ (1,420) $ 97,379 $ 183,745
========= ========== ========== ========== ========= ========= ==========
Cumulative gap $ 492,850 $ 452,373 $ 350,940 $ 87,786 $ 86,366 $ 183,745
========= ========== ========== ========== ========= =========
Cumulative gap as a percentage
of total earning assets 29.75% 27.31% 21.19% 5.30% 5.21% 11.09%
========= ========== ========== ========== ========= =========
21
23
LIQUIDITY
Cash and cash equivalents increased by $45.1 million from December 31, 1999 to
March 31, 2000. During the first quarter of 2000, net cash provided by operating
activities was $20.6 million, net cash provided investing activities was $9.2
million and net cash provided by financing activities was $15.3 million. For
further information on cash flows, see the Consolidated Statement of Cash Flows.
The Company's principal sources of liquidity and funding are its diverse deposit
base and the sales of bankers' acceptances as well as loan participations. The
level and maturity of deposits necessary to support the Company's lending and
investment activities is determined through monitoring loan demand and through
its asset/liability management process. Consideration s in managing the
Company's liquidity position include, but are not limited to, scheduled cash
flows from existing assets, contingencies and liabilities, as well as projected
liquidity needs arising from anticipated extensions of credit. Furthermore the
liquidity position is monitored daily by management to maintain a level of
liquidity conducive to efficient operations and is continuously evaluated as
part of the asset/liability management process.
The majority of the Company's deposits are short-term and closely match the
short-term nature of the Company's assets. See "Interest Rate Sensitivity
Report." At March 31, 2000 interest-earning assets maturing within six months
were $1.242 billion, representing 75.0 percent of total earning assets and
earning assets maturing within one year were $1.351 billion or 81.5 percent of
total earning assets. The interest bearing liabilities maturing within six
months were $891.1 million or 61.0 percent of total interest bearing liabilities
and maturing within one year were $1.263 billion or 85.7 percent of the total at
March 31, 2000.
The short-term nature of the loan portfolio and the fact that a portion of the
loan portfolio consists of bankers' acceptances provides additional liquidity to
the Company. Liquid assets at March 31, 2000 were $434 million, 24.7 percent of
total assets, and consisted of cash and cash equivalents, due from banks-time
and available for sale investment securities maturing within one year or less
that are unpledged. At March 31, 2000 the Company had been advised of $57
million in available interbank funding.
CAPITAL RESOURCES
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of 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 judgments by the
regulators about components, risk weightings, and other factors.
As part of its examination process, the Office of the Comptroller of the
Currency ("OCC") has directed the Bank, among other things, to take $32 million
in transfer risk reserves related to the Bank's exposure in Ecuador . While the
Bank has taken the actions directed by the OCC for regulatory reporting purposes
only, it disagrees with the OCC's interpretations of the regulatory accounting
rules and is appealing such directions within the OCC. In this connection, the
OCC has initiated formal administrative action under Section 8 of the Federal
Deposit Insurance Act which the Bank has not agree to and which the Bank is
appealing and disputing in appropriate administrative actions within the OCC. As
a part of the formal administrative action, the OCC has issued a temporary cease
and desist order to the Bank containing certain accounting and capital
requirements and requiring certain reports and filings, all of which the Bank
believes it has complied with or was already in compliance with, except for
certain reports which it will prepare and deliver in a timely manner under the
order. As a result of the formal administrative action, however, the Bank may
not accept new, or renew, "brokered deposits" without the prior approval of the
Federal Deposit Insurance Corporation or appoint new directors or senior
officers without the prior consent of the OCC. The Bank does not anticipate that
either of such restrictions will have any material adverse effect on its
business or operations. In fact, the Bank subsequently hired three senior
executives with the consent of the OCC. The Company is satisfied that the
reserves it recorded in the third quarter of 1999 relating to
22
24
its Ecuador and other Latin American exposures are adequate and in accordance
with generally accepted accounting principles.
COMPANY CAPITAL RATIOS
(Dollars in thousands)
March 31, 2000 December 31, 1999
----------------------- -----------------------
Amount Ratio Amount Ratio
---------- ---------- ---------- ----------
Tier 1 risk-weighted
Capital:
Actual $ 124,758 10.36% $ 116,769 10.0%
Minimum 48,169 4.00% 46,553 4.0%
Total risk-weighted
Capital:
Actual 140,316 11.65% 131,854 11.3%
Minimum 96,338 8.00% 93,106 8.0%
Leverage:
Actual 124,758 7.41% 116,769 6.9%
Minimum 50,540 3.00% 50,685 3.0%
BANK CAPITAL RATIOS
(Dollars in thousands)
March 31, 2000 December 31, 1999
----------------------- -----------------------
Amount Ratio Amount Ratio
---------- ---------- ---------- ----------
Tier 1 risk-weighted capital:
Actual $ 117,165 10.3% $ 109,147 9.4%
Minimum to be well capitalized 68,586 6.0% 69,721 6.0%
Minimum to be adequately capitalized 45,724 4.0% 46,481 4.0%
Total risk-weighted capital:
Actual 131,945 11.4% 124,209 10.7%
Minimum to be well capitalized 114,310 10.0% 116,202 10.0%
Minimum to be adequately capitalized 91,448 8.0% 92,962 8.0%
Leverage:
Actual 117,165 7.0% 109,147 6.5%
Minimum to be well capitalized 83,887 5.0% 84,187 5.0%
Minimum to be adequately capitalized 67,110 4.0% 67,350 4.0%
23
25
MARKET RISK MANAGEMENT
In the normal course of conducting business activities, the Company is exposed
to market risk which includes both price and liquidity risk. The Company's price
risk arises from fluctuations in interest rates, and foreign exchange rates that
may result in changes in values of financial instruments. The Company does not
have material direct market risk related to commodity and equity prices.
Liquidity risk arises from the possibility that the Company may not be able to
satisfy current and future financial commitments or that the Company may not be
able to liquidate financial instruments at market prices. Risk management
policies and procedures have been established and are utilized to manage the
Company's"exposure to market risk. The strategy of the Company is to operate at
an acceptable risk environment while maximizing its earnings.
Market risk is managed by the Asset Liability Committee which formulates and
monitors the performance of the Company based on established levels of market
risk as dictated by policy. In setting the tolerance levels of market risk, the
Committee considers the impact on both earnings and capital, based on potential
changes in the outlook in market rates, global and regional economies,
liquidity, business strategies and other factors.
The Company's asset and liability management process is utilized to manage
interest rate risk through the structuring of balance sheet and off-balance
sheet portfolios. It is the strategy of the Company to maintain as neutral an
interest rate risk position as possible. By utilizing this strategy the Company
"locks in" a spread between interest earning assets and interest-bearing
liabilities. Given the matching strategy of the Company and the fact that it
does not maintain significant medium and/or long-term exposure positions, the
Company's"interest rate risk will be measured and quantified through an interest
rate sensitivity report. An excess of assets or liabilities over these matched
items results in a gap or mismatch. A positive gap denotes asset sensitivity and
normally means that an increase in interest rates would have a positive effect
on net interest income. On the other hand a negative gap denotes liability
sensitivity and normally means that a decline in interest rates would have a
positive effect in net interest income. However, because different types of
assets and liabilities with similar maturities may reprice at different rates or
may otherwise react differently to changes in overall market rates or
conditions, changes in prevailing interest rates may not necessarily have such
effects on net interest income.
Interest Rate Sensitivity Report as of March 31, 2000 shows that interest
bearing liabilities maturing or repricing within one year exceed interest
earning assets by $263.2 million. The Company monitors that the assets and
liabilities are closely matched to minimize interest rate risk.
The level of imbalance between the repricing of rate sensitive assets and rate
sensitive liabilities will be measured through a series of ratios. Substantially
all of the Company's"assets and liabilities are denominated in dollars,
therefore the Company has no material foreign exchange risk. In addition, the
Company has no trading account securities, therefore it is not exposed to market
risk resulting from trading activities.
On a daily basis the Bank's Chief Financial Officer and the Bank's Treasurer are
responsible for measuring and managing market risk.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on loans
and investments and interest paid on deposits and other sources of funds, and it
constitutes the Company's principal source of income. Net interest income
increased to $16.5 million for the three months ended March 31, 2000 from $13.4
million for the same period in 1999, an 23.1 percent increase. The increase was
due largely to an increase in net interest margin as well as an increase in
average earning assets. Average earning assets increased to $1.630 billion for
the three months ended March 31, 2000 from $1.552 billion for the same period in
1999, a 5.0 percent increase. Average loans and acceptances discounted increased
to $1.243 billion for the three months ended March 31, 2000 from $1.162 billion
for the same period in 1999, a 7.0 percent increase. Average interest earning
deposits with other banks increased to $162.1 million for the three months ended
March 31, 2000 from $108.7 million for the same period in 1999, a 49 percent
increase. The increase in loans was largely
24
26
attributable to trade finance activities within the Region. Net interest margin
increased to 4.07 percent for the three months ended March 31, 2000 from 3.51
percent for the same period in 1999, a 56 basis point increase. The primary
reasons for this increase were (i) the redeployment of lower yielding U.S.
government agency securities into the higher yielding loan category and (ii) the
base for pricing commercial loans has increased within the last three months as
a result of increases in the prime rate.
Interest income increased to $37.0 million for the three months ended March 31,
2000 from $31.9 million for the same period in 1999, a 16.0 percent increase,
reflecting the increase in commercial loans and the increase in prevailing
interest rates. Interest expense increased to $20.5 million for the three months
ended March 31, 2000 from $18.6 million for the same period in 1999, a 10.2
percent increase, reflecting the additional deposits to fund asset growth.
Average interest-bearing deposits increased to $1.425 billion for the three
months ended March 31, 2000 from $1.367 billion for the same period in 1999, a
4.2 percent increase. The growth in deposits was primarily a result of the
Company seeking additional deposits to fund asset growth.
25
27
YIELDS EARNED AND RATE PAID
- --------------------------------------------------------------------------------
FOR THE QUARTER ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------------------ ------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- -------- ------ ----------- -------- ------
TOTAL EARNING ASSETS
LOANS:
Commercial loans $ 1,120,300 $ 26,255 9.37% $ 1,027,975 $ 22,120 8.61%
Acceptances discounted 114,564 2,722 9.50% 117,044 2,642 9.03%
Overdraft 5,759 386 26.81% 13,667 696 20.37%
Mortgage loans 2,127 42 7.90% 3,514 71 8.08%
----------- -------- ------- ----------- -------- ------
TOTAL LOANS 1,242,750 29,405 9.46% 1,162,200 25,529 8.79%
Time deposits with banks 162,107 3,841 9.48% 108,748 3,241 11.92%
Investments 175,281 3,052 6.96% 242,179 2,756 4.55%
Federal funds sold 49,888 703 5.64% 38,486 466 4.84%
----------- -------- ----------- --------
Total investments and time deposits with banks 387,276 7,596 7.85% 389,413 6,463 6.64%
Total interest earning assets 1,630,026 37,001 9.08% 1,551,613 31,992 8.25%
-------- --------
Total non interest earning assets 88,655 121,650
----------- -----------
TOTAL ASSETS $ 1,718,681 $ 1,673,263
=========== ===========
INTEREST BEARING LIABILITIES
DEPOSITS:
NOW amd savings accounts $ 22,168 132 2.38% $ 21,654 109 2.01%
Money Market 44,054 630 5.72% 45,849 530 4.62%
Presidential Money Market 65,579 906 5.53% 25,673 304 4.74%
Certificate of Deposits (including IRA) 1,216,335 17,495 5.75% 1,160,076 15,889 5.48%
Time Deposits with Banks (IBF) 68,463 862 5.04% 109,383 1,303 4.76%
Other 8,786 141 6.42% 3,923 33 3.36%
----------- -------- ----------- --------
TOTAL DEPOSITS 1,425,385 20,166 5.66% 1,366,558 18,168 5.32%
Trust Preferred Securities 12,650 308 9.74% 12,393 302 0.00%
Other Borrowings -- -- -- 5,498 103 7.49%
Federal Funds Purchased 55 1 7.27% 111 2 7.21%
----------- -------- ----------- --------
Total interest bearing liabilities 1,438,090 20,475 5.70% 1,384,560 18,575 5.37%
----------- -------- ----------- --------
Non interest bearing liabilities
Demand Deposits 81,171 75,510
Other Liabilities 54,930 86,875
----------- -----------
Total non interest bearing liabilities 136,101 162,385
Stockholders equity 144,490 126,321
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,718,681 $ 1,673,266
=========== ===========
NET INTEREST INCOME/NET INTEREST SPREAD $ 16,526 3.38% $ 13,417 2.88%
======== ==== ======== =====
MARGIN
INTEREST INCOME/INTEREST EARNING ASSETS 9.10% 8.37%
INTEREST EXPENSE/INTEREST EARNING ASSETS 5.04% 4.86%
----- -----
NET INTEREST MARGIN 4.07% 3.51%
===== =====
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PROVISION FOR CREDIT LOSSES
The Company's provision for credit losses decreased to $750 thousand for the
three months ended March 31, 2000 from $900 thousand for the same period in
1999. Net loan charge-offs during the first three months of 2000 amounted to
$1,586 thousand compared to $104 thousand for the same period in 1999. The
allowance for credit losses increased from $13.6 million at March 31, 1999 to
$20.6 million at March 31, 2000. The ratio of the allowance for credit losses to
total loans was 1.84 percent at March 31, 2000 increasing from approximately
1.21 percent at December 31, 1999.
NON-INTEREST INCOME
Non-interest income increased to $6.1 million for the three months ended March
31, 2000 from $4.3 million for the same period in 1999, a 42.4 percent increase.
The increase was largely the result of an increase in gain on sale of assets of
$1.2 million relating to the sale of foreign debt securities previously written
down. In addition there were higher structuring and syndication fees which
increased by $911 thousand, partially offset by a decrease in trade finance fees
and commissions of $225 thousand.
The following table sets forth details regarding the components of non-interest
income for the periods indicated.
NON-INTEREST INCOME
(Dollars in thousands)
For the Three Months Ended March 31,
---------------------------------------------------
2000 to 1999
2000 Percent Change 1999
-------------- -------------- -------------
Trade finance fees and commissions $ 2,765 -7.5% $ 2,990
Structuring and syndication fees 1,488 157.9% 577
Customer service fees 400 -3.6% 415
Gain on sale of assets 1,349 617.6% 188
Other 102 -12.8% 117
------- ------ -------
Total non-interest income $ 6,104 42.4% $ 4,287
======= ====== =======
OPERATING EXPENSES
Operating expenses increased to $9.0 million for the three months ended March
31, 2000 from $7.2 million for the same period in 1999, a 25.0 percent increase.
The majority of this increase was in other losses and charge-offs which
increased to $1.7 million from $320 thousand largely as a result of a write off
of an other miscellaneous receivable. This miscellaneous receivable represented
$1.7 million due for structuring and syndication services provided by the Bank
of which the customer had made a partial payment. A dispute arose between the
Bank and the customer regarding the balance owed, which was settled and resulted
in a write-off of $1 million and payment in full of the balance. The Company's
efficiency ratio increased to 42.5 percent for the three month period ended
March 31, 2000 from 40.5 percent for the same period in 1999.
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The following table sets forth details regarding the components of operating
expenses for the periods indicated.
OPERATING EXPENSES
(Dollars in thousands)
For the Three Months Ended March 31,
--------------------------------------------
2000 to 1999
2000 Percent Change 1999
---------- -------------- ----------
Employee compensation and benefits $ 3,284 -1.8% $ 3,344
Occupancy and equipment 1,298 35.2% 960
Legal Expenses 491 -23.3% 640
Other losses & charge-offs 1,689 427.8% 320
Other operating expenses 2,251 18.2% 1,904
---------- --------------- ----------
Total operating expenses $ 9,013 25.7% $ 7,168
========== =============== ==========
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 18, 2000 Hamilton Bancorp Inc.
/s/ J. Carlos Bernace
--------------------------------
J. Carlos Bernace,
Executive Vice President
/s/ Eva Lynn Hernandez
--------------------------------
Eva Lynn Hernandez,
Vice President - Finance, Controller
and Chief Accounting Officer
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Exhibit 1 of the Registrant's Form 10Q for the quarterly period ended March 31,
2000 is hereby amended to read as follows:
EXHIBIT 1
HAMILTON BANCORP INC. AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
As Restated,
see Note 5
Three Months Ended March 31,
----------------------------
2000 1999
----------- -----------
Basic
Weighted average number of common shares outstanding 10,081,147 10,056,111
Net income $ 8,413 $ 6,069
Basic earnings $ 0.84 $ 0.60
Diluted:
Weighted average number of common shares outstanding 10,081,147 10,056,111
Potential common shares outstanding - options 139,974 227,124
----------- -----------
Total common and potential common shares outstanding 10,221,121 10,283,235
Net income $ 8,413 $ 6,069
Diluted earnings per share $ 0.82 $ 0.59
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