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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20960
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Hamilton Bancorp Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Florida 65-0149935
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3750 N.W. 87th Avenue, Miami, Florida 33178
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (305) 717 - 5500
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
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 X No
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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
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PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(d) As reported in Registrant's Form SR for the period ending June 25,
1997 relating to the use of proceeds from the sale of common stock pursuant to
Registrant's Registration Statement No.2-20960 effective March 25, 1997,
US$8,600,000 of the proceeds were temporarily invested at that date, and remain
temporarily invested, in short term investments.
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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: May 11, 1998 Hamilton Bancorp Inc.
/s/ Eduardo A. Masferrer
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Eduardo A. Masferrer,
Chairman, President and Chief Executive Officer
/s/ Maria Ferrer-Diaz
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Maria Ferrer-Diaz,
Senior Vice President - Finance and Principal
Financial and Chief Accounting Officer
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ITEM 1
PART I. FINANCIAL INFORMATION
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
March 31, December 31,
1998 1997
----------- ------------
(Unaudited) (Audited)
ASSETS
CASH AND DEMAND DEPOSITS WITH OTHER BANKS $29,372 $29,434
FEDERAL FUNDS SOLD 35,000 62,000
---------- ----------
Total cash and cash equivalents 64,372 91,434
INTEREST EARNING DEPOSITS WITH OTHER BANKS 91,571 113,730
SECURITIES AVAILABLE FOR SALE 61,214 54,641
SECURITIES HELD TO MATURITY 3,000
LOANS-NET 1,069,482 952,431
DUE FROM CUSTOMERS ON BANKERS ACCEPTANCES 78,633 95,312
DUE FROM CUSTOMERS ON DEFERRED PAYMENT
LETTERS OF CREDIT 4,412 8,352
PROPERTY AND EQUIPMENT-NET 4,946 4,784
ACCRUED INTEREST RECEIVABLE 15,584 14,441
GOODWILL-NET 1,964 2,008
OTHER ASSETS 6,065 5,001
---------- ----------
TOTAL $1,401,243 $1,342,134
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $1,197,509 $1,135,047
OTHER BORROWING 2,388
BANKERS ACCEPTANCES OUTSTANDING 78,633 95,312
DEFERRED PAYMENT LETTERS OF CREDIT OUTSTANDING 4,412 8,352
OTHER LIABILITIES 14,217 5,096
---------- ----------
Total liabilities 1,297,159 1,243,807
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 75,000,000
shares authorized, 9,935,937 shares
issued and outstanding at March 31, 1998
and 9,827,949 shares issued and outstanding
at December 31, 1997 99 98
Capital surplus 57,261 56,266
Retained earnings 46,921 42,016
Net unrealized loss on securities available
for sale, net of taxes (197) (53)
---------- ----------
Total stockholders' equity 104,084 98,327
---------- ----------
TOTAL $1,401,243 $1,342,134
========== ==========
See accompanying notes to consolidated financial statements.
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HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
(Unaudited)
INTEREST INCOME:
Loans, including fees $ 23,406 $ 13,191
Deposits with other banks 2,279 1,883
Securities 1,012 293
Federal funds sold 250 228
----------- -----------
Total 26,947 15,595
INTEREST EXPENSE:
Deposits 14,737 8,237
Federal funds purchased and other borrowing 127 49
----------- -----------
Total 14,864 8,286
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NET INTEREST INCOME 12,083 7,309
PROVISION FOR CREDIT LOSSES 2,315 748
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES 9,768 6,561
NON-INTEREST INCOME:
Trade finance fees and commissions 3,395 2,758
Structuring and syndication fees 289 86
Customer service fees 145 256
Other 136 69
----------- -----------
Total 3,965 3,169
----------- -----------
OPERATING EXPENSES:
Employee compensation and benefits 2,995 2,703
Occupancy and equipment 1,070 682
Other 1,871 1,938
----------- -----------
Total 5,936 5,323
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,797 4,407
PROVISION FOR INCOME TAXES 2,892 1,585
----------- -----------
NET INCOME $ 4,905 $ 2,822
=========== ===========
NET INCOME PER COMMON SHARE:
BASIC $ 0.50 $ 0.49
=========== ===========
DILUTED $ 0.48 $ 0.47
=========== ===========
AVERAGE WEIGHTED SHARES OUTSTANDING:
BASIC 9,844,915 5,716,915
=========== ===========
DILUTED 10,208,765 5,953,528
=========== ===========
See accompanying notes to consolidated financial statements.
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HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Net Unrealized
Loss
Common Stock Securities Total
--------------------- Capital Retained Available for Sale Stockholder's
Shares Amount Surplus Earnings Net of Taxes Equity
--------------------- ---------- ---------- ---------------- -------------
Balance as of December 31, 1997 (audited) 9,827,949 $98 $56,266 $42,016 $(53) $98,327
Issuance of 107,988 shares of common
stock from exercise of options 107,988 1 995 996
Net change in unrealized loss on
securities available for sale, net of taxes (144) (144)
Net income for the three months ended
March 31, 1998 4,905 4,905
----------- ------- ---------- -------- ------- ---------
Balance as of March 31, 1998 (Unaudited) 9,935,937 $99 $57,261 $46,921 $(197) $104,084
=========== ======= ========== ======== ======= =========
See accompanying notes to consolidated financial statements.
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HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three Months Ended March 31,
--------------------------------
1998 1997
----------- --------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,905 $ 2,822
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 280 249
Provision for credit losses 2,315 748
Deferred (benefit) tax provision (674) 235
Proceeds from the sale of bankers acceptances and
loan participations, net of loan participations purchased 33,256 25,325
(Decrease) increase in accrued interest receivable and other assets (1,338) 1,082
Increase (decrease) in other liabilities 9,117 (805)
--------- ---------
Net cash provided by operating activities 47,861 29,656
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in interest-earning deposits with other banks 22,159 (40,532)
Purchase of securities available for sale (75,576) (12,741)
Purchase of securities held to maturity (3,000) 0
Proceeds from sales and maturities of securities available for sale 68,662 19,440
Increase in loans-net (152,622) (103,211)
Purchases of property and equipment-net (392) (512)
Net cash used in investing activities (140,769) (137,556)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits-net 62,462 65,385
Proceeds from other borrowing 2,388 0
Net Proceeds from exercise of common stock options and initial
public offering 996 33,697
Cash dividends on preferred stock 0 (177)
--------- ---------
Net cash provided by financing activities 65,846 98,905
NET DECREASE IN CASH AND CASH EQUIVALENTS (27,062) (8,995)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD 91,434 33,106
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 64,372 $ 24,111
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid during the period $ 14,236 $ 8,151
Income taxes paid during the period $ 220 $ 0
See accompanying notes to consolidated financial statements.
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HAMILTON BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1: BASIS OF PRESENTATION
The consolidated statements of condition for Hamilton Bancorp and Subsidiary
(the "Company") as of March 31, 1998 and December 31, 1997, the related
consolidated statements of income, stockholders' equity and the cash flows for
the three months ended March 31, 1998 and 1997 included in the Form 10Q have
been prepared by the Company in conformity with the instructions to Form 10Q 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, 1997.
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 10K for the year
ended December 31, 1997 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 oustanding 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: NEW ACCOUNTING PRONOUNCEMENT
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," (SFAS No. 130"),
which requires companies to report, as comprehensive income all changes in
equity during a period, except those resulting from investment by owners and
distribution to owners. Comprehensive income totaled $4.8 million for the three
months ended March 31, 1997, which is comprised of net income of $4.9 million
and net unrealized losses on securities available for sale of $100 thousand.
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ITEM 2.
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 owned subsidiary Hamilton Bank,
N.A. (the "Bank" and collectively 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 eight FDIC-insured branches with
seven Florida locations in Miami, Sarasota, Tampa, West Palm Beach, Winter Haven
and a branch in San Juan, Puerto Rico which opened in the first quarter of
fiscal 1998.
The Company completed its initial public offering of 2,400,000 shares of common
stock on March 26, 1997. Following the public offering, on April 9, 1997 the
Company issued 360,000 additional shares of common stock upon the exercise of
the over-allotment option granted to CIBC Oppenheimer and Company, Inc., and
NatWest Securities Ltd.
FINANCIAL CONDITION - MARCH 31, 1998 VS. DECEMBER 31, 1997.
Total consolidated assets increased $59.1 million, or 4.4 percent, during the
first three months of 1998, which included an increase of $77.5 million in
interest earning assets and a decrease of $18.4 million in non-interest earning
assets. The increase in consolidated assets reflects increases of $117.1 million
in loans-net and a decrease of $22.2 million in interest-earning deposits with
other banks. The increase in loans was principally funded by deploying assets
into higher yielding loan products from interest-earning deposits and from other
non-interest earning assets. Other sources of funding came from increases in
retained earnings, deposits from the branch network, time deposits from banks
and deposits from other financial institutions. The Company opened a branch in
San Juan, Puerto Rico intended to further support future asset growth
considering the $45 billion potential trade market which exist on this island.
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 $64.4 million at March 31,
1998 compared to $91.4 million at December 31, 1997.
INVESTMENT SECURITIES AND INTEREST-EARNING DEPOSITS WITH OTHER BANKS
Interest-earning deposits with other banks decreased to $91.6 million at March
31, 1998 from $113.7 million at December 31, 1997. These deposits are placed
with correspondent banks in the Region, generally on a short term basis (less
than 365 days). The short term nature of these deposits has allowed the Company
the flexibility to redeploy the assets into higher yielding loans which are
largely related to the financing of trade.
Investment securities increased to $64.2 million at March 31, 1998 from $54.6
million at December 31, 1997. The increase has been primarily in foreign
government bills and to a lesser extent U.S. Treasury bill obligations. These
investments are short term and allow the Company the flexibility of liquidity
and the ability to convert these assets into higher yielding loans as these
become accessible.
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LOANS
The Company's gross loan portfolio increased by $119.2 million, or 12.3 percent,
during the first three months of 1998. The growth in loans is a reflection of
the general trade environment which continues to be on an upward curve. The
overall increase in loans was largely in trade finance related activities. The
Region continues to have perceived economic stability which results in increased
trade activity. Commercial-domestic loans increased by $51.7 million and
commercial foreign loans increased by $20.1 million. Details on the loans by
type are shown in the table below. At March 31, 1998 approximately 25.9 percent
of the Company's portfolio consisted of loans to domestic borrowers and 74.1
percent of the Company's portfolio consisted of loans to foreign borrowers. The
Company's loan portfolio is relatively short-term, as approximately 78.7 percent
of loans at March 31, 1998 were short-term trade finance loans with average
maturities of approximately 180 days. See "Interest Rate Sensitivity Report".
The following table sets forth the loans by type of the Company's loan portfolio
at the dates indicated.
LOANS BY TYPE
(in thousands)
March 31, December 31,
1998 1997
------ ------
DOMESTIC:
Commercial and industrial(1) $231,079 $179,435
Acceptances discounted 39,218 45,153
Residential mortgages 10,223 12,008
Installment 194 238
----------- -----------
Subtotal Domestic 280,714 236,834
Foreign:
Banks and other financial institutions 376,686 351,862
Commercial and industrial(1) 340,025 319,925
Acceptances discounted 85,545 55,301
Government and official institutions 872 872
----------- -----------
Subtotal Foreign 803,128 727,960
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Total loans $1,083,842 $964,794
=========== ===========
- ----------------
(1) Includes pre-export financing, warehouse receipts and refinancing of letter
of credits.
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The following tables 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 cross border 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.
The Company continues to increase its loan portfolio in a diversified manner and
as of March 31, 1998 no one country (except the United States) exposure exceeded
10% of the total loan portfolio. At March 31, 1998 approximately 40.18 percent
in principal amount of the Company's loans were outstanding to borrowers in five
countries other than the United States: Panama (9.31 percent), Ecuador (8.22
percent) Guatemala (8.17 percent), Peru (8.05 percent) and Brazil (6.43
percent).
LOANS BY COUNTRY
(Dollars in thousands)
March 31, Percent of December 31, Percent of
1998 Total 1997 Total
Country Amount Loans Amount Loans
--------- ------ -------- ------
United States $ 280,714 25.90% $236,834 24.55%
Argentina 53,558 4.94 58,477 6.06
Bolivia 34,063 3.14 38,058 3.94
Brazil 69,688 6.43 58,040 6.02
Colombia 30,693 2.83 23,768 2.46
Dominican Republic 39,099 3.61 40,161 4.16
Ecuador 89,092 8.22 74,485 7.72
El Salvador 46,264 4.27 40,306 4.18
Guatemala 88,534 8.17 91,178 9.45
Honduras 53,831 4.97 59,439 6.16
Jamaica(1) 29,739 2.74 -- --
Panama 100,900 9.31 77,295 8.01
Peru 87,239 8.05 68,094 7.06
Russia 15,500 1.43 17,500 1.81
Venezuela 15,340 1.42 16,299 1.69
Other(2) 49,588 4.57 64,860 6.73
----------- ------- -------- --------
Total $ 1,083,842 100.00% $964,794 100.00%
=========== ======= ======== =======
- ---------------------
(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, 1998 approximately 31.4 percent in cross-border outstandings were
to borrowers in five countries other than the United States: Brazil (7.01
percent), Ecuador (7.01 percent), Panama (6.36 percent), Guatemala (6.08
percent) and Peru (4.93 percent).
TOTAL CROSS-BORDER OUTSTANDINGS BY COUNTRY
(Dollars in million)
Percent of Percent of
March 31, Total December 31, Total
1998 Assets 1997 Assets
----------- ------- -------------- ---------
Argentina $ 55 3.93% $ 69 5.2%
Bolivia 41 2.93 44 3.3
Brazil 98 7.01 85 6.3
British West Indies 17 1.22 11 0.8
Colombia 30 2.14 24 1.8
Dominican Republic 37 2.64 39 2.9
Ecuador 98 7.01 90 6.7
El Salvador 47 3.36 46 3.4
Guatemala 85 6.08 92 6.9
Honduras 46 3.29 52 3.9
Jamaica 41 2.93 32 2.4
Nicaragua(1) -- -- 12 0.9
Panama 89 6.36 72 5.4
Peru 69 4.93 74 5.5
Russia 16 1.14 17 1.3
Venezuela(1) 18 1.29 -- --
Other(2) 44 3.14 39 2.8
------ ------ ------ -----
Total $831 59.40% $798 59.5%
==== ====== ===== =====
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(1) These countries had loans 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.
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CONTINGENCIES
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. At March 31, 1998 letter of credit volume increased by 27 percent
when compared to the same period in 1997.
CONTINGENCIES - COMMERCIAL LETTERS OF CREDIT
(in thousands)
Quarters Ended March 31, Year Ended December 31, 1997
---------------------------------------------- ----------------------------
1998 Average 1997 Average
------------------ -------------------
Total Monthly Total Monthly Total Monthly
Volume Volume Volume Volume Volume Volume
------ ------ ------ ------ ------ -------
Export Letters of Credit(1) $107,766 $35,922 $ 78,781 $26,260 $424,748 $35,396
Import Letters of Credit(1) 92,872 30,957 78,839 26,279 394,758 32,897
--------- ------- --------- ------- --------- -------
Total $200,638 $66,879 $157,620 $52,539 ,$819,506 $68,293
======== ======= ======== ======= ========= =======
- ---------------------
(1) Represents certain contingent liabilities not reflected on the Company's
balance sheet.
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The Company provides letter of credit services globally. 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 at the end of March
31, 1998 decreased by 14 percent to $170.2 from $198.1 at December 31, 1997.
This decrease is primarily the result of seasonality in which generally the
outstandings are slightly higher from July to December.
CONTINGENT LIABILITIES(1)
(in thousands)
March 31, 1998 December 31, 1997
-------------- -----------------
Argentina $ 2,581 $ --
Aruba 2,279 --
Bolivia 1,837 3,883
Brazil 2,318 4,123
Colombia -- 3,936
Costa Rica 2,478 3,168
Dominican Republic 12,559 4,759
Ecuador 9,454 17,839
El Salvador 3,423 3,837
Guatemala 11,405 11,577
Haiti 5,139 7,857
Honduras 7,023 5,550
Nicaragua -- 3,386
Panama 7,741 12,439
Paraguay 5,597 2,395
Peru 4,297 5,566
Suriname 6,462 --
United States 79,010 94,629
Other(2) 6,643 13,139
-------- --------
Total $170,246 $198,083
======== ========
- ----------------------
(1) Includes export and import letters of credit, standby letters of credit
and letters of indemnity.
(2) 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.
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
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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, 1998 the allowance for credit losses was $11.8
million, an increase of 14.4 percent from $10.3 million at December 31, 1997.
This increase is primarily a function of the 12.3 percent increase in the loan
portfolio from December 31, 1997 to the current quarter end.
The following table provides certain information with respect to the Company's
allowance for credit losses, provision for credit losses and charge off and
recovery activity for the periods shown. .
CREDIT LOSS EXPERIENCE
(in thousands)
Three months Ended Year Ended
March 31, 1998 December 31, 1997
------------------ -----------------
Balance of allowance for credit losses at beginning
of period $ 10,317 $ 5,725
Charge-offs:
Domestic:
Commercial 0 (1,693)
Acceptances 0 0
Residential 0 0
Installment 0 (3)
----------- -----------
Total domestic 0 (1,696)
Foreign:
Government and official institutions 0 0
Banks and other financial institutions (827) (896)
Commercial and industrial 0 0
Acceptances discounted 0 0
----------- -----------
Total foreign (827) (896)
----------- -----------
Total charge-offs (827) (2,592)
----------- -----------
Recoveries:
Domestic
Commercial 4 203
Acceptances 0 0
Residential 0 0
Installment 0 1
Foreign 0 0
----------- -----------
Total recoveries 4 204
----------- -----------
Net (charge offs) recoveries (824) (2,388)
Provision for credit losses 2,315 6,980
----------- -----------
Balance at end of the period $ 11,807 $ 10,317
=========== ===========
Average loans $ 1,022,741 $ 735,735
Total gross loans $ 1,083,842 $ 964,794
Net charge-offs to average loans 0.08% 0.32%
Allowance to total loans 1.09% 1.07%
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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. While the absolute numbers have increased
to reflect the growth in the loan portfolio, the percent of the allowance for
each category of loans has remained consistent.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
(in thousands)
As of As of
March 31, 1998 December 31, 1997
-------------- -----------------
Allocation of the allowance by category of
loans:
Domestic:
Commercial and industrial $ 2,405 $ 1,896
Acceptances 304 315
Residential 60 59
Installment 3 3
Overdraft 145 154
--------- ---------
Total domestic 2,917 2,427
--------- ---------
Foreign:
Government and official institutions 0 0
Banks and other financial institutions 4,390 3,854
Commercial and industrial 3,827 3,442
Acceptances discounted 673 594
--------- ---------
Total foreign 8,890 7,890
--------- ---------
Total $ 11,807 $ 10,317
========= =========
Percent of loans in each category to total
loans:
Domestic:
Commercial and industrial 20.4% 18.0%
Acceptances 2.6% 4.7%
Residential 0.5% 1.2%
Installment 0.0% 0.0%
Overdraft 1.2% 0.6%
--------- ---------
Total domestic 24.7% 24.5%
--------- ---------
Foreign:
Government and official institutions 0.0% 0.1%
Banks and other financial institutions 37.2% 36.5%
Commercial and industrial 32.4% 33.2%
Acceptances discounted 5.7% 5.7%
--------- ---------
Total foreign 75.3% 75.5%
--------- ---------
Total 100.0% 100.0%
========= =========
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ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES ALLOCATED TO FOREIGN LOANS
(in thousands)
Three Months Ended Year Ended
March 31, 1998 December 31, 1997
--------------- -----------------
Balance, beginning of year $ 7,887 $ 3,481
Provision for credit losses 1,830 5,302
Net charge-offs (827) (896)
------- -------
Balance, end of period $ 8,890 $ 7,887
======= =======
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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 accounts for impaired loans in accordance with 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. There was an increase in nonperforming loans from
December 31, 1997 to March 31, 1998 as a result of a loan transaction which is
of a secured nature. As a result of the increase in nonperforming loans the
ratios of total nonperforming loans to total loans and to total assets has
increased. In addition, as the loans and assets portfolio continue to grow, the
allowance for loan losses will increase to provide reserve for possible losses.
NONPERFORMING LOANS
(in thousands)
March 31, December 31,
1998 1997
---------- ------------
Domestic:
Non accrual $3,288 $3,100
Past due over 90 days and accruing 0 0
------ ------
Total domestic nonperforming loans 3,288 3,100
------ ------
Foreign
Non accrual 6,238 2,949
Past due over 90 days and accruing 0 0
------ ------
Total foreign nonperforming loans 6,238 2,949
------ ------
Total nonperforming loans $9,526 $6,049
====== ======
Total nonperforming loans to total loans 0.88% 0.48%
Total nonperforming assets to total assets 0.68% 0.64%
At March 31, 1998, and December 31, 1997 the Company had no nonaccruing
investment securities.
18
19
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 $78.6 million and $4.4 million, respectively, at March 31, 1998
compared to $95.3 million and $8.4 million, respectively, at December 31, 1997.
These assets represent a customers 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 seven Bank
branches located in Florida. The Company has three Bank branches in Miami, one
in Tampa, Winter Haven, Sarasota, and West Palm Beach. In addition, the Company
opened a branch in San Juan, Puerto Rico in the first quarter of fiscal 1998. In
pricing its deposits, the Company analyzes the market carefully, attempting to
price its deposits competitively with the larger financial institutions in the
area.
Total deposits were $1,198 million at March 31, 1998 compared to $1,135 million
at December 31, 1997. Average interest bearing deposits increased by 35.0
percent to $1,051 million as of March 31, 1998 from $778.2 million as of
December 31, 1997. Average deposit information can be found in the yields earned
and rates paid schedule incorporated herein. The average customer deposit from
the branches is $40,000 with a retention rate at maturity of these deposits of
approximately 80%. During the year the Company also increased deposits from
other financial institutions. In addition, the Company obtained deposits from
the State of Florida as the Bank is a qualified public depository pursuant to
Florida law and has also obtained approximately $86.1 million of brokered
deposits participated out by the broker in denominations of less than $100,000
through a retail certificate of deposit program. These deposits were used to
further diversify the Company's deposit base and as a cost effective alternative
for the short-term funding needs of the Company.
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, 1998:
MATURITIES OF AND AMOUNTS OF CERTIFICATES OF DEPOSITS AND OTHER TIME DEPOSITS
$100,000 OR MORE
(in thousands)
Certificates Other Time
of Deposit Deposits
$100,000 or More $100,000 or More Total
---------------- ---------------- -----
Three months or less $136,118 $98,183 $234,301
Over 3 through 6 months 75,211 2,680 77,891
Over 6 through 12 months 121,996 105 122,101
Over 12 months 38,002 0 38,002
-------- -------- --------
Total $371,327 $100,968 $472,295
======== ======== ========
STOCKHOLDERS' EQUITY
The Company's stockholders' equity at March 31, 1998, was $104.1 million
compared to $98.3 million at December 31, 1997. The increase in equity during
the quarter has been $4.9 million of net income and approximately $1.0 million
in proceeds from the exercise of stock options.
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, 1998. 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.
19
20
INTEREST RATE SENSITIVITY REPORT
(Dollars in thousands)
March 31, 1998
------------------------------------------------------------------------------------------
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 $170,694 $295,894 $302,896 $107,096 $177,360 $29,902 $1,083,842
Federal funds sold 35,000 35,000
Investment securities 13,544 9,877 15,699 10,495 7,087 7,512 64,214
Interest earning deposits with
other banks 21,717 27,998 14,428 20,628 6,800 91,571
------------------------------------------------------------------------------------------
Total 240,955 333,769 333,023 138,219 191,247 37,414 1,274,627
------------------------------------------------------------------------------------------
Funding Sources:
Savings and transaction deposits 19,832 46,565 66,397
Time deposits of $100 or more 43,277 92,841 75,211 121,996 37,890 112 371,327
Time deposits under $100 66,257 108,970 160,256 190,169 9,449 5 535,106
Other time deposits 59,623 38,560 2,680 105 100,968
Funds overnight 51,600 51,600
Borrowing 2,388 2,388
------------------------------------------------------------------------------------------
Total $240,589 $286,936 $238,147 $314,658 $47,339 $117 $1,127,785
==========================================================================================
Interest sensitivity gap $366 $46,833 $94,876 ($176,439) $143,908 $37,297 $146,841
==========================================================================================
Cumulative gap $366 $47,199 $142,075 ($34,364) $109,544 $146,841
============================================================================
Cumulative gap as a percentage
of total earning assets 0.03% 3.70% 11.15% -2.70% 8.59% 11.52%
============================================================================
20
21
LIQUIDITY
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. Considerations in managing the Company's
liquidity position include 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.
Historically, the Company has increased its level of deposits to allow for its
planned asset growth. Customer deposits have increased through the branch
network, as well as deposits related to the trade activity. The level of
deposits is also influenced by general interest rates, economic conditions and
competition, among other things.
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, 1998 interest-earning assets maturing within 180 days were
$897.8 million, representing 75 percent of total earning assets. 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, 1998 were $177 million, 12.6 percent of total assets,
and consisted of cash and cash equivalents, due from banks-time and United
States treasury bills. At March 31, 1998 the Company had been advised of $107
million in available interbank funding.
21
22
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 result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. The regulations require
the Company and the Bank to meet specific capital adequacy guidelines that
involve quantitative measures of their assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company's and the Bank's capital classification is also subject to qualitative
judgments by the regulators about interest rate risk, concentration of credit
risk and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier I capital (as defined in the regulations) to
total averages assets (as defined) and minimum ratios of Tier I and total
capital (as defined) to risk-weighted assets (as defined). The Company's and the
Bank's actual capital amounts and ratios are also presented in the table.
COMPANY CAPITAL RATIOS
(Dollars in thousands)
March 31, 1998 December 31, 1997
-------------- -----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
Tier 1 risk-weighted
capital:
Actual $102,345 11.9% $96,405 12.4%
Minimum 34,403 4.0% 31,027 4.0%
Total risk-weighted
capital:
Actual $113,082 13.2% 106,093 13.7%
Minimum 68,805 8.0% 62,053 8.0%
Leverage:
Actual $102,345 7.7% 96,405 7.9%
Minimum 39,777 3.0% 36,858 3.0%
22
23
BANK CAPITAL RATIOS
(Dollars in thousands)
March 31, 1998 December 31, 1997
-------------------------- ---------------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
Tier 1 risk-weighted capital:
Actual $90,966 10.6% $86,551 11.2%
Minimum to be well capitalized 51,496 6.0% 46,438 6.0%
Minimum to be adequately capitalized 34,331 4.0% 30,959 4.0%
Total risk-weighted capital:
Actual $101,681 11.9% 96,217 12.4%
Minimum to be well capitalized 85,827 10.0% 77,396 10.0%
Minimum to be adequately capitalized 68,661 8.0% 61,917 8.0%
Leverage:
Actual $90,966 6.9% 86,551 7.1%
Minimum to be well capitalized 66,295 5.0% 60,982 5.0%
Minimum to be adequately capitalized 53,036 4.0% 48,785 4.0%
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YIELDS EARNED AND RATE PAID
- -------------------------------------------------------------------------------------------------------------------------------
FOR QUARTER ENDED FOR QUARTER ENDED
MARCH 31, 1997 MARCH 31, 1998
------------------------------------ ---------------------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- -------- -----
TOTAL EARNING ASSETS
LOANS:
Commercial loans 443,575 10,300(1) 9.29% 882,519 19,818(1) 8.98%
Mortgage loans 10,881 226 8.32% 11,925 243 8.16%
Installment loans 436 10 9.51% 232 5 9.10%
Acceptances Discounted 102,533 2,476 9.66% 116,436 2,836 9.74%
Overdraft 4,047 179 17.67% 11,629 503 17.32%
----------------------- ------- -------------------------- ---------
TOTAL LOANS (1) 561,472 13,191 9.40% 1,022,741 23,406 9.15%
Investments 21,013 291 5.60% 62,566 1,012 6.47%
Federal funds sold 17,677 228 5.16% 18,508 250 5.41%
Time Deposit with Banks 91,456 1,883 8.24% 100,622 2,279 9.06%
----------------------- ------- -------------------------- ---------
Total Investments and Time Deposit
with Banks 130,146 2,402 7.38% 181,695 3,541 7.80%
Total Interest Earning Assets 691,618 15,593 9.02% 1,204,436 26,947 8.95%
--------- ------- --------- ---------
Total non-interest earning assets 82,874 131,509
---------- ---------
TOTAL ASSETS 774,492 1,335,945
========== =========
INTEREST BEARING LIABILITIES
DEPOSITS:
Super NOW, NOW 15,543 88 2.26% 15,933 73 1.83%
Money Market 44,170 517 4.68% 44,102 504 4.58%
Presidential Market 3,533 25 2.84% 3,308 22 2.60%
Super Savings, Savings 4,567 35 3.11% 4,680 36 3.04%
Certificate of Deposits
(including IRA) 426,461 6,159 5.78% 830,250 12,070 5.82%
Time Deposits with Banks (IBF) 110,949 1,413 5.10% 152,112 2,028 5.33%
Other 65 0 2.76% 477 6 4.88%
----------------------- ------- -------------------------- ---------
TOTAL DEPOSITS 605,288 8,237 5.44% 1,050,863 14,738 5.61%
Federal Funds Purchased 3,679 50 5.42% 8,717 123 5.64%
Other Borrowings 0 0 0.00% 133 3 8.04%
----------------------- ------- -------------------------- ---------
Total interest bearing liabilities 608,967 8,287 5.44% 1,059,713 14,864 5.61%
----------------------- ------- -------------------------- ---------
Non-interest bearing liabilities
Demand Deposits 58,018 72,710
Other Liabilities 62,842 101,496
---------- ---------
Total non-interest bearing liabilities 120,860 174,206
Stockholders equity 44,665 102,026
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY 774,492 1,335,945
========== =========
NET INTEREST INCOME / NET INTEREST SPREAD 7,306 3.57% 12,083 3.34%
========= ======= ========= =========
MARGIN
INTEREST INCOME / INTEREST EARNING ASSETS 9.02% 8.95%
INTEREST EXPENSE / INTEREST EARNING ASSETS 4.79% 4.94%
------- ---------
NET INTEREST MARGIN 4.23% 4.07%
------- ---------
- -----------------------
(1) Interest income for calculating yields includes $57 and $31 thousand of loan
fees for the quarters ended March 31, 1997 and 1998
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25
RESULTS OF OPERATION
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 $12.1 million for the three months ended March 31, 1998 from $7.3
million for the same period in 1997, a 65.7 percent increase. The primary
increase was in average earning assets offset, to some extent, by a decrease in
net interest margin. Average earning assets increased to $1,204 million for the
three months ended March 31, 1998 from $691.6 million for the same period in
1997, a 74.1 percent increase. Average loans and acceptances discounted
increased to $1,023 million for the three months ended March 31, 1998 from
$561.5 million for the same period in 1997, a 82.2 percent increase, while
average interest earning deposits with other banks increased to $100.6 million
for the three months ended March 31, 1998 from $91.5 million for the same period
in 1997, a 10.0 percent increase. Net interest margin decreased to 4.07 percent
for the three months ended March 31, 1998 from 4.23 percent for the same period
in 1997, a 16 basis point decrease. The primary reasons for this decrease were
(i) loan yields relative to reference rates decreased in certain countries in
the Region as a result of perceived economic stability and lower credit risk and
(ii) loans to larger corporate and bank customers, which command more
competitive pricing, increased as a percentage of total loans.
Interest income increased to $26.9 million for the three months ended March 31,
1998 from $15.6 million for the same period in 1997, a 72.4 percent increase,
reflecting an increase in loans in the Region, partially offset by a decrease in
prevailing interest rates and a tightening of loan spreads in the Region as
discussed above. Interest expense increased to $14.9 million for the three
months ended March 31, 1998 from $8.3 million for the same period in 1997, a
79.5 percent increase, reflecting the additional deposits to fund asset growth.
Average interest-bearing deposits increased to $1,060 million for the three
months ended March 31, 1998 from $609.0 million for the same period in 1997, a
74.1 percent increase. The growth in deposits was primarily a result of the
Company seeking additional deposits to fund asset growth. The Company's time
deposits from banks also increased to $152.1 million for the three months ended
March 31, 1998 from $110.9 million for the same period in 1997.
PROVISION FOR CREDIT LOSSES
The Company's provision for credit-losses increased $2.3 million for the three
months ended March 31, 1998 from $748 thousand for the same period in 1997, a
207 percent increase. Net loan charge offs during the first three months of 1998
amounted to $824 thousand compared to a net recovery of $4 thousand for the
previous year same quarter. The allowance for credit losses was increased to
$11.8 million at March 31, 1998 from $10.3 million for the end of the fiscal
year 1997, a 14.6 percent increase. The increase was primarily a function of the
growth in the loan portfolio. The ratio of the allowance for credit losses was
at 1.09 percent at March 31, 1998 increasing slightly from approximately 1.07
percent at March 31, 1997.
NON-INTEREST INCOME
Non-interest income increased to approximately $3.9 million for the three months
ended March 31, 1998 from $3.2 million for the same period in 1997, a 21.9
percent increase. Trade finance fees and commissions increased by $637 thousand
due largely to an increase of 2.7 percent in letters of credit volume. In
addition, the Company had more lending facility fees charged during the first
three months of 1998 compared to 1997. Structuring and syndication fees
increased by $203 thousand as a result of several transactions which were
completed during the quarter.. Customer service fees decreased by $111 thousand
as a result of lower overdrafts experienced in the period. The other income
category as of March 31, 1998 includes approximately $50 thousand of fees
generated by our new Internet based banking software "Harmoney".
25
26
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,
----------------------------------------------
1997 to 1998
1997 Percent Change 1998
--------- -------------- --------
Trade finance fees and commissions $2,758 23.1% $3,395
Structuring and syndication fees, net 86 236.1 289
Customer service fees 256 (43.4) 145
Other 69 97.1 136
--------- -------- --------
Total non-interest income $3,169 25.1% $3,965
========= ======== ========
OPERATING EXPENSES
Operating expenses increased to $5.9 million for the three months ended March
31, 1998 from $5.3 million for the same period in 1997, an 11.3 percent
increase. Employee compensation and benefits increased to $2.9 million for the
three months ended March 31, 1998 from $2.7 million for the same period in 1997,
a 7.4 percent increase. This was primarily due to an increase in the number of
employees to 254 at March 31, 1998 from 237 for the same period in 1997. The
majority of the employees were added to support the Sarasota, West Palm Beach
and San Juan, Puerto Rico branches as well as salary increases for existing
personnel. Occupancy of expenses have increased to $1.1 million from $682
thousand as a result of the addition of two new branches at the end of the first
quarter of 1997. Other expenses have remained relatively consistent at $1.6
million for the three months ended March 31, 1998 and for the same period in
1997. Directors fees decreased by 52 percent during the first quarter of 1998 as
a result of discontinuing the payment of retainer and meeting fees to an inside
director. Insurance and examination fees (FDIC and OCC) have remained consistent
at approximately $100 thousand for the three months ended March 31, 1998 and for
the same period in 1997. The Company's efficiency ratio remains favorably below
the industry average at 37 percent.
26
27
The following table sets forth detail regarding the components of operating
expenses for the periods indicated.
OPERATING EXPENSES
(Dollars in thousands)
For the Three Months Ended March 31,
-----------------------------------------
1997 to 1998
1997 Percent Change 1998
------- -------------- -------
Employee compensation and benefits $2,703 10.8% $2,995
Occupancy and equipment 682 56.9 1,070
Other operating expenses 1,594 1.9 1,639
Directors' fees 230 52.3 151
Insurance and examination fees (FDIC and
OCC) 114 28.9 81
------- ----- ------
Total operating expenses $5,323 11.2% $5,936
======= ===== ======
YEAR 2000
The Company began the process of assessing and preparing its computer systems
and applications to be functional on January 1, 2000 in June 1996. The Company
has also been communicating with third parties which interface with the Company,
such as customers, counter parties, payment systems, vendors and others to
determine whether they will be functional. The Company can give no guarantee
that these parties will be timely converted. Management believes that the
process of modifying all mission critical applications of the Company continues
as planned and expects to have substantially all of the testing and changes
completed by December 31, 1998. In addition, non mission critical applications
are scheduled to have substantially all the testing and updates completed by
June 30, 1999.
Management believes the total costs to be Year 2000 compliant are not material
to its financial position or results or operations. Any purchased hardware or
software in connection with this process will be capitalized in accordance with
normal Company policy. Personnel and all other cost are being expensed as
incurred.
The costs and dates on which the Company plans to complete the Year 2000 process
are based on management's best estimates. However, there can be no guarantees
that these estimates will be achieved and actual results could differ.
27