<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-20960
Hamilton Bancorp Inc.
(Exact name of Registrant as specified in its charter)
Florida 65-0149935
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3750 N. W. 87th Avenue, Miami, Florida 33178
(Address of principal executive offices) (Zip code)
305-717-5500
(Registrant's telephone number including area code)
Not applicable
(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 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 ____
APPLICABLE ONLY TO REGISTRANTS 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 ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common 9827949
<PAGE>
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------- --------------
ASSETS (Unaudited) (Audited)
----------------
<S> <C> <C>
CASH AND DEMAND DEPOSITS WITH OTHER BANKS $20,742 $14,806
FEDERAL FUNDS SOLD 21,000 18,300
---------------- --------------
Total cash and cash equivalents 41,742 33,106
INTEREST EARNING DEPOSITS WITH OTHER BANKS 128,650 80,477
SECURITIES AVAILABLE FOR SALE 72,780 29,020
LOANS-NET 709,670 527,279
DUE FROM CUSTOMERS ON BANKERS ACCEPTANCES 68,453 60,761
DUE FROM CUSTOMERS ON DEFERRED PAYMENT LETTERS OF CREDIT 5,527 7,343
PROPERTY AND EQUIPMENT-NET 4,484 3,460
ACCRUED INTEREST RECEIVABLE 9,499 6,471
GOODWILL-NET 2,096 2,183
OTHER ASSETS 3,950 5,470
---------------- --------------
TOTAL $1,046,851 $755,570
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $876,877 $638,641
BANKERS ACCEPTANCES OUTSTANDING 68,453 60,761
DEFERRED PAYMENT LETTERS OF CREDIT OUTSTANDING 5,527 7,343
OTHER LIABILITIES 7,041 5,025
---------------- --------------
Total liabilities 957,898 711,770
---------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock, non-voting, non-cumulative, 14% maximum dividend rate, par
value $.01 per share, 2,000,000 shares authorized, 101,207 shares issued
and
outstanding at December 31, 1996 0 1
Common stock, $.01 par value, 75,000,000 shares authorized, 5,205,030 shares
issued and outstanding at December 31, 1996 and 9,827,949 shares issued
and outstanding at June 30, 1997. 98 52
Capital surplus 56,158 17,317
Retained earnings 32,676 26,432
Net unrealized gain (loss) on securities available for sale, net of taxes 21 (2)
---------------- --------------
Total stockholders' equity 88,953 43,800
---------------- --------------
TOTAL $1,046,851 $755,570
================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
-------------- ---------------- ------------------------
INTEREST INCOME: (Unaudited) (Unaudited)
---------------- ----------------
<S> <C> <C> <C> <C>
Loans, including fees $15,995 $10,959 $29,186 $22,009
Deposits with other banks 2,738 1,398 4,621 2,476
Securities 638 497 931 1,071
Federal funds sold 206 320 434 702
-------------- ---------------- ---------------------------
Total 19,577 13,174 35,172 26,258
INTEREST EXPENSE:
Deposits 9,954 6,596 18,191 13,184
Federal funds purchased 60 1 109 1
-------------- ---------------- ---------------------------
Total 10,014 6,597 18,300 13,185
-------------- ---------------- ---------------------------
NET INTEREST INCOME 9,563 6,577 16,872 13,073
PROVISION FOR CREDIT LOSSES 2,191 450 2,939 950
-------------- ---------------- ---------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES 7,372 6,127 13,933 12,123
NON-INTEREST INCOME:
Trade finance fees and commissions 3,148 2,096 5,906 3,997
Capital market fees, net 478 0 564 1
Customer service fees 165 198 421 841
Other 180 69 249 103
-------------- ---------------- ---------------------------
Total 3,971 2,363 7,140 4,942
-------------- ---------------- ---------------------------
OPERATING EXPENSES:
Employee compensation and benefits 2,826 2,304 5,529 4,578
Occupancy and equipment 796 747 1,478 1,468
Other 1,933 1,412 3,871 2,953
-------------- ---------------- ---------------------------
Total 5,555 4,463 10,878 8,999
-------------- ---------------- ---------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,788 4,027 10,195 8,066
PROVISION FOR INCOME TAXES 2,047 1,564 3,632 3,087
-------------- ---------------- ---------------------------
NET INCOME $3,741 $2,463 $6,563 $4,979
============== ================ ===========================
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARES:
PRIMARY $0.37 $0.45 $0.81 $0.92
============== ================ ===========================
FULLY DILUTED $0.37 $0.45 $0.81 $0.92
============== ================ ===========================
AVERAGE WEIGHTED SHARES OUTSTANDING
PRIMARY 10,133,728 5,430,030 8,094,278 5,430,030
============== ================ ===========================
FULLY DILUTED 10,179,448 5,430,030 8,151,024 5,430,030
============== ================ ===========================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Net
Unrealized
(Loss)
Gain on
Securities
Available Total
Preferred Stock Common Stock Capital Retained For Sale Stockholders'
------------------ -----------------------
Shares Amount Shares Amount Surplus Earnings Net of Taxes Equity
------------------ ----------------------- ------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 (audited) 101,207 $1 5,205,030 $52 $17,317 $26,432 ($2) $43,800
Conversion of preferred stock for
common stock, with 6.5 to 1 split (101,207) (1) 466,160 5 (4) 0
Conversion of warrants with 6.5 to 1 split 1,396,759 14 (14) 0
Sale of 2,400,000 shares of common
stock in public offering, net 2,400,000 24 33,673 33,697
Net change in unrealized gain on
securities available for sale, net of taxes 23 23
Net income for the six months ended
June 30, 1997 6,563 6,563
Cash dividends on preferred stock, net
of withholding taxes (319) (319)
Sale of 360,000 shares of common
stock in public offering, net 360,000 3 5,186 5,189
--------- ------- ------------ --------- -------- --------- ------------- ----------
Balance as of June 30, 1997 (unaudited) 0 $0 9,827,949 $98 $56,158 $32,676 $21 $88,953
========= ======= ============ ========= ======== ========= ============= ===========
</TABLE>
3
<PAGE>
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------
1997 1996
--------------------- ---------------------
(Unaudited)
---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $6,563 $4,979
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 509 545
Provision for credit losses 2,939 950
Deferred tax benefit (479) (174)
Proceeds from the sale of bankers acceptances and
loan participations, net of loan participations
purchased 25,173 36,746
Increase in accrued interest receivable and other assets (1,351) (1,267)
Increase (decrease) in other liabilities 2,017 (1,013)
--------------------- ---------------------
Net cash provided by operating activities 35,371 40,766
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in interest-earning deposits with other banks (48,174) (35,280)
Purchase of securities available for sale (92,859) (20,976)
Proceeds from maturities of securities held to maturity 0 20,662
Proceeds from sales and maturities of securities available
for sale 49,444 2,923
Increase in loans-net (210,503) (92,409)
Purchases of property and equipment-net (1,446) (334)
--------------------- ---------------------
Net cash used in investing activities (303,538) (125,414)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits-net 238,236 55,353
Net Proceeds from issuance of common stock IPO 38,886 0
Cash dividends on preferred stock (319) (354)
--------------------- ---------------------
Net cash provided by financing activities 276,803 54,999
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 8,636 (29,649)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD 33,106 46,589
--------------------- ---------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $41,742 $16,940
===================== =====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid during the period $17,563 $12,948
Income taxes paid during the period $3,827 $2,885
</TABLE>
See accompanying notes to consolidated statement.
4
<PAGE>
HAMILTON BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1: Basis of Presentation
The consolidated statements of condition for Hamilton Bancorp and Subsidiary
(the "Company") as of June 30, 1997 and December 31, 1996, the related
consolidated statements of income, stockholders' equity and the cash flows for
the six months ended June 30, 1997 and 1996 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, 1996.
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 registration statement on Form S-1 for the
year ended December 31, 1996 as filed with the Securities and Exchange
Commission.
NOTE 2:
The Company completed its initial public offering of 2,400,000 shares of common
stock on March 31, 1997. In connection with the initial public offering, the
Board amended and restated the articles of incorporation of the Company
authorizing 75,000,000 shares of common stock and 10,000,000 shares of "blank
check" preferred stock. In addition, the Board approved a 6.5 for 1 common stock
split and a reorganization of the capital structure of the Company consisting of
(i) the conversion of all outstanding shares of the Company's preferred Shares
(Series B and C) into 466,168 shares (post-stock split) of common stock and (ii)
the issuance of an aggregate of 1,396,761 shares (post stock split) of common
stock for all outstanding warrants to purchase shares of common stock of
Hamilton Bank, N.A. These actions were approved by the shareholders in January
1997 and consummated in March 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 Oppenheimer and Company, Inc.,
and NatWest Securities Ltd.
5
<PAGE>
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% subsidiary Hamilton Bank, N.A. (the
"Bank"). The Bank is a national bank which specializes in financing foreign
trade between the United States, South and Central America and the Caribbean,
(collectively the "Region"). The Bank has a network of seven FDIC-insured
branches in Florida, with locations in Miami, Sarasota, Tampa, West Palm Beach
and Winter Haven.
Throughout this discussion, Bancorp and its subsidiary are collectively referred
to as the "Company".
FINANCIAL CONDITION - June 30, 1997 vs. December 31, 1996.
Total consolidated assets increased $291.3 million, or 39 %, during the first
six months of 1997, which included an increase of $277.0 million in interest
earning assets and an increase $14.3 million in non-interest earning assets. The
increase in consolidated assets reflects increases of $182.4 million in
loans-net and $48.2 million in interest-earning deposits with other banks. These
increases were principally funded by the deployment of the capital raised during
the initial public offering and 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 Sarasota during the first quarter,
and a branch in West Palm Beach early in the second quarter that are intended to
further support future asset growth.
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 $41.7 million at June 30,
1997 compared to $33.1 million at December 31, 1996.
Investment Securities and Interest-Earning Deposits with Other Banks
Interest-earning deposits with other banks increased to $128.7 million at June
30, 1997 from $80.5 million at December 31, 1996. These deposits are placed with
correspondent banks in the Region, generally on a short term basis (less than
365 days), to increase yields and enhance relationships with the correspondent
banks. The level of such deposits has grown as the overall assets of the Company
have increased during the six months ended June 30, 1997. The short term nature
of these deposits allows 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 $72.8 million at June 30, 1997 from $29.0
million at December 31, 1996. The increase has been primarily in U.S. Treasury
bill obligations and to a lesser extent foreign government bills. 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.
6
<PAGE>
Loans
The Company's loan portfolio increased by $182.4 million, or 34.4%, during the
first six months of 1997 in relation to the year ended December 31, 1996. This
was primarily due to the increased demand for loans and trade finance as a
result of perceived economic stability in the Region and the consequent
increased trade activity. Furthermore, the Company's additional capital resulted
in an increase in the banks legal lending limit which allowed the bank to
increase lending to the existing customer base. Commercial-domestic loans
increased by $36.6 million and loans to banks and other financial institutions -
foreign increased by $136.3 million. Details on the loans by type are shown in
the table below. At June 30, 1997 approximately 26.4% of the Company's portfolio
consisted of loans to domestic borrowers and 73.6% of the Company's portfolio
consisted of loans to foreign borrowers. The Company's loan portfolio is
relatively short-term, as approximately 76.1% of loans at June 30, 1997 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)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Domestic:
Commercial (1) $146,879 $110,322
Acceptances discounted 31,853 23,314
Residential mortgages 10,803 10,610
Installment 276 428
Subtotal Domestic 189,811 144,674
Foreign:
Banks and other financial institutions 265,659 129,376
Commercial and industrial (1) 182,363 179,824
Acceptances discounted 80,993 80,935
Government and official institutions 771 750
Subtotal Foreign 529,786 390,885
Total loans $719,597 $535,559
</TABLE>
(1) Includes pre-export financing, warehouse receipts and refinancing of letter
of credits.
7
<PAGE>
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 crossborder outstandings by primary credit risk include cash and
demand deposits with other banks, interest earning deposits with other banks,
investment securities, due from customers on bankers acceptances, due from
customers on deferred payment letters of credit and loans-net. Exposure levels
in any given country at the end of each period may be impacted by the flow of
trade between the United States (and to a large extent Florida) and the given
countries, as well as the price of the underlying goods or commodities being
financed.
At June 30, 1997 approximately 42.23% in principal amount of the Company's loans
were outstanding to borrowers in five countries other than the United States:
Guatemala (11.30%), Panama (8.28%), Ecuador (8.18%), El Salvador (6.49%) and
Peru (7.98%).
Loans by Country
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, % of December 31, % of
1997 Total 1996 Total
Country Amount Loans Amount Loans
<S> <C> <C> <C> <C>
United States $189,811 26.38% $144,674 27.01%
Argentina 28,116 3.91 35,241 6.58
Bolivia 16,596 2.31 15,815 2.95
Brazil 46,266 6.43 27,255 5.09
British West Indies 14,148 1.97 14,740 2.75
Dominican Republic 19,984 2.78 9,450 1.76
Ecuador 58,852 8.18 29,799 5.56
El Salvador 46,706 6.49 28,472 5.32
Guatemala 81,302 11.30 79,483 14.84
Honduras 32,942 4.58 24,277 4.53
Jamaica 11,313 1.57 10,971 2.05
Panama 59,595 8.28 50,553 9.44
Peru 57,403 7.98 26,658 4.98
Venezuela 19,558 2.72 10,245 1.91
Other (1) 37,005 5.12 27,926 5.31
Total $ 719,597 100.00% $535.559 100.00%
</TABLE>
(1) Other consists of loans to borrowers in countries in which loans did not
exceed 1% of total assets.
8
<PAGE>
At June 30, 1997 approximately 32.4% in cross-border outstandings were
outstanding to borrowers in five countries other than the United States: Ecuador
(7.8%), Guatemala (7.3%), Brazil (5.9%), El Salvador (5.8%) and Panama (5.6%).
Total Cross-Border Outstandings by Country
(Dollars in million)
<TABLE>
<CAPTION>
% of % of
June 30, 1997 Total December 31, 1996 Total
Assets Assets
<S> <C> <C> <C> <C>
Argentina $ 44 4.2% $ 58 7.7%
Bahamas 13 1.2 - -
Bolivia 28 2.7 27 3.6
Brazil 62 5.9 36 4.7
British West Indies 15 1.5 11 1.5
Colombia (1) - - 6 0.8
Dominican Republic 26 2.5 6 0.8
Ecuador 81 7.8 35 4.6
El Salvador 61 5.8 32 4.2
Guatemala 77 7.3 96 12.7
Honduras 32 3.0 33 4.4
Jamaica 30 2.8 22 2.9
Nicaragua 6 0.6 - -
Panama 58 5.6 41 5.4
Peru 54 5.2 26 3.4
Venezuela 18 1.7 10 1.3
Other (1) 42 4.0 17 2.3
Total $647 61.8% $456 60.3%
</TABLE>
(1) Other consists of cross-border outstandings to countries in which such
cross-border outstandings did not exceed 0.75% of the Company's total
assets at any of the dates shown.
9
<PAGE>
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.
Contingencies - Commercial Letters of Credit
(in thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
Average Average
Total Monthly Total Monthly
Volume Volume Volume Volume
<S> <C> <C> <C> <C>
Export Letters of Credit (1) $176,708 $29,451 $369,367 $30,781
Import Letters of Credit (1) 191,443 31,907 312,964 26,080
Total $368,151 $61,358 $682,331 $56,861
</TABLE>
(1) Represents certain contingent liabilities not reflected on the Company's
balance sheet.
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
increased by 26.2% from December 31, 1996 to June 30, 1997. Individual
fluctuations reflect relative changes in the flow of trade.
Contingent Liabilities (1)
(in thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
<S> <C> <C>
Argentina $ 3,042 $7,095
Aruba 1,670 -
Bolivia 4,982 4,401
Brazil 4,480 4,770
Dominican Republic 4,270 2,719
Ecuador 9,966 1,858
El Salvador 11,348 5,616
Germany 1,780 -
Guatemala 10,385 13,981
Haiti 3,672 -
Honduras 5,548 8,315
Jamaica 3,062 1,556
Nicaragua 323 1,414
Panama 8,599 9,803
Paraguay 3,417 5,105
Peru 3,605 5,864
United States 83,812 55,991
Other (2) 2,220 3,224
Total $166,181 $131,712
</TABLE>
(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%
of the Company's total contingencies at each of nthe above dates.
10
<PAGE>
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; and (iii) historical experience.
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 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 June 30, 1997 the
allowance for credit losses was approximately $7.6 million, an increase of 33.3%
from $5.7 million at December 31, 1996 to provide for the loan growth during the
period.
11
<PAGE>
The following table provides certain information with respect to the Company's
allowance for credit losses, provision for credit losses and chargeoff and
recovery activity for the periods shown. .
Credit Loss Experience
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
<S> <C> <C>
Balance of allowance for credit losses at
beginning of period $ 5,725 $ 4,450
Charge-offs:
Domestic:
Commercial (1,070) (951)
Acceptances 0 0
Residential 0 0
Installment (3) (8)
Total domestic (1,073) (959)
Foreign:
Government and official institutions 0 0
Banks and other financial institutions (69) (678)
Commercial and industrial 0 (146)
Acceptances discounted 0 0
Total foreign (69) (824)
Total charge-offs (1,142) (1,783)
Recoveries:
Domestic
Commercial 82 16
Acceptances 0 0
Residential 0 0
Installment 0 2
Foreign 0 0
Total recoveries 82 18
Net (charge offs) recoveries (1,060) (1,765)
Provision for credit losses 2,939 3,040
Balance at end of the period $ 7,604 $ 5,725
Average loans $ 610,481 $485,758
Total loans $ 719,597 $535,559
Net charge-offs to average loans 0.17% 0.36%
Allowance to total loans 1.06% 1.07%
</TABLE>
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.
12
<PAGE>
Allocation of Allowance for Credit Losses
(in thousands)
<TABLE>
<CAPTION>
As of As of
June 30, 1997 December 31, 1996
<S> <C> <C>
Allocation of the allowance by category
of loans:
Domestic:
Commercial $2,022 $1,900
Acceptances 226 226
Residential 54 54
Installment 4 6
Overdraft 87 58
Total domestic 2,393 2,244
Foreign:
Government and official institutions 0 0
Banks and other financial institutions 2,641 2,112
Commercial and industrial 1,972 920
Acceptances discounted 598 449
Total foreign 5,211 3,481
Total $7,604 $5,725
Percent of loans in each category to total loans:
Domestic: 17.6% 20.1%
Commercial 4.4% 4.4%
Acceptances 1.5% 2.0%
Residential 0% 0.1%
Installment 0% 0.4%
Overdraft 23.5% 27.0%
Total domestic
Foreign: 0.1% 0.1%
Government and official institutions 36.9% 24.2%
Banks and other financial institutions 28.2% 33.6%
Commercial and industrial 11.3% 15.1%
Acceptances discounted 76.5% 73.0%
Total foreign 100.0% 100.0%
Total
</TABLE>
Analysis of Allowance for Credit Losses Allocated to Foreign Loans
(in thousands)
<TABLE>
<CAPTION>
At At
June 30, 1997 December 31, 1996
<S> <C> <C>
Balance, beginning of year $3,481 $3,380
Provision for credit losses 1,799 925
Net charge-offs (69) (824)
Balance, end of period $5,211 $3,481
</TABLE>
The Company does not have a rigid chargeoff policy but instead charges off loans
on a case-by-case basis as determined by management and approved by the Board of
Directors. In some instances, loans may remain in the nonaccrual category for a
period of time during which the borrower and the Company negotiate restructured
repayment terms.
The Company attributes its favorable asset quality to the short-term nature of
its loan portfolio, the composition of its borrower base, the importance that
borrowers in the Region attach to maintaining their continuing access to
financing for foreign trade and to the Company's loan underwriting policies.
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.
13
<PAGE>
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, 1996 to June 30, 1997. The ratios of total nonperforming loans to
total loans and to total assets has decreased as the loans and assets portfolio
continues to grow and the nonperforming assets remain relatively consistent.
Nonperforming Loans
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Domestic:
Non accrual $3,942 $3,087
Past due over 90 days and accruing 0 0
Total domestic nonperforming loans 3,942 3,087
Foreign
Non accrual 1,655 1,654
Past due over 90 days and accruing 0 112
Total foreign nonperforming loans 1,655 1,766
Total nonperforming loans $5,597 $4,853
Total nonperforming loans to total loans 0.79% 0.91%
Total nonperforming assets to total assets 0.53% 0.64%
</TABLE>
At December 31, 1996, and June 30, 1997 the Company had no nonaccruing
investment securities.
14
<PAGE>
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 $68.5 million and $5.5 million, respectively, at June 30, 1997
compared to $60.8 million and $7.3 million, respectively, at December 31, 1996.
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
Total deposits were $876.9 million at June 30, 1997 compared to $638.6 million
at December 31, 1996. Deposits have grown in order to fund asset growth.
The following table provides an analysis of the Company's average deposits for
the quarters indicated.
Deposits
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Non-interest bearing demand deposits $ 60,499 $ 54,875
NOW and money market accounts 62,819 60,795
Savings deposits 4,354 7,172
Time deposits 474,644 434,276
Time deposits from banks
(International Banking Facilities) 117,373 88,267
Total deposits $719,689 $645,385
</TABLE>
The increase in deposits during the six months ended June 30, 1997 was primarily
in time deposits and time deposits from banks due to the increased activities
with such banks.
The primary sources of the Company's domestic time deposits are deposits from
its branches located in Florida. The Company has three Bank branches in Miami
and one each in Tampa, Winter Haven, Sarasota, and West Palm Beach. During the
quarter the Company also increased deposits from other financial institutions
which are usually in denominations of $100,000 or less. 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 $25
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 our deposit base and as a cost effective
alternative for the short term funding needs of the Company.
15
<PAGE>
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 June 30, 1997:
Maturities of and Amounts of Certificates of Deposits
and Other Time Deposits $100,000 or More
(in thousands)
<TABLE>
<CAPTION>
Certificates Other Time
of Deposit Deposits
$100,000 or More $100,000 or More Total
<S> <C> <C> <C>
Three months or less $ 90,676 $53,733 $144,409
Over 3 through 6 months 57,905 14,604 72,509
Over 6 through 12 months 177,223 100 177,323
Over 12 months 25,901 0 25,901
Total $ 351,705 $ 68,437 $ 420,142
</TABLE>
Stockholders' Equity
The Company's stockholders' equity at June 30, 1997, was $89.0 million compared
to $43.8 million at December 31, 1996 due primarily to the initial public
offering completed late in the first quarter of 1997. Stockholders equity also
increased by $6.6 million representing the net income for the six months ended
June 30, 1997.
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 June 30, 1997. 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.
16
<PAGE>
INTEREST RATE SENSITIVITY REPORT
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1997
==========================================================================================
0 to 30 31 to 90 91 to 180 181 to 1 to 5 Over 5
365
Days Days Days Days Years Years Total
============ ======================== ============ ============================== ========
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $149,004 $206,396 $192,451 $49,475 $103,79 $18,481 $719,597
Federal funds sold 21,000 0 0 0 0 0 21,000
Investment securities 19,477 8,921 28,983 7,961 5,054 2,384 72,780
Interest earning deposits with other 39,550 35,930 28,616 24,554 0 0 128,650
banks
--------- ------------------------ ------------ ------------------------ ----------
Total 229,031 251,247 250,050 81,990 108,844 20,865 942,027
--------- ------------------------ ------------ ------------------------ ----------
Funding Sources:
Savings and transaction deposits 19,530 48,539 68,069
Time deposits of $100 or more 42,006 48,670 57,905 177,223 25,794 107 351,705
Time deposits under $100 32,453 101,261 100,316 21,770 11,318 84 267,202
Other time deposits 58,734 13,364 1,240 100 0 0 73,438
Funds overnight 53,300 0 0 0 0 0 53,300
Total $206,023 $211,834 $159,461 $199,093 $37,112 $191 $813,714
Interest sensitivity gap $23,008 $39,413 $90,589 ($117,103) $71,732 $20,674 $128,313
Cumulative gap $23,008 $62,421 $153,010 $35,907 $107,639 $128,313
Cumulative gap as a percentage of total
earning assets 2.44% 6.63% 16.24% 3.81% 11.43% 13.62%
</TABLE>
17
<PAGE>
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 June 30, 1997 interest-earning assets maturing within six months
were $730.3 million, representing 77.5% 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 June 30, 1997 were $198.6 million, 19.0% of total assets, and
consisted of cash and cash equivalents, due from banks-time and United States
treasury bills. At June 30, 1997 the Company had been advised of $87.5 million
in available interbank funding.
Capital Resources
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can 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.
As indicated in the stockholder's equity section above, the Company completed
its initial public offering in March 31, 1997 which resulted in significantly
higher capital ratios being reported for the second quarter of 1997. These
ratios are expected to decline as the assets continue to grow.
Company Capital Ratios
(Dollars in thousands)
<TABLE>
<CAPTION> June 30, 1997 December 31,1996
<S> <C> <C> <C> <C>
Tier 1 risk-weighted
capital:
Actual $86,836 15.0% $41,634 10.2%
Minimum $22,859 4.0% $16,329 4.0%
Total risk-weighted
capital:
Actual $94,081 16.2% $46,744 11.5%
Minimum $45,716 8.0% $32,657 8.0%
Leverage:
Actual $86,836 9.2% $41,634 5.8%
Minimum $18,892 3.0% $21,713 3.0%
</TABLE>
<PAGE>
Bank Capital Ratios
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
<S> <C> <C> <C> <C>
Tier 1 risk-weighted capital:
Actual $77,879 13.4% $41,351 10.1%
Minimum to be well capitalized $34,247 6.0% $24,534 6.0%
Minimum to be adequately capitalized $22,831 4.0% $16,356 4.0%
Total risk-weighted capital:
Actual $85,124 14.7% $46,470 11.4%
Minimum to be well capitalized $57,078 10.0% $40,890 10.0%
Minimum to be adequately capitalized $45,662 8.0% $32,712 8.0%
Leverage:
Actual $77,879 8.3% $41,351 5.7%
Minimum to be well capitalized $42,786 5.0% $36,261 5.0%
Minimum to be adequately capitalized $34,229 4.0% $29,009 4.0%
</TABLE>
18
<PAGE>
Results of Operation-Six Months
Net Interest Income
Net interest income is the difference between interest and fees earned on loans
and investments and interest paid on deposits and other sources of funds, and it
constitutes the Company's principal source of income. Net interest income
increased to $16.9 million for the six months ended June 30, 1997 from $13.1
million for the same period in 1996, a 29.0% 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 $767.8 million for the six months
ended June 30, 1997 from $541.6 million for the same period in 1996, a 41.8%
increase. Average loans and acceptances discounted increased to $610.5 million
for the six months ended June 30, 1997 from $418.5 million for the same period
in 1996, a 41.9% increase, while average interest earning deposits with other
banks increased to $109.5 million for the six months ended June 30, 1997 from
$51.5 million for the same period in 1996, a 112.6% increase. Net interest
margin decreased to 4.37% for the six months ended June 30, 1997 from 4.77% for
the same period in 1996, a 40 basis point decrease, although the margin
increased slightly when compared to the previous quarter margin of 4.23%. 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 $35.2 million for the six months ended June 30,
1997 from $26.3 million for the same period in 1996, a 33.8% 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 $18.3 million for the six months
ended June 30, 1997 from $13.2 million for the same period in 1996, a 38.6%
increase, reflecting the additional deposits to fund asset growth. Average
interest-bearing deposits increased to $659.2 million for the six months ended
June 30 1997 from $475.6 on for the same period in 1996, a 39.4% 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 $117.4 million for the six months ended June 30, 1997 from $91.0
million for the same period in 1996.
Provision for Credit Losses
The Company's provision for credit-losses increased to $2.9 million for the six
months ended June 30, 1997 from $950 thousand for the same period in 1996, a
205% increase. Net loan chargeoffs during the first six months 1997 amounted to
$1.1 million compared to $1.8 million for the year 1996. The allowance for
credit losses was increased to $7.6 million at June 30, 1997 from $5.7 million
for the end of the fiscal year 1996, a 33.3% increase. The increase was
primarily to support the growth of the Company's loan portfolio. The ratio of
the allowance for credit losses to total loans remained substantially the same
at 1.06% at June 30, 1997 increasing slightly from approximately 1.04% at June
30, 1996.
Non-Interest Income
Non-interest income increased to approximately $7.1 million for the six months
ended June 30, 1997 from $4.9 million for the same period in 1996, a 44.9%
increase. Trade finance fees and commissions increased by $1.9 million due
largely to higher letters of credit volume. In addition, the Company had more
lending facility fees charged during the first half year of 1997 compared to
1996. Capital market fees increased by $564 thousand as a result of various
capital market transactions which have been completed as the globalization of
investments in the region has created more capital market opportunities.
Customer service fees decreased by $50 thousand as a result of lower overdrafts
experienced in the period. The other income category as of June 30, 1997
includes $109 thousand gain on sale of the minority investment in a financial
institution in El Salvador.
19
<PAGE>
The following table sets forth details regarding the components of non-interest
income for the periods indicated.
Non-Interest Income
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1996 to 1997
1996 % Change 1997
<S> <C> <C> <C>
Trade finance fees and commissions $3,997 48% $5,906
Capital market fees, net 1 563 564
Customer service fees 841 (50) 421
Other 103 134 249
Total non-interest income $4,942 44% $7,140
</TABLE>
Operating Expenses
Operating expenses increased to $10.9 million for the six months ended June 30,
1997 from $9.0 million for the same period in 1996, a 21.1% increase. Employee
compensation and benefits increased to $5.5 million for the six months ended
June 30, 1997 from $4.6 million for the same period in 1996, a 19.6% increase.
This was primarily due to an increase in the number of employees to 240 at June
30, 1997 from 206 for the same period in 1996, the majority of the employees
were added to support the two branches opened during the first six months of
1997 as well as salary increases for existing personnel. Occupancy expenses have
remained relatively consistent at $1.5 million. Other expenses increased to $3.3
million for the six months ended June 30, 1997 from $2.3 million for the same
period in 1996, primarily due to a loss realized in liquidating inventory which
was acquired in 1996 as a result of a default on a loan. Directors fees
decreased by 23.2% during the first half of 1997. Insurance and examination fees
(FDIC and OCC) increased to $175 thousand for the six months ended June 30, 1997
from $76 thousand for the same period in 1996. As a result of the enactment of
the Federal Deposit Insurance Funds Act of 1996 on September 30, 1996,
commercial banks are now required to pay part of the interest on the Financing
Corporation ("FICO") bonds issued to deal with the savings and loan crisis of
the late 1980's. The Company's efficiency ratio remains favorably below the
industry average at 44.8%.
The following table sets forth detail regarding the components of operating
expenses for the periods indicated.
Operating Expenses
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1996 to 1997
1996 % Change 1997
<S> <C> <C> <C>
Employee compensation and benefits $4,578 21% $5,529
Occupancy and equipment 1,468 1 1,478
Other operating expenses 2,325 41 3,272
Directors' fees 552 (23) 424
Insurance and examination fees (FDIC and
OCC) 76 130 175
Total operating expenses $8,999 21% $ 10,878
</TABLE>
<PAGE>
YIELDS EARNED AND RATE PAID
<TABLE>
<CAPTION>
For six months endedFor six months ended
June 30, 1996June 30, 1997
------------------------------------------------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
(dollars in thousands)
Total Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commerical loans $326,343 $16,297 (1) 9.88% $489,617 $23,002(1) 9.34%
Mortgage loans 11,310 480 8.39% 10,758 454 8.39%
Installment loans 367 17 9.16% 398 19 9.49%
Acceptances Discounted 92,160 4,630 9.94% 104,190 5,100 9.74%
Overdraft 6,547 585 17.67% 5,518 611 22.02%
-------------------- --------- -------------------- -------
Total Loans (1) 436,727 22,009 9.97% 610,481 29,186 9.51%
Investments 27,525 1,071 7.70% 31,825 931 5.82%
Federal funds sold 25,899 702 5.36% 16,022 434 5.39%
Time Deposit with Banks 51,487 2,476 9.51% 109,455 4,621 8.40%
-------------------- --------- -------------------- -------
Total Investments and Time Deposit
with Banks 104,911 4,249 8.01% 157,302 5,986 7.57%
Total Interest Earning assets 541,638 $26,258 9.59% 767,783 $35,172 9.11%
--------- ---------
Total non interest earning assets 88,096 92,100
----------- -----------
Total Assets $629,734 $859,883
Interest Bearing Liabilities
Deposits:
Super NOW, NOW $16,366 $267 3.23% $15,735 $161 2.04%
Money Market 39,633 984 4.91% 43,923 1,030 4.66%
Presidential Market 3,313 65 3.88% 3,161 45 2.83%
Super Savings, Savings 9,586 154 3.18% 4,354 68 3.11%
Certificate of Deposits (including 315,631 9,303 5.83% 474,644 13,828 5.79%
IRA)
Time Deposits from Banks (IBF) 90,979 2,410 5.24% 117,373 3,059 5.18%
Collateral Accounts 77 1 2.57% 0 0 0.00%
-------------------- --------- -------------------- -------
Total Deposits 475,585 13,184 5.48% 659,190 18,191 5.49%
Federal Funds Purchased 27 1 7.33% 3,903 109 5.55%
-------------------- --------- -------------------- -------
Total interest bearing liabilities 475,612 13,185 5.48% 663,093 18,300 5.49%
-------------------- --------- -------------------- -------
Non interest bearing liabilities
Demand Deposits 45,647 60,499
Other Liabilities 72,791 67,710
Total non interest bearing liabilities 118,438 128,209
Stockholders equity 35,684 68,581
----------- -----------
Total liabilities and stockholder's $629,734 $859,883
equity
=========== ===========
Net Interest income / net interest $13,073 4.11% $16,872 3.62%
spread
--------- --------- --------- -------
Margin
Interest income / interest earning 9.59% 9.11%
assets
Interest expense / interest earning 4.82% 4.74%
assets
--------- -------
Net interest margin 4.77% 4.37%
</TABLE>
1) Interest income for calculating yields includes $158 and $142 thousand
of loan fees for the six months ended June 30, 1996 and June 30, 1997,
respectively.
<PAGE>
<TABLE>
<CAPTION> Six months ended June 30, 1996 Six months ended June 30, 1997
% of % of
Total Total
Average Average Average Average Average Average
Balance Interest Yield/Rate Assets Balance Income Yield/Rate Assets
Total Earning Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans:
Domestic $152,676 $8,300 10.8% 24.2% $160,517 $7,703 9.5% 18.7%
Foreign 284,051 13,709 9.5% 45.1% 449,964 21,483 9.5% 52.3%
---------- ------------------- ---------- ------------------ --------- ----------
Total Loans 436,727 22,009 10.0% 69.4% 610,481 29,186 9.5% 71.0%
Investments and time deposits with banks
Domestic 47,115 1,278 5.4% 7.5% 41,329 2,310 11.1% 4.8%
Foreign 57,796 2,971 10.2% 9.2% 115,973 3,676 6.3% 13.5%
---------- ------------------- ---------- ------------------ --------- ----------
Total Investments and Time Deposit with 104,912 4,249 8.0% 16.7% 157,302 5,986 7.6% 18.3%
Banks
Total Interest Earning assets 541,639 $26,258 9.6% 86.0% 767,783 $35,172 9.1% 89.3%
========== ========= =========
Total non interest earning assets 88,096 14.0% 92,100 10.7%
---------- ----------
Total Assets $629,735 100.0% $859,883 100.0%
========== ========== ========= ==========
</TABLE>
(1) Interest income for calculating yields includes $158 and $142 thousand of
loan fees for the six months ended June 30, 1996 and June 30, 1997,
respectively.
<PAGE>
Results of Operation-Quarter
Net Interest Income
Net interest income increased to $9.6 million for the quarter ended June 30,
1997 from $6.6 million for the same period in 1996, a 45.5% 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 $843.0
million for the quarter ended June 30, 1997 from $551.5 million for the same
period in 1996, a 52.9% increase. Average loans and acceptances discounted
increased to $658.7 million for the quarter ended June 30, 1997 from $440.8
million for the same period in 1996, a 49.4% increase, while average interest
earning deposits with other banks increased to $127.1 million for the quarter
ended June 30, 1997 from $61.7 million for the same period in 1996, a 106.0%
increase. Net interest margin decreased to 4.49% for the quarter ended June 30,
1997 from 4.72% for the same period in 1996, a decrease of 23 basis points,
although the margin increased slightly when compared to the previous quarter
margin of 4.23%.
Interest income increased to $19.6 million for the quarter ended June 30, 1997
from $13.2 million for the same period in 1996, a 48.6% increase. Interest
expense increased to $10.0 million for the quarter ended June 30, 1997 from $6.6
million for the same period in 1996, a 51.8% increase, reflecting the additional
deposits to fund asset growth. Average interest-bearing deposits increased to
$712.4 million for the quarter ended June 30 1997 from $483.6 on for the same
period in 1996, a 47.3% increase. The growth in deposits was primarily a result
of the Company seeking new deposits of such types to fund asset growth. The
Company's time deposits from banks also increased to $123.6 million for the
quarter ended June 30, 1997 from $94.8 million for the same period in 1996.
Provision for Credit Losses
The Company's provision for credit-losses increased to $2.2 million for the
quarter ended June 30, 1997 from $450 thousand for the same period in 1996, a
387.0% increase. Net loan chargeoffs during the second quarter in 1997 amounted
to $1.1 million compared to $1.8 million for the year 1996. The allowance for
credit losses was increased to $7.6 million at June 30, 1997 from $5.7 million
at the end of the fiscal year 1996, a 33.3% increase. The increase was primarily
to support the growth of the Company's loan portfolio. The ratio of the
allowance for credit losses to total loans increased slightly to approximately
1.06% at June 30, 1997 from approximately 1.04% at June 30, 1996.
Non-Interest Income
Non-interest income increased to approximately $4.0 million for the quarter
ended June 30, 1997 from $2.4 million for the same period in 1996, a 66.7%
increase. Trade finance fees and commissions increased by $1.1 million due
largely to higher letters of credit volume. In addition, the Company had more
lending facility fees charged during the second quarter of 1997 compared to the
same period in 1996 as a result of the loan growth experienced during the second
quarter of 1997. Capital market fees increased by $478 thousand as a result of
various capital market transactions. Customer service fees decreased by $33
thousand as a result of lower overdrafts experienced in the period. The other
income category as of June 30, 1997 includes $109 thousand gain on sale of the
minority investment in a financial institution in El Salvador.
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 Quarter Ended June 30,
<TABLE>
<CAPTION>
1996 to 1997
1996 % Change 1997
<S> <C> <C> <C>
Trade finance fees and commissions $2,096 50% $3,148
Capital market fees, net 0 478 478
Customer service fees 198 (17) 165
Other 69 161 180
Total non-interest income $2,363 68% $3,971
</TABLE>
Operating Expenses
Operating expenses increased to $5.6 million for the quarter ended June 30, 1997
from $4.5 million for the same period in 1996, a 24.5% increase. Employee
compensation and benefits increased to $2.8 million for the quarter ended June
30, 1997 from $2.3 million for the same period in 1996, a 21.7% increase. This
was primarily due to an increase in the number of employees to 240 at June 30,
1997 from 206 for the same period in 1996, mostly in employees added to support
the two branches opened during the first and second quarters of 1997 as well as
salary increases for existing personnel. Occupancy expenses increased slightly
to $796 thousand in the second quarter of 1997, a 6.7% increase when compared to
the second quarter in 1996. Other expenses increased to $1.9 million for the
quarter ended June 30, 1997 from $1.4 million for the same period in 1996,
primarily due to a loss realized in liquidating inventory which was acquired in
1996 as a result of a default on a loan.
<PAGE>
The following table sets forth detail regarding the components of operating
expenses for the periods indicated.
Operating Expenses
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
1996 to 1997
1996 % Change 1997
<S> <C> <C> <C>
Employee compensation and benefits $2,304 23% $ 2,826
Occupancy and equipment 747 7 796
Other operating expenses 1,086 55 1,678
Directors' fees 286 (32) 194
Insurance and examination fees (FDIC and
OCC) 40 53 61
Total operating expenses $4,463 24% $ 5,555
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the quarter ended For the quarter ended
June 30, 1996 June 30, 1997
---------------------------------- -------------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
(dollars in thousands)
Total Earning Assets
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commerical loans $331,622 $8,142(1) 9.71% $534,776 $12,702(1) 9.40%
Mortgage loans 11,187 238 8.42% 10,793 228 8.36%
Installment loans 387 9 9.20% 360 9 9.89%
Acceptances Discounted 90,426 2,245 9.82% 105,831 2,624 9.81%
Overdraft 7,213 325 17.84% 6,972 432 24.51%
---------- ---------- --------- -------------------- -------
Total Loans (1) 440,835 10,959 9.83% 658,732 15,995 9.61%
Investments 25,132 499 7.85% 42,255 637 5.96%
Federal funds sold 23,788 320 5.32% 14,877 206 5.48%
Time Deposit with Banks 61,737 1,398 8.96% 127,121 2,738 8.52%
---------- ---------- --------- -------------------- -------
Total Investments and Time Deposit
with Banks 110,657 2,217 7.93% 184,253 3,581 7.69%
Total Interest Earning assets 551,492 $13,176 9.45% 842,985 $19,576 9.19%
---------- --------- --------- -------
Total non interest earning assets 78,428 101,056
---------- -----------
Total Assets $629,920 $944,041
---------- -----------
Interest Bearing Liabilities
Deposits:
Super NOW, NOW $16,180 $138 3.37% $15,940 $74 1.84%
Money Market 42,229 525 4.92% 43,556 513 4.66%
Presidential Market 3,193 31 3.84% 2,793 20 2.83%
Super Savings, Savings 9,297 75 3.19% 4,144 33 3.15%
Certificate of Deposits (including IRA) 317,857 4,575 5.69% 522,328 7,668 5.81%
Time Deposits with Banks (IBF) 94,833 1,252 5.22% 123,610 1,646 5.27%
Collateral Accounts 0 0 0.00% 0 0 0.00%
---------- ---------- --------- -------------------- -------
Total Deposits 483,589 6,596 5.40% 712,371 9,954 5.53%
Federal Funds Purchased 55 1 7.19% 4,125 59 5.66%
Other Borrowings 0 0 0.00% 0 0 0.00%
---------- ---------- --------- -------------------- -------
Total interest bearing liabilities 483,644 6,597 5.40% 716,496 10,013 5.53%
---------- ---------- --------- -------------------- -------
Non interest bearing liabilities
Demand Deposits 43,246 63,561
Other Liabilities 67,346 78,780
---------- -----------
Total non interest bearing liabilities 110,592 142,341
Stockholders equity 35,684 85,204
---------- -----------
Total liabilities and stockholder's $629,920 $944,041
equity
========== ===========
Net Interest income / net interest $6,579 4.06% $9,563 3.66%
spread
---------- --------- --------- -------
Margin
Interest income / interest earning assets 9.45% 9.19%
Interest expense / interest earning 4.73% 4.70%
assets
--------- -------
Net interest margin 4.72% 4.49%
--------- -------
</TABLE>
(1) Interest income for calculating yields includes $60 and $85 thousand of loan
fees for the quarter ended June 30, 1996 and June 30, 1997, respectively.
<PAGE>
HAMILTON BANCORP INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------- ---------------------------------------
1997 1996 1997 1996
--------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Primary
Weighted average number of
common shares outstanding 9,796,301 5,205,030 7,767,877 5,205,030
Common equivalent shares
outstanding - options 337,428 225,000 383,148 225,000
--------------- -------------- --------------- ----------------
Total common and common
equivalent shares 10,133,729 5,430,030 8,151,024 5,430,030
outstanding
Net income $3,741 $2,463 $6,563 $4,979
Primary earings per share $0.37 $0.45 $0.81 $0.92
Fully diluted:
Weighted average number of
common shares outstanding 9,796,301 5,205,030 7,767,877 5,205,030
Common equivalent shares
outstanding - options 383,148 225,000 383,148 225,000
--------------- -------------- --------------- ----------------
Total common and common
equivalent shares 10,179,449 5,430,030 8,151,024 5,430,030
outstanding
Net income $3,741 $2,463 $6,563 $4,979
Fully diluted earnings per $0.37 $0.45 $0.81 $0.92
share
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 20742
<INT-BEARING-DEPOSITS> 128650
<FED-FUNDS-SOLD> 21000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 72780
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 717274
<ALLOWANCE> 7604
<TOTAL-ASSETS> 1046851
<DEPOSITS> 876877
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7041
<LONG-TERM> 0
0
0
<COMMON> 98
<OTHER-SE> 88855
<TOTAL-LIABILITIES-AND-EQUITY> 1046851
<INTEREST-LOAN> 29186
<INTEREST-INVEST> 931
<INTEREST-OTHER> 5055
<INTEREST-TOTAL> 35172
<INTEREST-DEPOSIT> 18191
<INTEREST-EXPENSE> 18300
<INTEREST-INCOME-NET> 16872
<LOAN-LOSSES> 2939
<SECURITIES-GAINS> 109
<EXPENSE-OTHER> 10878
<INCOME-PRETAX> 10195
<INCOME-PRE-EXTRAORDINARY> 10195
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6563
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 4.37
<LOANS-NON> 5597
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5725
<CHARGE-OFFS> 1142
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 7604
<ALLOWANCE-DOMESTIC> 2393
<ALLOWANCE-FOREIGN> 5211
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
