SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------
FORM 10-QSB
(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, 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 0-24891
ADMIRALTY BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 65-0405207
- --------------------------------------------------------------------------------
(State of Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
4400 PGA BOULEVARD, PALM BEACH GARDENS, FLORIDA 33410
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(561) 624-4701
--------------
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and 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 [ ]
As of May 1, 2000 there were 2,759,030 shares of common stock, including both
Class A and Class B shares of Common Stock, outstanding.
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
PAGE
----
Condensed Consolidated Balance Sheets -
At March 31, 2000 (unaudited) and at December 31, 1999........... 3
Condensed Consolidated Statements of Operations (unaudited) -
Three months ended March 31, 2000 and 1999....................... 4
Condensed Consolidated Statements of Cash Flows (unaudited) - Three
months ended March 31, 2000 and 1999 ............................ 5
Notes to Condensed Consolidated Financial Statements (unaudited)... 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations........................................ 11
Part II. Other Information
Item 1. Legal Proceedings......................................... 21
Item 2. Changes in Securities and Use of Proceeds................. 21
Item 3. Defaults Upon Senior Securities........................... 21
Item 4. Submission of Matters to a Vote of Security Holders........ 21
Item 5. Other Information......................................... 21
Item 6. Exhibits and Reports on Form 8-K.......................... 21
Signature Page
2
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(UNAUDITED)
--------------
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks ..................................... $ 6,158 $ 5,115
Interest bearing due from banks ............................. 88 21
Federal funds sold .......................................... 4,611 --
--------- ---------
Total cash and cash equivalents ....................... 10,857 5,136
Investment securities available for sale,
at fair market value ........................................ 13,131 8,885
Investment securities held to maturity, at cost
(fair market value of $22,377 and $17,721 at
March 31, 2000 and December 31, 1999, respectively) ......... 22,733 18,025
Loans, net ......................................................... 114,180 99,840
Federal Reserve Bank and FHLB stock ................................ 1,276 772
Premises and equipment, net ........................................ 2,023 1,841
Goodwill, net ...................................................... 3,502 3,540
Other assets ....................................................... 2,224 1,923
--------- ---------
Total assets .......................................... $ 169,926 $ 139,962
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits ........................................................... $ 130,976 $ 110,273
Federal funds purchased ............................................ -- 571
Securities sold under agreement to repurchase ...................... 9,000 9,000
Advances from FHLB ................................................. 9,400 --
Accrued interest payable ........................................... 275 214
Other liabilities .................................................. 486 330
--------- ---------
Total liabilities ........................................... 150,137 120,388
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued or outstanding ................. -- --
Common stock, Class A, no par value, 1,000,000 shares
authorized, 696,194 and 844,254 shares issued and outstanding
at March 31, 1999 and December 31, 1999, respectively ....... 5,866 7,114
Common stock, Class B, no par value, 4,000,000 shares authorized,
2,056,204 and 1,889,205 shares issued and outstanding
at March 31, 2000 and December 31, 1999, respectively ....... 17,321 16,073
Accumulated deficit ................................................ (3,224) (3,437)
Accumulated other comprehensive loss, net .......................... (174) (176)
--------- ---------
Total shareholders' equity ......................................... 19,789 19,574
--------- ---------
Total liabilities and stockholders' equity ......................... $ 169,926 $ 139,962
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per-share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
---------- ----------
<S> <C> <C>
Interest and dividend income
Loans .................................... $ 2,455 $ 1,121
Mortgage-backed securities ............... 417 56
Other debt securities .................... 111 77
Federal funds sold ....................... 11 142
Dividends from FRB and FHLB stock ........ 17 11
Other .................................... 1 --
---------- ----------
Total interest and dividend income . 3,012 1,407
---------- ----------
Interest expense
Deposits ................................. 955 337
Federal funds purchased .................. 13 --
Securities sold under repurchase agreement 140 --
Advances from FHLB ....................... 62 --
---------- ----------
Total interest expense ............. 1,170 337
---------- ----------
Net interest income ................ 1,842 1,070
Provision for loan losses ....................... 199 15
---------- ----------
Net interest income after
provision for loan losses .......... 1,643 1,055
---------- ----------
Non-interest income
Service charges and fees ................. 234 206
Gain on sale of securities ............... 16 --
Gain on sale of loans .................... -- 59
Other income ............................. 3 13
---------- ----------
Total non-interest income .......... 253 278
---------- ----------
Non-interest expense
Salaries and employee benefits ........... 745 528
Occupancy ................................ 215 210
Furniture and equipment .................. 84 99
Amortization of goodwill ................. 38 40
Other expense ............................ 445 390
---------- ----------
Total non-interest expense ......... 1,527 1,267
---------- ----------
Income before income tax expense ... 369 66
Income tax expense .............................. 156 36
---------- ----------
Net income ............................... $ 213 $ 30
========== ==========
Per share data
Net income per share - basic and diluted ...... $ 0.07 $ 0.01
========== ==========
Weighted average shares outstanding ........... 2,842,452 2,848,214
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------ ------------------
<S> <C> <C>
Operating activities
Net income ............................................................ $ 213 $ 30
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Provision for loan losses ........................................... 199 15
Depreciation and amortization ....................................... 122 90
Amortization, net of accretion, of investment securities ............ 2 10
Gain on sales of securities ......................................... (16) --
Gain on sales of loans .............................................. -- (59)
(Increase) in accrued interest receivable ........................... (158) (117)
(Increase) decrease in other assets ................................. (143) 55
Increase (decrease) in accrued interest payable ..................... 61 (5)
Increase (decrease) in other liabilities ............................ 156 (13)
-------- --------
Net cash provided by operating activities ....................... 436 6
-------- --------
Investing activities
Proceeds from maturities of investment securities
available for sale .................................................. 755 1,370
Proceeds from maturities of investment securities
held to maturity .................................................... 289 --
Proceeds from sales of investment securities available for sale ....... 16 --
Purchases of investment securities available for sale ................. (4,998) (2,000)
Purchases of investment securities held to maturity ................... (4,998) (1,000)
Purchase of Federal Reserve Bank & FHLB stock ......................... (504) (89)
Net loan originations and principal collections on loans .............. (14,540) (8,883)
Proceeds from loan sales .............................................. -- 879
Purchase of premises and equipment, net ............................... (267) (584)
-------- --------
Net cash used in investing activities ............................... (24,247) (10,307)
-------- --------
Financing activities
Net increase in deposits .............................................. 20,703 11,354
Net increase in federal funds sold, securities sold under agreements to
repurchase and advances from FHLB ................................... 8,829 --
-------- --------
Net cash provided by financing activities ........................... 29,532 11,354
-------- --------
Net increase in cash and cash equivalents ................................ 5,721 1,053
Cash and cash equivalents, beginning of period ........................... 5,136 17,296
-------- --------
Cash and cash equivalents, end of period ................................. $ 10,857 $ 18,349
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated interim financial statements of Admiralty
Bancorp, Inc. (the "Company") and its wholly owned subsidiary, Admiralty Bank
(the "Bank") reflect all adjustments (including normal recurring accruals)
which, in the opinion of management, are necessary to present fairly the
Company's consolidated financial condition and the consolidated results of
operations and the consolidated cash flows for interim periods. Certain prior
year amounts have been reclassified to conform to the 2000 presentation. The
results for interim periods are not necessarily indicative of trends or results
to be expected for the full year. These condensed consolidated interim financial
statements and notes should be read in conjunction with the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999.
The Company is incorporated in the state of Delaware and is registered with the
Board of Governors of the Federal Reserve Bank as a financial holding company.
The Bank is a Florida state chartered commercial bank, with its main office in
Palm Beach Gardens, Florida, and branches in Boca Raton, Juno Beach, Jupiter,
and Melbourne, Florida. On March 11, 2000, the Company converted from a one bank
holding company to a financial holding company under the Gramm-Leach-Bliley
Financial Modernization Act of 1999 (the "Modernization Act"). This status
permits the Company to undertake financial activities which need not be closely
related to banking, such as insurance brokerage activities. Under the
Modernization Act, the Company's bank subsidiary must remain "well capitalized"
(i.e. have a leveraged capital ratio of 5% or greater and a risk based capital
ratio of 10% or greater) and well managed, or the Company could be required to
divest itself of its non-banking activities. In addition, the Company must
maintain a rating of "satisfactory" or better under the Community Reinvestment
Act. The Company has entered into a joint venture to sell insurance, and may
seek alliances with other financial service providers, as a way to enhance
non-interest income.
The Company has formed Admiralty Insurance Services, LLC (AIS) as a joint
venture with USI Florida (USI) to offer a wide range of insurance products,
primarily to customers of the Bank. USI and the Company are each 50 percent
owners of AIS. USI and AIS will share equally in commissions on policies sold,
and the Company is entitled to 50 percent of the net income of AIS. Under the
agreement USI Florida will absorb all costs incurred by AIS for operating
expenses. AIS did no business during the three months ended March 31, 2000. AIS
is expected to begin doing business during the second quarter of 2000 and its
contribution to consolidated non-interest income is projected to escalate as its
business expands.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). The effective date of
Statement 133 was delayed by Statement 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.
133." Statement 133 is now effective for all quarters of all fiscal years
beginning after June 15, 2000, with an early adoption permitted. Statement 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. It is currently anticipated that the
6
<PAGE>
Company will adopt Statement 133 on January 1, 2001, and that Statement 133 will
not have a significant financial statement impact upon adoption.
NOTE 3 - COMPREHENSIVE INCOME
The following table sets forth the components of the Company's comprehensive
income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
(Unaudited) MARCH 31, 2000 MARCH 31, 1999
(in thousands) -------------- --------------
<S> <C> <C>
Net Income $ 213 $ 30
Other comprehensive income (loss), net of tax -
Change in net unrealized gain on securities
held available for sale, net of taxes of $(1)
and $16 in 2000 and 1999, respectively ........ 2 (27)
-------------- --------------
Comprehensive income $ 215 $ 3
============== ==============
</TABLE>
NOTE 4 - NET INCOME PER SHARE
The Company calculates net income per share in accordance with SFAS No. 128,
"Earnings Per Share." Net income per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
periods presented. Using this method, adjustments are to be made, where
material, to give effect to the shares that would be outstanding, assuming the
exercise of dilutive stock options and warrants, all of which are considered
common stock equivalents.
The following table illustrates the reconciliation of the numerator and
denominator of the basic and diluted earnings per share computations for the
three months ended March 31, 2000, and 1999:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
March 31, 2000 March 31, 1999
-------------------- --------------------
(dollars in thousands, except per share data)
<S> <C> <C>
Net income...................................................... $ 213 $ 30
-------------------- --------------------
Weighted average shares......................................... 2,842,452 2,848,214
-------------------- --------------------
Basic and diluted earnings per share............................ $ 0.07 $ 0.01
-------------------- --------------------
</TABLE>
On January 22, 1999 the Board of Directors declared a 4.4% dividend paid to
Class A shareholders in shares of the Company's Class B common stock. Due the
different dividend rights of the two classes of stock and the preferential
nature of this dividend, the issuance of the Class B share dividend has been
reflected in earnings (loss) per share from the date of issuance.
On December 17, 1999 the Board of Directors declared a dividend of $1.00 per
Class A share, payable in Class B common stock to all shareholders of record of
Class A common stock as of December 31, 1999. In order to treat the holders of
Class B common stock similarly as the holders of the Class A common
7
<PAGE>
stock, the Board of Directors declared a 12.91% stock dividend on the Company's
Class B common stock to be paid to the holders of the Class B common stock as of
December 31, 1999. For purposes of the earnings (loss) per share, the issuance
of this Class B stock dividend has been effected as of January 1, 1999. The
basic and diluted weighted average number of shares outstanding and net earnings
per share information for 1999 has been restated to reflect the effects of this
stock dividend.
The basic and diluted weighted average number of shares outstanding and net
earnings per share information for 1999 and 2000 have been restated to reflect a
1:1.1291 conversion ratio for discretionary conversions of Class A shares to
Class B shares.
8
<PAGE>
NOTE 5 - INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and fair value of investment securities and mortgage-backed
securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED COST GAINS LOSSES FAIR VALUE
-------------------- -------------------- -------------------- --------------------
MARCH 31, 2000 (IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR
SALE:
U.S. Government
and Agency
securities............ $ 6,499 $ 0 $ (213) $ 6,286
Mortgaged-backed
securities ........... 6,897 3 (69) 6,831
Other securities ..... 14 0 0 14
-------------------- -------------------- -------------------- --------------------
Sub-total ............ $ 13,410 $ 3 $ (282) $ 13,131
-------------------- -------------------- -------------------- --------------------
HELD TO
MATURITY:
U.S. Government
and Agency
securities ........... $ 1,000 $ 0 $ (29) $ 971
securities............ 21,733 3 (330) 21,406
-------------------- -------------------- -------------------- --------------------
Sub-total ............ $ 22,733 $ 3 $ (359) $ 22,377
-------------------- -------------------- -------------------- --------------------
TOTAL................. $ 36,143 $ 6 $ (641) $ 35,508
==================== ==================== ==================== ====================
</TABLE>
9
<PAGE>
The amortized cost and fair value of investment and mortgage-backed securities
are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED COST GAINS LOSSES FAIR VALUE
-------------------- --------------------- -------------------- ---------------------
DECEMBER 31, 1999 (IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government and Agency $ 6,997 $ 0 $ (218) $ 6,779
securities.....................
Mortgaged-backed securities ... 2,155 0 (63) 2,092
Other securities............... 14 0 0 14
-------------------- --------------------- -------------------- ---------------------
Sub-total...................... $ 9,166 $ 0 $ (281) $ 8,885
-------------------- --------------------- -------------------- ---------------------
HELD TO MATURITY:
U.S. Government and Agency $ 1,000 $ 0 $ (28) $ 972
securities.....................
Mortgaged-backed securities ... 17,025 0 (276) 16,749
-------------------- --------------------- -------------------- ---------------------
Sub-total...................... $ 18,025 $ 0 $ (304) $ 17,721
-------------------- --------------------- -------------------- ---------------------
TOTAL.......................... $ 27,191 $ 0 $ (585) $ 26,606
==================== ===================== ==================== =====================
</TABLE>
The carrying value of securities pledged to secure deposits and for other
purposes required or permitted by law amounted to approximately $494 thousand
and $498 thousand at March 31, 2000 and December 31, 1999, respectively.
NOTE 6 - LOANS
The following schedule presents the components of loans, net of unearned income,
by type, as of March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(Dollars in thousands)
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial and Industrial................................. $ 23,665 20% $ 20,380 20%
Real Estate Non-Residential Properties.................... 68,531 59% 61,416 60%
Residential Properties.................................... 13,937 12% 10,824 11%
Construction.............................................. 7,821 7% 7,148 7%
Consumer.................................................. 1,884 2% 1,534 2%
-------- --- -------- ---
Gross Loans............................................... 115,838 100% 101,302 100%
less: net deferred fees.................................. 441 445
--------- --------
Total loans............................................... $ 115,397 100,857
less: allowance for loan losses.......................... 1,217 1,017
--------- --------
Net loans................................................. 114,180 $ 99,840
========= ========
</TABLE>
10
<PAGE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Three months ended
---------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
(DOLLARS IN THOUSANDS)
----------------------
<S> <C> <C>
Balance at beginning of year $1,017 $ 602
Provision for loan losses 199 15
Charge-offs -- --
Recoveries 1 13
------ -------
Ending Balance $1,217 $ 630
====== =======
Ratio of net charge-offs to
average loans outstanding 0.00% 0.00%
Balance of allowance as a % of
total loans at period end 1.05% 1.13%
</TABLE>
Loans with unpaid principal balances of $195 thousand were 90 days or
more contractually delinquent or on nonaccrual status at March 31, 2000
and December 31, 1999.
11
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain "forward-looking statements" as defined under
Section 21E of the Securities Exchange Act of 1934. The Company desires to take
advantage of the "safe harbor" provisions of Section 21E and is including this
statement for the express purpose of availing itself of the protection of the
safe harbor with respect to all such forward-looking statements. These
forward-looking statements, which are included in Management's Discussion and
Analysis, describe future plans or strategies and may include the Company's
expectations of future financial results. The words "believe", "expect",
"anticipate", "estimate", "project", and similar expressions identify
forward-looking statements. The Company's ability to predict results or the
effect of future plans or strategies or qualitative or quantitative changes
based on market risk exposure is inherently uncertain. Factors which could
effect actual results include but are not limited to i) change in general market
interest rates, ii) general economic conditions, both in the United States
generally and in the Company's market area, iii) legislative/regulatory changes,
iv) monetary and fiscal policies of the U.S. Treasury and the Federal Reserve,
v) changes in the quality or composition of the Company's loan and investment
portfolios, vi) demand for loan products, vii) deposit flows, viii) competition,
and ix) demand for financial services in the Company's markets. These factors
should be considered in evaluating the forward-looking statements, and undue
reliance should not be placed on such statements.
12
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 and March 31 1999.
For the quarter ended March 31, 2000, the Company generated net income of $213
thousand, an increase from net income $30 thousand for the first quarter of
1999.
At March 31, 2000, the Company's total assets reached $169.9 million, an
increase of 21.4% over total assets at December 31, 1999. The Company's net
loans totaled $114.2 million, an increase of 14.4% over net loans at December
31, 1999, and the Company's deposits totaled $131.0 million, an increase of
18.8% over total deposits at December 31, 1999.
INTEREST INCOME. Total interest and dividend income increased $1.6 million, or
114.1%, to $3.0 million for the quarter ended March 31, 2000 from $1.4 million
for the same period of 1999. This increase in interest income primarily relates
to an increase in the Company's average balance of earning assets and to a
lesser extent to higher yield on the portfolio of interest earning assets.
Average balances increased by $59.2 million for loans and $21.5 million for
investment securities and the average balance of federal funds sold decreased
$11.3 million. The average yield on the loan portfolio remained relatively
steady at 9.1% in the first three months of 2000, compared to 9.2% in the first
quarter of 1999. The average yield on federal funds sold increased to 5.8% in
2000 from 4.7% in 1999 reflecting higher current market rates of interest. The
average yield on investment securities, including Federal Reserve Bank and FHLB
stocks increased to 6.9% in 2000 from 5.6% in 1999, primarily as a result of the
purchase of longer term, mortgage-backed securities. During the three months
ended March 31, 2000 the yield on the Company's interest earning assets
increased to 8.6% from the 7.9% earned during the three months ended March 31
1999. This increase is due to a shift in the mix of the average earning assets
out of federal funds sold and into higher yielding loans and investment
securities.
INTEREST EXPENSE. The Company's interest expense for the first quarter of 2000
increased $833 thousand, or 247.2%, to $1.2 million from $337 thousand for the
same period last year. The increase in interest expense reflects a 137.9%
increase in average interest bearing liabilities at March 31, 2000, as compared
to the same period in 1999. The average balance of time deposits, money market
deposits and NOW deposits increased by $17.7 million, $26.9 million and $1.1
million, respectively, in the first quarter of 2000 as compared to the same
period in 1999. The increase in money market deposit accounts reflects the
success of our tiered-rate money market account which offers competitive rates
based upon the size of the customer's account balance. In addition, the average
balance of the Company's non-interest bearing demand deposits increased by $10.6
million, to $29.6 million for the three months ended March 31, 2000 from $19.0
million for the three months ended March 31, 1999. The Company's average cost of
deposits for the three months ended March 31, 2000, increased to 3.3% from 2.2%
for the comparable period of 1999. Additionally, the Company borrowed funds
during the first quarter of 2000 while in the same period of 1999 it had no
borrowed funds. The average balance of federal funds purchased was $865
thousand, the average balance of securities sold under agreement to repurchase
was $9.0 million, and the average balance of advances from the FHLB was $4.0
million at average rates of 6.1%, 6.2% and 6.2%, respectively, during the three
months ended March 31, 2000. Federal funds purchased were used primarily to fund
loan growth in periods when loan growth out paced deposit growth. The funds
obtained through the repurchase agreement and FHLB
13
<PAGE>
advances were used to purchase securities under a leveraged growth and interest
rate risk reduction strategy. The Company's average cost of funds, deposits and
borrowings, for the three months ended March 31, 2000, increased to 3.6% from
2.2% compared to the comparable period of 1999.
NET-INTEREST INCOME. Net interest income for the three months ended March 31,
2000, increased by $772 thousand, or 72.1%, over the same period last year. The
Company's net interest spread decreased 78 basis points to 3.97% for the three
months ended March 31, 2000, from 4.75% for the comparable period of 1999.
PROVISION FOR LOAN LOSSES. The increase to $199 thousand from $15 thousand in
the provision for loan losses for the three months ended March 31, 2000,
compared to the comparable period of 1999 is reflective of the significantly
greater growth in the loan portfolio in the first quarter 2000 compared to the
same period the prior year. The Company's expense for provision for loan losses
maintained the reserve at a level management believes appropriate in light of
the Company's lending activities, the quality of the loan portfolio, historical
experience, volume and type of lending conducted by the Company, the status of
past due and non-performing loans, the general economic conditions of the
Company's lending area and other factors affecting collectibility of the
Company's loan portfolio. The provision for the three months ended March 31,
2000 was due to growth primarily in the non-residential real estate and
commercial and industrial loan portfolios. The Company had net recoveries of $1
thousand and did not experience any material change in its level of classified
loans during the three month period. While the Company's management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions, the
financial status of borrowers and regulatory requirements.
NON-INTEREST INCOME. For the first quarter of 2000, total non-interest income
decreased by $25 thousand, or 9.0%, over the same period of last year. The
decrease includes a $28 thousand increase from additional service charges and
fees primarily resulting from growth in the deposit portfolio and a reduction of
$59 thousand on gain on sale of loans due to a lower volume of loans sold in the
three months ended March 31, 2000 versus the same period in 1999. The Company
also gained $16 thousand by selling stock it received in the de-mutualization of
one of its insurance vendors.
NON-INTEREST EXPENSE. For the three month period ended March 31, 2000, the
Company experienced increases in its non-interest expense over non-interest
expense for the comparable period of 1999. For the three month period ended
March 31, 2000, the Company's total non-interest expense was $1.5 million,
compared to total non-interest expense of $1.3 million for the 1999 period. The
increase in non-interest expense in the three month period of 2000 reflects
increased compensation and employee benefit expense as the Company hired
additional staff to administer growth in its loan and deposit portfolios and to
staff its new full service Melbourne, Florida office which opened in March 2000.
The increase in salary and benefit expenses also reflect salary adjustments for
the Company's employees. Full time equivalent employees increased from 45 at
March 31 1999, to 60 at March 31, 2000. The Company experienced a decrease in
furniture and fixture expenses as the depreciable lives of many of its older
assets expired in late 1999. Goodwill amortization totaled $38 thousand and $40
thousand for the three month periods ended March 31, 2000, and 1999,
respectively. The Company also experienced the following increases in other
non-interest expenses related primarily to its growth: postage
14
<PAGE>
expense increased $9 thousand or 63.7%, stationery and supplies expense
increased $11 thousand or 42.5%, and audit expense increased $9 thousand or
46.6%.
INCOME TAXES. Income tax expense increased to $156 thousand for the quarter
ended March 31, 2000, compared to $36 thousand for the same period last year,
primarily due to an increase in pretax income. The effective tax rate for the
first quarter of 2000 was 42%. Non-deductible goodwill amortization expense
contributed to the effective tax rate.
15
<PAGE>
FINANCIAL CONDITION
March 31, 2000 compared to December 31, 1999
Total assets increased to $169.9 million, an increase of $29.9 million, or
21.4%, from total assets of $140.0 million at December 31, 1999. Increases in
total assets included increases of $4.6 million in federal funds sold, $14.3
million in net loans, $4.7 million in investment securities held to maturity,
$4.2 million in investment securities available for sale and $504 thousand in
Federal Reserve Bank and Federal Home Loan Bank stock.
The $14.3 million increase in net loans is comprised primarily of $3.3 million
in commercial loans, $7.1 million in non-residential real estate loans, $3.1
million in residential real estate loans, and $673 thousand in construction
loans. The increase is the result of the management team's efforts to attract
new business and expand relationships with existing customers.
At March 31, 2000, cash and due from banks increased $1.0 million reflecting the
Company's growth. Federal funds sold increased by $4.6 million from December 31,
1999. The increase is attributable primarily to growth in deposits and
borrowings outpacing loan and investment portfolio growth during the period.
Accrued interest receivable increased $158 thousand as a result of growth in the
loan and investment portfolios. Federal Reserve Bank (FRB) stock and Federal
Home Loan Bank (FHLB) stock increased $504 thousand primarily as the result of
purchases of additional FHLB stock in compliance with the FHLB's membership
requirements. The Company's net investment in premises and equipment increased
$182 thousand primarily as a result of the build out and opening of its new
Melbourne branch.
Total deposits increased 18.8%, from $110.3 million at December 31, 1999, to
$131.0 million at March 31, 2000. Deposits are summarized as follows:
March 31, 2000 December 31, 1999
-------------- -----------------
(in thousands)
Non-interest bearing demand ............... $ 34,257 $ 29,235
Savings, NOW and money market ............. 56,541 46,884
Time deposits, under $100,000 ............. 24,489 20,187
Time deposits, $100,000 and over........... 15,689 13,967
-------- --------
$130,976 $110,273
======== ========
FHLB advances totaled $9.4 million at March 31, 2000. There were no FHLB
advances at December 31, 1999. The funds obtained in this borrowing were used
toward the purchase of a $10 million GNMA II mortgage-backed security. The
security is pledged to secure the borrowing line and the Company is required to
maintain a specified margin between the market value of the security and the
amount advanced under the line.
Accrued interest payable increased $61 thousand, or 28.5%, due to an increased
volume of interest paying liabilities, including other borrowings, and a higher
average cost of the interest bearing liabilities. Other liabilities increased
$156 thousand, or 47.3%, due primarily to a $147 thousand dollar increase in
income taxes payable related to the Company's higher level of taxable income.
16
<PAGE>
ASSET QUALITY
The Company's principal earning assets are its loans. Inherent in the lending
function is the risk of the borrower's inability to repay their loan under its
existing terms. Risk elements include non-accrual loans, past due and
restructured loans, potential problem loans, loan concentrations and other real
estate.
Non-performing assets include loans that are not accruing interest (non-accrual
loans) as a result of principal or interest being in default for a period of 90
days or more. When a loan is classified as non-accrual, interest accruals
discontinue and all accumulated accrued interest receivable applicable to
periods prior to the current year is charged off to the allowance for loan
losses and all interest accrued applicable to the current year is backed out of
current period income. Until the loan becomes current, any payments received
from the borrower are applied to outstanding principle until such time as
management determines the financial condition of the borrower and other factors
merit recognition of such payments as interest.
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. The Company's due diligence
begins at the time the borrower and the Company begin to discuss the origination
of the loan. Documentation, including the borrower's credit history, materials
establishing the value and liquidity of potential collateral, the purpose of the
loan, the source and timing of the repayment of the loan, and other factors are
analyzed before a loan is submitted for approval. Loans made are also subject to
periodic review.
Non-accrual loans increased to $195 thousand at March 31, 2000 from $154
thousand at December 31, 1999. The balance represents two loans, one with a
balance of $154 thousand which was placed on non-accrual status during October
1999. The balance of this loan represents the unguaranteed portion of a Small
Business Administration loan. The Bank has initiated foreclosure. Management
believes proper reserves have been established for this loan. The second loan,
with a balance of $41 thousand, was placed on non-accrual status during February
2000. The loan is secured by business equipment and a second mortgage on the
residence of the principal of the company. Management believes that this loan is
adequately reserved.
Other real estate owned increased to $108 thousand at March 31, 2000 from $8
thousand at March 31, 1999. The March 31, 2000 balance represents one single
family residence acquired through foreclosure in December 1999. The foreclosed
loan is covered by mortgage insurance. Management does not anticipate the
Company will incur a material loss on liquidation of the property.
17
<PAGE>
The following table sets forth information concerning risk elements in the
Company's portfolio:
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
----------------------- ------------
(Dollars in thousands) 2000 1999 1999
------- ------- -------
<S> <C> <C> <C>
Non-accrual loans $ 195 $ 109 $ 154
Other real estate owned 108 8 108
------ ------ ------
Total non-performing assets (1) $ 303 $ 117 $ 262
====== ====== ======
Non-accrual loans to total loans 0.17% 0.20% 0.15%
Non-performing assets to total assets 0.18% 0.13% 0.19%
Allowance for possible loan losses as
a percentage of non-performing assets 401.65% 538.26% 388.17%
(1) Excludes loans past due more than 90 days and still accruing interest of $41 thousand at
December 31, 1999. No loans were past due more than 90 days and still accruing interest at
the other periods presented.
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company attempts to maintain an allowance for loan losses at a sufficient
level to provide for potential losses in the loan portfolio. Loan losses are
charged directly to the allowance when they occur and any recovery is credited
to the allowance. Risks within the portfolio are analyzed on an on going basis
by our officers, by outside, independent loan review auditors and by our
Directors' Loan Committee. A risk system, consisting of multiple grading
categories, is utilized as an analytical tool to assess the risk and appropriate
reserves. Along with the risk system, management further evaluates risk
characteristics of the loan portfolio under current and anticipated economic
conditions and considers such factors as the financial condition of the
borrower, past and expected loss experience, and other factors management feels
deserve recognition in establishing an appropriate reserve. These estimates are
reviewed at least quarterly, and, as adjustments become necessary, they are
realized in the periods in which they become known. Additions to the allowance
are made by provisions charged to expense and the allowance is reduced by net
charge-offs (i.e., loans judged to be uncollectible and charged against the
reserve, less any recoveries on such loans). Although management attempts to
maintain the allowance at a level deemed adequate, future additions to the
allowance may be necessary based upon changes in market conditions. In addition,
various regulatory agencies periodically review the Company's allowance for loan
losses. These agencies may require the Company to take additional provisions
based on their judgements about information available to them at the time of
their examination.
At March 31, 2000, the allowance for loan losses was $1.2 million, an increase
of $200 thousand, or 20%, from the $1.0 million at year-end 1999. During the
three months ended March 31, 2000 the Company had no charge-offs and recoveries
of $1 thousand and provided a loan loss provision of $199 thousand.
18
<PAGE>
INVESTMENT SECURITIES
At March 31, 2000, the Company's investment securities portfolio, both held to
maturity and available for sale, totaled $35.9 million, an increase of $9.0
million, from total investment securities of $26.9 million at December 31, 1999.
At March 31, 2000, $13.1 million of the Company's investment securities were
classified as available for sale and $22.7 million were classified as held to
maturity. At December 31, 1999 $8.9 million and $18.0 million of securities were
classified as available for sale and held to maturity, respectively. As the
mortgage-backed securities have paid down, the funds have been reinvested in new
mortgage-backed securities.
LIQUIDITY
Net cash provided by the Company's operating activities was $436 thousand in the
first three months of 2000 compared to $6 thousand for the three months ended
March 31, 1999.
Net cash used in investing activities was $24.2 million in the period ended
March 31, 2000 compared to $10.3 million in the comparable period of 1999. The
Company used $8.9 million for net investment securities in 2000, while in 1999
it used $1.6 million for its securities portfolio. Additionally, the Company
used $14.5 million and $8.0 million for net loans and loan sales in the first
three months of 2000 and 1999, respectively.
Net cash provided by the Company's financing activities was $29.5 million in the
first three months of 2000, and $11.4 million in the comparable period of 1999.
The increase in 2000 was due to a $20.7 million increase in deposits and net
increase of $8.8 million in federal funds purchased and other borrowed money.
Net deposits provided an increase $20.7 million in 2000 compared to $11.4
million in the first three months of 1999.
As a state chartered commercial bank, the Bank is required to maintain a daily
liquidity position equal to at least 15 percent of its total transaction
accounts and eight percent of its total nontransaction accounts, less those
deposits of public funds for which security has been pledged. As of March 31,
2000, the Bank had a liquidity ratio of 21.1 percent which was adequate to meet
the statutory requirement. The primary source of the Bank's liquidity is federal
funds sold - overnight loans to major commercial banks. At March 31, 2000,
federal funds sold totaled $4.6 million. Funds not required to meet loan and
deposit demand were invested primarily in mortgage-backed, U.S. Government and
Agency securities. The Bank considers these investments to be secondary sources
of liquidity. The Bank's investment securities classified as available for sale
had a carrying value of $13.1 million at March 31, 2000.
An additional external source of liquidity is an unsecured $4 million federal
funds overnight borrowing line of credit and a secured line of credit with a
correspondent bank. At March 31, 2000, no funds were drawn under this unsecured
line. The Company's unencumbered investment securities are the collateral for
the secured line of credit and serve to determine the total amount available
under the line. During the three months ended March 31, 2000 the Company drew on
the unsecured line to $4 million twice and drew on the secured line up to $1.1
million when loan growth outpaced deposit growth.
19
<PAGE>
CAPITAL RESOURCES
Total stockholders' equity increased slightly to $19.8 million at March 31, 2000
from $19.6 million at December 31, 1999. March 31, 2000 equity was affected by
net income of $213 thousand and a decrease of $2 thousand in net unrealized
losses on available for sale securities.
At March 31, 2000, the Company exceeded all regulatory capital requirements as
follows:
<TABLE>
<CAPTION>
CAPITAL ADEQUACY
(dollars in thousands)
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------ -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk weighted assets)........... 17,318 13.03% > 10,633 > 8.00% > 13,291 > 10.00%
- - - -
Tier I Capital
(to risk weighted assets)........... 16,101 12.11% > 5,316 > 4.00% > 7,974 > 6.00%
- - - -
Tier I Capital
(to average assets).................. 16,101 10.87% > 5,922 > 4.00% > 7,403 > 5.00%
- - - -
</TABLE>
20
<PAGE>
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The Company and the Bank are periodically involved in various legal
proceedings as a normal incident to their businesses. In the opinion of
management, no material loss is expected from any such pending lawsuit.
Item 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of shareholders during the period covered
by this report.
Item 5 OTHER INFORMATION
Not applicable
Item 6 EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
NUMBER DESCRIPTION
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 20, 2000, the Company filed a Form 8-K to report its 1999
earnings.
21
<PAGE>
SIGNATURE
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 hereunto duly authorized.
ADMIRALTY BANCORP, INC.
Date: May 4, 2000 By: /S/ WARD KELLOGG
---------------------------------
WARD KELLOGG, President
Date: May 4, 2000 By: /S/ KEVIN M. SACKET
---------------------------------
KEVIN M. SACKET, Treasurer
(Principal Financial Officer)
22
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-30-2000
<CASH> 6,158
<INT-BEARING-DEPOSITS> 88
<FED-FUNDS-SOLD> 4,611
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,131
<INVESTMENTS-CARRYING> 22,733
<INVESTMENTS-MARKET> 22,377
<LOANS> 115,397
<ALLOWANCE> 1,217
<TOTAL-ASSETS> 169,926
<DEPOSITS> 130,976
<SHORT-TERM> 12,100
<LIABILITIES-OTHER> 7,061
<LONG-TERM> 0
0
0
<COMMON> 23,187
<OTHER-SE> (3,398)
<TOTAL-LIABILITIES-AND-EQUITY> 169,926
<INTEREST-LOAN> 2,455
<INTEREST-INVEST> 528
<INTEREST-OTHER> 29
<INTEREST-TOTAL> 3,012
<INTEREST-DEPOSIT> 955
<INTEREST-EXPENSE> 1,170
<INTEREST-INCOME-NET> 1,842
<LOAN-LOSSES> 199
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 1,527
<INCOME-PRETAX> 369
<INCOME-PRE-EXTRAORDINARY> 213
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
<YIELD-ACTUAL> 5.25
<LOANS-NON> 195
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,017
<CHARGE-OFFS> 0
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,217
<ALLOWANCE-DOMESTIC> 1,217
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
