<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
----------------------------------
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)
Registrant's Telephone Number, Including Area Code (305) 717-5500
-----------------------
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check X whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
<PAGE> 2
ITEM 1
PART I. FINANCIAL INFORMATION
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------
1998 1997
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CASH AND DEMAND DEPOSITS WITH OTHER BANKS $ 23,967 $ 29,434
FEDERAL FUNDS SOLD 73,000 62,000
----------- -----------
Total cash and cash equivalents 96,967 91,434
INTEREST EARNING DEPOSITS WITH OTHER BANKS 181,844 113,730
SECURITIES AVAILABLE FOR SALE 54,474 54,641
SECURITIES HELD TO MATURITY 15,351 0
OTHER INVESTMENT, AT COST 15,000 0
LOANS-NET 1,202,013 952,431
DUE FROM CUSTOMERS ON BANKERS ACCEPTANCES 60,192 95,312
DUE FROM CUSTOMERS ON DEFERRED PAYMENT LETTERS OF CREDIT 5,305 8,352
PROPERTY AND EQUIPMENT-NET 4,903 4,784
ACCRUED INTEREST RECEIVABLE 17,682 14,441
GOODWILL-NET 1,877 2,008
OTHER ASSETS 7,477 5,001
----------- -----------
TOTAL $ 1,663,085 $ 1,342,134
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $ 1,466,328 $ 1,135,047
OTHER BORROWINGS 6,116 0
BANKERS ACCEPTANCES OUTSTANDING 60,192 95,312
DEFERRED PAYMENT LETTERS OF CREDIT OUTSTANDING 5,305 8,352
OTHER LIABILITIES 9,122 5,096
----------- -----------
Total liabilities 1,547,063 1,243,807
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 75,000,000 shares authorized, 10,050,062 shares
issued and outstanding at September 30, 1998 and 9,827,949 shares issued
and outstanding at December 31, 1997. 100 98
Capital surplus 58,314 56,266
Retained earnings 58,160 42,016
Net unrealized loss on securities available for sale, net of taxes (552) (53)
----------- -----------
Total stockholders' equity 116,022 98,327
----------- -----------
TOTAL $ 1,663,085 $ 1,342,134
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- -------------------------------
1998 1997 1998 1997
------------- -------------- ------------ ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 27,828 $ 18,841 $ 77,640 $ 48,027
Deposits with other banks 3,146 2,242 7,684 6,863
Securities 1,164 1,127 3,295 2,058
Federal funds sold 312 357 844 791
----------- ----------- ----------- ----------
Total 32,450 22,567 89,463 57,739
INTEREST EXPENSE:
Deposits 18,581 11,969 50,161 30,160
Federal funds purchased and other borrowing 148 64 431 173
----------- ----------- ----------- ----------
Total 18,729 12,033 50,592 30,333
----------- ----------- ----------- ----------
NET INTEREST INCOME 13,721 10,534 38,871 27,406
PROVISION FOR CREDIT LOSSES 3,040 2,050 7,121 4,989
----------- ----------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES 10,681 8,484 31,750 22,417
NON-INTEREST INCOME:
Trade finance fees and commissions 3,513 3,149 10,136 9,055
Structuring and syndication fees 563 808 1,306 1,372
Customer service fees 132 146 443 567
Other non-recurring income 802 0 802 0
Other 56 75 307 324
----------- ----------- ----------- ----------
Total 5,066 4,178 12,994 11,318
----------- ----------- ----------- ----------
OPERATING EXPENSES:
Employee compensation and benefits 3,033 3,267 9,080 8,796
Occupancy and equipment 997 840 3,133 2,318
Other 2,729 1,338 6,919 5,209
----------- ----------- ----------- ----------
Total 6,759 5,445 19,132 16,323
----------- ----------- ----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 8,988 7,217 25,612 17,412
PROVISION FOR INCOME TAXES 3,303 2,587 9,468 6,219
----------- ----------- ----------- ----------
NET INCOME $ 5,685 $ 4,630 $ 16,144 $ 11,193
=========== =========== =========== ==========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARES:
BASIC $ 0.57 $ 0.47 $ 1.62 $ 1.32
=========== =========== =========== ==========
DILUTED $ 0.54 $ 0.45 $ 1.56 $ 1.27
=========== =========== =========== ==========
AVERAGE WEIGHTED SHARES OUTSTANDING:
BASIC 10,046,377 9,827,949 9,960,679 8,462,114
=========== =========== =========== ==========
DILUTED 10,477,637 10,199,105 10,336,199 8,833,270
=========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Net Unrealized
Common Stock Loss on Securities Total
------------------- Capital Retained Available for Sale Stockholders'
Shares Amount Surplus Earnings Net of Taxes Equity
---------- ------- ------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (audited) 9,827,949 $ 98 $56,266 $ 42,016 (53) $ 98,327
Issuance of 222,113 shares of common
stock from exercise of options 222,113 2 2,048 2,050
Net change in unrealized loss on
securities available for sale, net of taxes
(499) (499)
Net income for the nine months ended
September 30, 1998 16,144 16,144
---------- ------- ------- -------- ---- ---------
Balance as of September 30, 1998 (unaudited) 10,050,062 $ 100 $58,314 $ 58,160 (552) $ 116,022
========== ======= ======= ======== ==== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For Nine Months Ended September 30,
-----------------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,144 $ 11,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 837 760
Write down on security available for sale 587 0
Provision for credit losses 7,121 4,989
Deferred tax provision (benefit) 922 (1,248)
Net loss on sale of other real estate owned 34 0
Proceeds from the sale of bankers acceptances and
loan participations, net of loan participations purchased 62,334 48,808
Increase in accrued interest receivable and other assets (6,536) (3,529)
Increase in other liabilities 4,073 1,227
--------- ---------
Net cash provided by operating activities 85,516 62,200
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increases in interest-earning deposits with other banks (68,114) (10,418)
Purchase of securities available for sale (176,473) (151,787)
Purchase of securities held to maturity (15,905) 0
Purchase of other investment (15,000) 0
Proceeds from sales and maturities of securities available for sale 175,770 119,494
Increase in loans-net (319,037) (380,668)
Purchases of property and equipment-net (794) (1,622)
Proceeds from sale of other real estate owned 122 0
--------- ---------
Net cash used in investing activities (419,431) (425,001)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits-net 331,282 337,706
Proceeds from other borrowing 6,116 0
Net proceeds from exercise of common stock options 2,050 0
Net proceeds from initial public offering 0 38,886
Cash dividend on preferred stock 0 (319)
--------- ---------
Net cash provided by financing activities 339,448 376,273
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,533 13,472
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 91,434 33,106
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 96,967 $ 46,578
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 47,537 $ 28,915
Income taxes paid during the period $ 7,027 $ 5,977
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
HAMILTON BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1: BASIS OF PRESENTATION
The consolidated statements of condition for Hamilton Bancorp and Subsidiary
(the "Company") as of September 30, 1998 and December 31, 1997, the related
consolidated statements of income, stockholders' equity and the cash flows for
the nine months ended September 30, 1998 and 1997 included in the Form 10Q have
been prepared by the Company in conformity with the instructions to Form 10Q and
Article 10 of Regulation S-X and, therefore, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements are unaudited except for the
consolidated statement of condition as of December 31, 1997.
The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 1 to the consolidated financial
statements appearing in the Company's Annual Report on Form 10K for the year
ended December 31, 1997 as filed with the Securities and Exchange Commission.
NOTE 2: NET INCOME PER COMMON SHARE
Basic earnings per share is computed by dividing the Company's net income by the
weighted average number of shares outstanding during the period.
Diluted earnings per share is computed by dividing the Company's net income by
the weighted average number of shares outstanding and the dilutive impact of
potential common stock, primarily stock options. The dilutive impact of common
stock is determined by applying the treasury stock method.
NOTE 3: NEW ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which
requires companies to report, as comprehensive income all changes in equity
during a period, except those resulting from investment by owners and
distribution to owners. Comprehensive income totaled $15.6 million for the nine
months ended September 30, 1998, which is comprised of net income of $16.1
million and net unrealized losses on securities available for sale of $499
thousand.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". Among other
provisions, SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It also 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.
Management does not expect the adoption of SFAS No. 133 to have any significant
impact on the Company's consolidated financial statements.
NOTE 4: OTHER BORROWINGS
Other borrowings consist of the following at September 30, 1998:
<TABLE>
<S> <C>
7.13 percent loan secured by a foreign treasury bill in the
amount of $4,600,000, interest and principal due at
maturity (March 1999) $3,728
------
8.04 percent loan secured by a foreign corporate security in
the amount of $3,000,000, interest and principal due at
maturity (March 1999) 2,388
------
Total $6,116
======
</TABLE>
5
<PAGE> 7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Hamilton Bancorp Inc. ("Bancorp") is a bank holding company which conducts
operations principally through its 99.8 percent subsidiary, Hamilton Bank, N.A.
(the "Bank" and, collectively with Bancorp, the "Company"). The Bank is a
national bank which specializes in financing trade flows between domestic and
international companies on a global basis, with particular emphasis on trade
with and between South America, Central America, the Caribbean (collectively,
the "Region") and the United States. The Bank has a network of seven
FDIC-insured branches in Florida, with locations in Miami, Sarasota, Tampa, West
Palm Beach and Winter Haven, and an FDIC-insured branch in San Juan, Puerto
Rico.
FINANCIAL CONDITION - SEPTEMBER 30, 1998 VS. DECEMBER 31, 1997.
Total consolidated assets increased $321.0 million, or 23.9 percent, during the
first nine months of 1998, which included an increase of $358.9 million in
interest earning assets and a decrease of $37.9 million in non-interest earning
assets. The increase in consolidated assets reflects increases of $249.6 million
in loans-net and $68.1 million in interest-earning deposits with other banks.
The growth in loans was led by trade finance activities, primarily in the
region. These increases were funded by deposits from the branch network and
retained earnings.
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 $97.0 million at September
30, 1998 compared to $91.4 million at December 31, 1997.
INVESTMENT SECURITIES AND INTEREST-EARNING DEPOSITS WITH OTHER BANKS
Interest-earning deposits with other banks increased to $181.8 million at
September 30, 1998 from $113.7 million at December 31, 1997. These deposits are
placed with correspondent banks in the Region, generally on a short term basis
(less than 365 days), 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 nine months ended September 30, 1998.
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 $84.8 million at September 30, 1998 from
$54.6 million at December 31, 1997. The increase has been primarily in U.S.
government agency mortgage backed securities classified as held to maturity.
These securities diversify the Company's portfolio, are eligible collateral for
securing public funds and qualify as a Community Reinvestment Act investment.
During the quarter the Company also invested $15 million in perpetual
subordinated euronotes of multinational banks. These investments further
diversify the portfolio and are eligible as collateral for overnight
investments.
6
<PAGE> 8
LOANS
The Company's loan portfolio increased by $250.6 million, or 26.0 percent,
during the first nine months of 1998 in relation to the year ended December 31,
1997. This growth has been related largely to the Bank's trade finance
activities in its traditional Latin American, Caribbean and United States
markets. Trade activity continues to increase in the Region despite economic
pressures from outside the Region, and the smaller markets continue to
experience relatively stable political and economic situations.
Commercial-domestic loans increased by $129.3 million and loans to banks and
other financial institutions - foreign increased by $73.2 million. Details on
the loans by type are shown in the table below. At September 30, 1998
approximately 30.2 percent of the Company's portfolio consisted of loans to
domestic borrowers and 69.8 percent of the Company's portfolio consisted of
loans to foreign borrowers. The Company's loan portfolio is relatively
short-term, as approximately 64.7 and 75.1 percent of loans at September 30,
1998 were short-term loans with average maturities of less than 180 and less
than 365 days, respectively. See "Interest Rate Sensitivity Report".
The following table sets forth the loans by type in the Company's loan portfolio
at the dates indicated.
LOANS BY TYPE
(in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Domestic:
Commercial (1) $ 308,735 $ 179,435
Acceptances discounted 46,323 45,153
Residential mortgages 11,558 12,008
Installment 334 238
---------- ----------
Subtotal Domestic 366,950 236,834
---------- ----------
Foreign:
Banks and other financial institutions 425,078 351,862
Commercial and industrial (1) 335,321 319,925
Acceptances discounted 87,090 55,301
Government and official institutions 922 872
---------- ----------
Subtotal Foreign 848,411 727,960
---------- ----------
Total Loans $1,215,361 $ 964,794
========== ==========
</TABLE>
(1) Includes pre-export financing, warehouse receipts and refinancing of letter
of credits.
7
<PAGE> 9
The following tables reflect largely 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 September 30, 1998 approximately 33.68 percent in principal amount of the
Company's loans were outstanding to borrowers in four countries other than the
United States: Guatemala (12.1 percent), Ecuador (8.1 percent) Panama (8.3
percent) and Peru (5.2 percent).
LOANS BY COUNTRY
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
---------------------------- ---------------------------
Percent of Percent of
Amount Total Loans Amount Total Loans
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Country
United States 366,950 30.19% 236,834 24.55%
Argentina 44,057 3.63% 58,477 6.06%
Bolivia 38,071 3.13% 38,058 3.94%
Brazil 59,520 4.90% 58,040 6.02%
Colombia 34,832 2.87% 23,768 2.46%
Dominican Republic 50,547 4.16% 40,161 4.16%
Ecuador 98,155 8.08% 74,485 7.72%
El Salvador 44,848 3.69% 40,306 4.18%
Guatemala 146,981 12.09% 91,178 9.45%
Honduras 53,587 4.41% 59,439 6.16%
Jamaica (1) 21,397 1.76% -- 0.00%
Panama 99,143 8.16% 77,295 8.01%
Peru 63,524 5.23% 68,094 7.06%
Russia (1) -- 0.00% 17,500 1.81%
Venezuela (1) -- 0.00% 16,299 1.69%
Other (2) 93,749 7.70% 64,860 6.72%
---------- ------ ---------- ------
Total $1,215,361 100.00% $ 964,794 100.00%
========== ====== ========== ======
</TABLE>
(1) These countries had loans in periods presented which did not exceed 1
percent of total assets.
(2) Other consists of loans to borrowers in countries in which loans did not
exceed 1 percent of total assets.
8
<PAGE> 10
At September 30, 1998 approximately 49.5 percent in cross-border outstandings
were outstanding to borrowers in five countries other than the United States:
Guatemala (13.1 percent), Ecuador (12.3 percent), Panama (9.2 percent), Brazil
(9.1 percent) and El Salvador (5.8 percent).
TOTAL CROSS-BORDER OUTSTANDINGS BY COUNTRY
(Dollars in millions)
September 30, 1998 December 31, 1997
------------------ -----------------
% of Total % of Total
Assets Assets
Argentina $63 3.8% $69 5.2%
Bolivia 37 2.2% 44 3.3%
Brazil 100 6.0% 85 6.3%
B.W. Indies 19 1.1% 11 0.8%
Colombia 35 2.1% 24 1.8%
Costa Rica (1) 13 0.8% -- 0.0%
Dominican Republic 51 3.1% 39 2.9%
Ecuador 135 8.1% 90 6.7%
El Salvador 64 3.8% 46 3.4%
Guatemala 143 8.6% 92 6.9%
Honduras 61 3.7% 52 3.9%
Jamaica 43 2.6% 32 2.4%
Nicaragua (1) -- 0.0% 12 0.9%
Other Europe (1) 32 1.9% -- 0.0%
Panama 101 6.1% 72 5.4%
Peru 59 3.5% 74 5.5%
Russia (1) -- 0.0% 17 1.3%
Suriname (1) 24 1.4% -- 0.0%
Venezuela (1) 29 1.7% -- 0.0%
Other (2) 91 5.3% 39 2.8%
-------------------- --------------------
Total $ 1,100 66.1% $ 798 59.5%
==================== ====================
(1) These countries had loans in periods presented which did not exceed 1
percent of total assets.
(2) Other consists of cross-border outstandings to countries in which such
cross-border outstandings did not exceed 0.75 percent of the Company's
total assets at any of the dates shown.
9
<PAGE> 11
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>
Nine Months Ended September 30, Year Ended
-------------------------------------------------- ----------------------
1998 1997 December 31, 1997
---------------------- ---------------------- ----------------------
Total Monthly Total Monthly Total Monthly
Volume Volume Volume Volume Volume Volume
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Export Letters of Credit (1) $306,390 $ 34,043 $292,504 $ 39,045 $424,748 $ 35,396
Import Letters of Credit (1) 270,761 30,085 294,000 25,431 394,758 32,897
---------------------- ---------------------- ----------------------
Total $577,151 $ 64,128 $586,504 $ 64,476 $819,506 $ 68,293
====================== ====================== ======================
</TABLE>
(1) Represents certain contingent liabilities not reflected on the Company's
balance sheet.
10
<PAGE> 12
The following table sets forth the distribution of the Company's contingent
liabilities by country of the applicant and issuing bank for import and export
letters of credit, respectively. As shown by the table, contingent liabilities
decreased by 22.4 percent from December 31, 1997 to September 30, 1998.
Individual fluctuations reflect relative changes in the flow of trade or
instruments used in financing such trade.
CONTINGENT LIABILITIES (1)
(in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Argentina (2) $ 2,632 --
Aruba (2) 2,032 --
Bolivia 4,087 $ 3,883
Brazil (2) -- 4,123
Colombia (2) -- 3,936
Costa Rica 3,430 3,168
Dominican Republic 8,018 4,759
Ecuador 8,168 17,839
El Salvador 3,858 3,837
Guatemala 33,852 11,577
Guyana (2) 5,260 --
Haiti (2) -- 7,857
Honduras 5,889 5,550
Nicaragua (2) -- 3,386
Panama 7,421 12,439
Paraguay 1,847 2,395
Peru (2) -- 5,566
Switzerland (2) 1,588 --
United States 56,599 94,629
Other (3) 8,961 13,139
-------- --------
Total $153,642 $198,083
======== ========
</TABLE>
(1) Includes export and import letters of credit, standby letters of credit
and letters of indemnity.
(2) These countries had contingencies which represented less than 1 percent of
the Company's total contingencies at periods presented in the above dates.
(3) Other includes those countries in which contingencies represent less than
1 percent of the Company's total contingencies at each of the above dates.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses reflects management's judgment of the level of
allowance adequate to provide for reasonably foreseeable losses, based upon the
following factors: (i) the economic conditions in those countries in the Region
in which the Company conducts trade finance activities; (ii) the credit
condition of its customers and correspondent banks, as well as the underlying
collateral, if any; (iii) historical experience; and (iv) the average maturity
of its loan portfolio.
In addition, although the Company's credit losses have been relatively limited
to date, management believes that the level of the Company's
11
<PAGE> 13
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 September 30, 1998
the allowance for credit losses was approximately $10.3 million.
The following table provides certain information with respect to the Company's
allowance for credit losses, provision for credit losses, charge-off and
recovery activity for the periods shown.
CREDIT LOSS EXPERIENCE
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31,1997
----------- -----------
<S> <C> <C>
Balance of allowance for credit losses at beginning
of period $ 10,317 $ 5,725
Charge-offs:
Domestic:
Commercial (3,442) (1,693)
Acceptances -- --
Residential -- --
Installment -- (3)
----------- -----------
Total Domestic (3,442) (1,696)
Foreign:
Government and official institutions -- --
Banks and other financial institutions (3,901) (896)
Commercial and industrial -- --
Acceptances discounted -- --
----------- -----------
Total Foreign (3,901) (896)
Total charge-offs (7,343) (2,592)
----------- -----------
Recoveries:
Domestic:
Commercial 13 203
Acceptances -- --
Residential -- --
Installment -- 1
Foreign:
Banks and other financial institutions 200 --
----------- -----------
Total recoveries 213 204
----------- -----------
Net (charge-offs) recoveries (7,130) (2,388)
Provision for credit losses 7,121 6,980
=========== ===========
Balance at end of the period $ 10,308 $ 10,317
=========== ===========
Average loans $ 1,135,602 $ 735,735
Total loans $ 1,215,361 $ 964,794
Net charge-offs to average loans 0.63% 0.32%
Allowance to total loans 0.85% 1.07%
</TABLE>
12
<PAGE> 14
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.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
(in thousands)
<TABLE>
<CAPTION>
As of As of
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Allocation of the allowance by category of loans:
Domestic:
Commercial $ 2,612 $ 1,896
Acceptances 345 315
Residential 10 59
Installment 3 3
Overdraft 110 154
--------- ---------
Total domestic 3,080 2,427
Foreign:
Government and official institutions 8 --
Banks and other financial institutions 3,597 3,854
Commercial and industrial 2,838 3,442
Acceptances discounted 785 594
--------- ---------
Total foreign 7,228 7,890
Total $ 10,308 $ 10,317
========= =========
Percent of loans in each category to total loans:
Domestic:
Commercial 24.5% 18.0%
Acceptances 3.8% 4.7%
Residential 1.0% 1.2%
Installment 0.0% 0.0%
Overdraft 0.9% 0.6%
--------- ---------
Total domestic 30.2% 24.5%
Foreign:
Banks and other financial institutions 35.0% 36.5%
Commercial and industrial 27.6% 33.2%
Acceptances discounted 7.2% 5.7%
Government and official Institutions 0.0% 0.1%
--------- ---------
Total foreign 69.8% 75.5%
Total 100.0% 100.0%
========= =========
</TABLE>
13
<PAGE> 15
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES ALLOCATED TO FOREIGN LOANS
(in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Balance, beginning of year $ 7,890 $ 3,481
Provision for credit losses
3,039 5,302
Net charge-offs
(3,701) (893)
------- -------
Balance, end of period $ 7,228 $ 7,890
======= =======
</TABLE>
The Company does not have a rigid charge-off policy but instead charges off
loans on a case-by-case basis as determined by management and approved by the
Board of Directors. In some instances, loans may remain in the nonaccrual
category for a period of time during which the borrower and the Company
negotiate restructured repayment terms.
The Company attributes its favorable asset quality to the short-term nature of
its loan portfolio, the composition of its borrower base, the importance that
borrowers in the Region attach to maintaining their continuing access to
financing for foreign trade and to the Company's loan underwriting policies.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for
Impairment of a Loan. Under these standards, individually identified impaired
loans are measured based on the present value of payments expected to be
received, using the historical effective loan rate as the discount rate.
Alternatively, measurement may also be based on observable market prices or, for
loans that are solely dependent on the collateral for repayment, measurement may
be based on the fair value of the collateral. The Company evaluates commercial
loans individually for impairment, while groups of smaller-balance homogeneous
loans (generally residential mortgage and installment loans) are collectively
evaluated for impairment.
The following table sets forth information regarding the Company's nonperforming
loans at the dates indicated.
NONPERFORMING LOANS
(in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Domestic:
Non accrual $2,198 $3,100
Past due over 90 days and accruing -- --
------ ------
Total domestic nonperforming loans 2,198 3,100
------ ------
Foreign
Non accrual 4,262 2,949
Past due over 90 days and accruing -- --
------ ------
Total foreign nonperforming loans 4,262 2,949
------ ------
Total nonperforming loans $6,460 $6,049
====== ======
Total nonperforming loans to total loans 0.53% 0.64%
Total nonperforming assets to total assets 0.39% 0.48%
</TABLE>
At December 31, 1997, and September 30, 1998 the Company had no nonaccruing
investment securities.
14
<PAGE> 16
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 $60.1 million and $5.3 million, respectively, at September 30, 1998
compared to $95.3 million and $8.4 million, respectively, at December 31, 1997.
These assets represent a customers liability to the Company while the Company's
corresponding liability to third parties is reflected on the balance sheet as
"Bankers Acceptances Outstanding" and "Deferred Payment Letters of Credit
Outstanding".
DEPOSITS
The primary sources of the Company's domestic time deposits are its eight Bank
branches located in Florida and Puerto Rico. In pricing its deposits, the
Company analyzes the market carefully, attempting to price its deposits
competitively with the larger financial institutions in the area.
Total deposits were $1,466.3 million at September 30, 1998 compared to $1,135.0
million at December 31, 1997. Average interest bearing deposits increased by
51.3 percent to $1,177.6 million as of September 30, 1998 from $778.2 million as
of December 31, 1997. Average deposit information can be found in the yields
earned and rates paid schedule incorporated herein. The increase in deposits
during the nine month period was largely in certificates of deposits over
$100,000 which increased by $226.9 million. In addition, certificates of deposit
under $100,000 increased by $154.5 million.
BORROWINGS
The Company entered into two transactions in which foreign debt securities were
purchased using proceeds from the other borrowings described in Note 4 to the
Consolidated Financial Statements. The securities collaterlize the borrowings.
The borrowings and the related securities mature at the same time.
15
<PAGE> 17
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 September 30, 1998:
MATURITIES OF AND AMOUNTS OF CERTIFICATES OF DEPOSITS AND OTHER TIME DEPOSITS
$100,000 OR MORE
(in thousands)
<TABLE>
<CAPTION>
Certificates Other Time
of Deposits Deposits
$100,000 or More $100,000 or More Total
---------------- ---------------- --------
<S> <C> <C> <C>
Three months or less $187,701 $ 70,718 $258,419
Over 3 through 6 months 151,180 -- 151,180
Over 6 through 12 months 175,949 -- 175,949
Over 12 months 60,701 -- 60,701
-------- -------- --------
Total $575,531 $ 70,718 $646,249
======== ======== ========
</TABLE>
STOCKHOLDERS' EQUITY
The Company's stockholders' equity at September 30, 1998 was $116.0 million
compared to $98.3 million at December 31, 1997. During this period stockholders
equity increased by $17.7 million due to the retention of net income of $16.1
million as well as approximately $2.0 million from the exercise of stock
options.
INTEREST RATE SENSITIVITY
The following table presents the projected maturities or interest rate
adjustments of the Company's earning assets and interest-bearing funding sources
based upon the contractual maturities or adjustment dates at September 30, 1998.
The interest-earning assets and interest-bearing liabilities of the Company and
the related interest rate sensitivity gap given in the following table may not
be reflective of positions in subsequent periods.
16
<PAGE> 18
INTEREST RATE SENSITIVITY REPORT
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------------------------------------
0 to 30 31 to 90 91 to 180 181 to 365 1 to 5 Over 5
Days Days Days Days Years Years Total
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $ 245,880 $ 261,385 $ 278,631 $ 126,681 $ 267,000 $ 35,784 $ 1,215,361
Federal funds sold 73,000 73,000
Investment securities 14,965 7,057 23,363 599 5,426 33,414 84,824
Interest earning deposits with
other banks 50,354 41,753 34,805 54,932 - 181,844
----------------------------------------------------------------------------------
Total 384,199 310,195 336,799 182,212 272,426 69,198 1,555,029
----------------------------------------------------------------------------------
Funding Sources:
Savings and transaction deposits 48,224 23,243 71,467
Certificates of deposits of $100 or more 69,055 118,646 151,180 175,949 60,701 -- 575,531
Certificates of deposits under $100 47,065 100,886 131,978 328,712 20,970 90 629,701
Other time deposits 62,622 8,121 80 70,823
Funds overnight 49,450 49,450
Other Borrowing 6,116 6,116
----------------------------------------------------------------------------------
Total $ 276,416 $ 250,896 $ 283,238 $ 510,777 $ 81,671 $ 90 $ 1,403,088
========= ========= ========= ========= ========= ======== ===========
Interest sensitivity gap $ 107,783 $ 59,299 $ 53,561 $(328,565) $ 190,755 $ 69,108 $ 151,941
========= ========= ========= ========= ========= ======== ===========
Cumulative gap $ 107,783 $ 167,082 $ 220,643 $(107,922) $ 82,833 $151,941
========= ========= ========= ========= ========= ========
Cumulative gap as a percentage
of total earning assets 6.93% 10.74% 14.19% (6.94)% 5.33% 9.77%
========= ========= ========= ========= ========= ========
</TABLE>
17
<PAGE> 19
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 trade activity. The level of deposits
are 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 September 30, 1998 interest-earning assets maturing within six
months were $1,031.2 million, representing 66.3 percent of total earning assets
and earning assets maturing within one year were $1,213.4 million or 78.0
percent of total earning assets. The interest bearing liabilities maturing
within six months were $810.6 million or 57.8 percent of total interest bearing
liabilities and maturing within one year were $1,321.4 million or 94.2 percent
of the total a the end of the nine month period.
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 September 30, 1998 were $298.3 million, 17.9
percent of total assets, and consisted of cash and cash equivalents, due from
banks-time and foreign treasury bills. At September 30, 1998 the Company had
been advised of $107.5 million in available interbank funding.
CAPITAL RESOURCES
Bancorp 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
Bancorp 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. Bancorp's and the
Bank's capital classification are 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 Bancorp 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). Bancorp's and the Bank's
actual capital amounts and ratios are also presented in the table.
18
<PAGE> 20
BANCORP CAPITAL RATIOS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
-------------------- --------------------
Amount Ratio Amount Ratio
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Tier 1 risk-weighted
Capital:
Actual $115,194 11.3% $ 96,405 12.4%
Minimum 40,823 4.0% 31,027 4.0%
Total risk-weighted
Capital:
Actual 125,502 12.3% 106,093 13.7%
Minimum 81,646 8.0% 62,053 8.0%
Leverage:
Actual 115,194 7.4% 96,405 7.9%
Minimum 62,619 4.0% 36,858 3.0%
</TABLE>
BANK CAPITAL RATIOS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
-------------------- --------------------
Amount Ratio Amount Ratio
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Tier 1 risk-weighted capital:
Actual $106,060 10.4% $ 86,551 11.2%
Minimum to be well capitalized 61,136 6.0% 46,438 6.0%
Minimum to be adequately capitalized 40,757 4.0% 30,959 4.0%
Total risk-weighted capital:
Actual 116,368 11.4% 96,217 12.4%
Minimum to be well capitalized 101,893 10.0% 77,396 10.0%
Minimum to be adequately capitalized 81,514 8.0% 61,917 8.0%
Leverage:
Actual 106,060 6.8% 86,551 7.1%
Minimum to be well capitalized 77,854 5.0% 60,982 5.0%
Minimum to be adequately capitalized 62,283 4.0% 48,785 4.0%
</TABLE>
MARKET RISK MANAGEMENT
In the normal course of conducting business activities, the Company is exposed
to market risk which includes both price and liquidity risk. The Company's price
risk arises from fluctuations in interest rates, and foreign exchange rates that
may result in changes in values of financial instruments. The Company does not
have material direct market risk related to commodity and equity prices.
Liquidity risk arises from the possibility that the Company may not be able to
satisfy current and future financial commitments or that the Company may not be
able to liquidate financial instruments at market prices. Risk management
policies and procedures have been established and are utilized to manage the
Company's exposure to market risk. The strategy of the Company is to operate at
an acceptable risk environment while maximizing its earnings.
Market risk is managed by the Asset Liability Committee which formulates and
monitors the performance of the Company based on established levels of market
risk as dictated by policy. In setting the tolerance levels of market risk, the
Committee considers the impact on both earnings and capital, based on potential
changes in the outlook in market rates, global and regional economies,
liquidity, business strategies and other factors.
The Company's asset and liability management process is utilized to manage
interest rate risk through the structuring of balance sheet and off-balance
sheet portfolios. It is the strategy of the Company to maintain as neutral an
interest rate risk position as possible. By utilizing this
19
<PAGE> 21
strategy the Company "locks in" a spread between interest earning assets and
interest-bearing liabilities. Given the matching strategy of the Company and the
fact that it does not maintain significant medium and/or long-term exposure
positions, the Company's interest rate risk will be measured and quantified
through an interest rate sensitivity report. An excess of assets or liabilities
over these matched items results in a gap or mismatch. A positive gap denotes
asset sensitivity and normally means that an increase in interest rates would
have a positive effect on net interest income. On the other hand a negative gap
denotes liability sensitivity and normally means that a decline in interest
rates would have a positive effect in net interest income. However, because
different types of assets and liabilities with similar maturities may reprice at
different rates or may otherwise react differently to changes in overall market
rates or conditions, changes in prevailing interest rates may not necessarily
have such effects on net interest income.
Interest Rate Sensitivity Report as of September 30, 1998 shows that interest
bearing liabilities maturing or repricing within one year exceed interest
earning assets by $108 million. The Company monitors that the assets and
liabilities are closely matched to minimize interest rate risk. On September 30,
1998 the interest rate risk position of the Company was not significant since
the impact of a 100 basis point rise or fall of interest rates over the next 12
months is estimated at 4.4 percent of net income.
The level of imbalance between the repricing of rate sensitive assets and rate
sensitive liabilities will be measured through series of ratios. Substantially
all of the Company's assets and liabilities are denominated in dollars therefore
the Company has no material foreign exchange risk. In addition, the Company has
no trading account securities, therefore it is not exposed to market risk
resulting from trading activities.
On a daily basis the Bank's Senior Vice President of Finance and the Bank's
Treasurer are responsible for measuring and managing market risk.
RESULTS OF OPERATIONS-NINE 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 $38.9 million for the nine months ended September 30, 1998 from
$27.4 million for the same period in 1997, a 41.8 percent increase. The increase
was due largely to an increase in average earning assets offset, to some extent,
by a decrease in net interest margin. Average earning assets increased to
$1,336.6 million for the nine months ended September 30, 1998 from $837.5
million for the same period in 1997, a 59.6 percent increase. Average loans and
acceptances discounted increased to $1,135.6 million for the nine months ended
September 30, 1998 from $669.9 million for the same period in 1997, a 69.5
percent increase. Average interest earning deposits with other banks decreased
to $113.9 million for the nine months ended September 30, 1998 from $106.3
million for the same period in 1997, a 7.2 percent increase. The increase in
loans was largely attributable to trade finance activities within the Region.
Net interest margin decreased to 3.9 percent for the nine months ended September
30, 1998 from 4.3 percent for the same period in 1997, a 40 basis point
decrease. The primary reasons for this decrease were (i) loan yields relative to
reference rates decreased in certain countries in the Region as a result of
the general liquidity in the region during the period and (ii) transactions with
larger customers and transactions with multi-national companies which command
more competitive pricing, but in turn tend to be stronger in terms of credit
quality.
Interest income increased to $89.5 million for the nine months ended September
30, 1998 from $57.7 million for the same period in 1997, a 55.1 percent
increase, reflecting an increase in loans in the Region, partially offset by a
decrease in prevailing interest rates and a tightening of loan spreads in the
Region as discussed above. Interest expense increased to $50.6 million for the
nine months ended September 30, 1998 from $30.3 million for the same period in
1997, a 66.8 percent increase, reflecting the additional deposits to fund asset
growth. Average interest-bearing deposits increased to $1,177.6 million for the
nine months ended September 30, 1998 from $721.5 million for the same period in
1997, a 67.0 percent increase. The growth in deposits was primarily a result of
the Company seeking additional deposits to fund asset growth. The Company's time
deposits from banks also increased to $140.1 million for the nine months ended
September 30, 1998 from $121.3 million for the same period in 1997.
20
<PAGE> 22
YIELDS EARNED AND RATE PAID
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------------------ ---------------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------------------------------------ ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL EARNING ASSETS
LOANS:
Commercial loans $983,953 $66,402 (1) 8.90% $544,636 $38,474 (1) 9.32%
Acceptances Discounted 127,602 8,952 9.25% 107,663 7,913 9.69%
Overdraft 12,057 1,548 16.93% 6,358 923 19.14%
Mortgage loans 11,707 720 8.10% 10,898 692 8.37%
Installment loans 282 20 9.13% 347 25 9.50%
------------------------------------------ ---------------------------------------
TOTAL LOANS (1) 1,135,602 77,640 9.02% 669,902 48,027 9.45%
Time Deposit with Banks 113,929 7,684 8.89% 106,318 6,863 8.51%
Investments 66,861 3,295 6.50% 42,191 2,058 6.43%
Federal funds sold 20,172 844 5.52% 19,132 791 5.45%
------------------------------------------ ---------------------------------------
Total Investments and Time Deposit with
Banks 200,962 11,823 7.76% 167,641 9,712 7.64%
Total Interest Earning assets 1,336,564 89,463 8.83% 837,543 57,739 9.09%
----------------------------- ------------------------------
Total non interest earning assets 119,059 95,480
------------- ---------
TOTAL ASSETS $1,455,622 $933,023
============= =========
INTEREST BEARING LIABILITIES
DEPOSITS:
Super NOW, NOW $15,399 206 1.76% $15,635 226 1.91%
Money Market 46,119 1,626 4.65% 44,339 1,554 4.62%
Presidential Market 2,440 52 2.83% 3,341 72 2.84%
Super Savings, Savings 4,842 112 3.05% 4,402 104 3.12%
Certificate of Deposits (including IRA) 967,504 42,323 5.77% 532,465 23,379 5.79%
Time Deposits with Banks (IBF) 140,134 5,800 5.46% 121,283 4,823 5.24%
Other 1,180 41 4.58% 61 1 2.16%
------------------------------------------ ---------------------------------------
TOTAL DEPOSITS 1,177,618 50,160 5.62% 721,526 30,159 5.51%
Federal Funds Purchased 4,577 197 5.69% 4,062 173 5.62%
Other Borrowings 4,116 234 7.49% 0 0 0.00%
------------------------------------------ ---------------------------------------
Total interest bearing liabilities 1,186,312 50,592 5.62% 725,588 30,332 5.51%
------------------------------------------ ---------------------------------------
Non interest bearing liabilities
Demand Deposits 69,545 60,992
Other Liabilities 91,284 70,798
------------- ---------
Total non interest bearing liabilities 160,829 131,790
Stockholders equity 108,482 68,760
------------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,455,622 $926,138
============= =========
NET INTEREST INCOME / NET INTEREST SPREAD $38,871 3.20% $27,407 3.58%
============== ========== ============= ============
MARGIN
INTEREST INCOME / INTEREST EARNING ASSETS 8.95% 9.09%
INTEREST EXPENSE / INTEREST EARNING ASSETS 5.06% 4.78%
---------- ------------
NET INTEREST MARGIN 3.89% 4.32%
========== ============
</TABLE>
(1) Interest income for calculating yields includes $290 and $219 thousand of
loan fees for the nine months ended September 30, 1998 and 1997
respectively.
21
<PAGE> 23
PROVISION FOR CREDIT LOSSES
The Company's provision for credit losses increased to $7.1 million for the nine
months ended September 30, 1998 from $5.0 million for the same period in 1997, a
42 percent increase. Net loan charge-offs during the first nine months of 1998
amounted to $7.1 million compared to $1.6 million for the same period in 1997.
The allowance for credit losses remained consistent at to $10.3 million at
September 30, 1998 and at the end of the fiscal year 1997. The ratio of the
allowance for credit losses to total loans was .85 percent at September 30,
1998 decreasing from approximately 1.07 percent at December 31, 1997. This
decrease in the ratio was deemed appropriate by management in light of the
decrease in non performing loans relative to total loans which decreased from
.64% at December 31, 1997 to .53% at September 30, 1998.
NON-INTEREST INCOME
Non-interest income increased to $13.0 million for the nine months ended
September 30, 1998 from $11.3 million for the same period in 1997, a 15.0
percent increase. Trade finance fees and commissions increased by $1.1 million
due largely to increased facility fees. Customer service fees decreased by $124
thousand due to a decrease in fees charged on overdrafts and uncollected funds
resulting from a decrease in average balances. In addition, non-interest income
included a refund of state income taxes of prior years of $802 thousand
including interest which resulted from an examination of those years.
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 Nine Months Ended September 30,
---------------------------------------
1997 to 1998
1997 Percent Change 1998
------- -------------- -------
Trade finance fees and commissions $ 9,055 11.9% $10,136
Structuring and syndication fees, net 1,372 -4.8% 1,306
Customer service fees 567 -21.9% 443
Other non-recurring -- 100.0% 802
Other 324 -5.2% 307
------- ---- -------
Total non-interest income $11,318 14.8% $12,994
======= ==== =======
OPERATING EXPENSES
Operating expenses increased to $19.1 million for the nine months ended
September 30, 1998 from $16.3 million for the same period in 1997, a 17.2
percent increase. The majority of this increase was in occupancy expenses which
increased to $3.1 million for the nine months ended September 30, 1998 from $2.3
million for the same period in 1997. The increase in occupancy expenses is
primarily a result of new branches and the expansion of the headquarters which
is reflected in the first nine months of 1998 and not in 1997. Other expenses
increased to $6.9 million for the nine months ended September 30, 1998 from $5.2
million for the same period in 1997. This increase was largely due to increased
legal expenses. The increase in legal expenses was the result of an increase in
the number of litigation cases in the ordinary course of business during the
period. Also included in Other operating expenses is a write down of $587
thousand taken on a mutual fund investment classified as available for sale
which was deemed to be other than temporary. The Company's efficiency ratio
improved to 36 percent for the nine month period ended September 30, 1998 from
42 percent for the same period in 1997.
22
<PAGE> 24
The following table sets forth details regarding the components of operating
expenses for the periods indicated.
OPERATING EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
--------------------------------------
1997 to 1998
1997 Percent Change 1998
------- -------------- -------
<S> <C> <C> <C>
Employee compensation and benefits $ 8,796 3.2% $ 9,080
Occupancy and equipment 2,318 35.2% 3,133
Other operating expenses 5,209 32.8% 6,919
------- ---- -------
Total operating expenses $16,323 17.2% $19,132
======= ==== =======
</TABLE>
23
<PAGE> 25
YEAR 2000
The Company began the process in June 1996 of assessing and preparing its
computer systems and applications to be functional on January 1, 2000. The
Company has also been communicating with third parties which interface with the
Company, such as customers, counter parties, payment systems, vendors and
others, to determine whether they will be functional. The Company can give no
guarantee that these parties will be converted on a timely basis. Management
believes that the process of modifying all mission critical applications of the
Company continues as planned and expects to have substantially all of the
testing and changes completed by December 31, 1998. In addition, non mission
critical applications are scheduled to have substantially all the testing and
updates completed by June 30, 1999. The Company has incorporated year 2000 as
part of its credit policy process and addresses the issues in each new loan and
as part of its credit renewals.
Management believes that the total costs to be Year 2000 compliant are not
material to its financial position or results or operations. Any purchased
hardware or software in connection with this process will be capitalized in
accordance with normal Company policy. Personnel and all other costs are being
expensed as incurred.
The costs and dates on which the Company plans to complete the Year 2000 process
are based on management's best estimates. However, there can be no guarantees
that these estimates will be achieved and actual results could differ.
24
<PAGE> 26
YIELDS EARNED AND RATE PAID
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------------------ -----------------------------------------
AVERAGE REVENUE/ YIELD/ AVERAGE REVENUE/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL EARNING ASSETS
LOANS:
Commercial loans $1,063,958 $23,902 (1) 8.79% $652,637 $15,472 (1) 9.28%
Acceptances Discounted 132,374 3,131 9.26% 114,567 2,814 9.61%
Overdraft 13,535 553 15.99% 8,011 312 15.24%
Mortgage loans 11,550 234 7.93% 11,169 238 8.34%
Installment loans 299 7 9.09% 248 6 9.47%
------------------------------------------ ------------------------------------------
TOTAL LOANS (1) 1,221,718 27,828 8.91% 786,632 18,842 9.37%
Time Deposit with Banks 140,890 3,146 8.74% 100,320 2,242 8.75%
Investments 70,006 1,164 6.51% 62,399 1,126 7.06%
Federal funds sold 21,971 312 5.56% 25,226 357 5.54%
------------------------------------------ ------------------------------------------
Total Investments and Time Deposit
with Banks 232,866 4,622 7.77% 187,945 3,725 7.76%
Total Interest Earning assets 1,454,584 32,450 8.73% 974,577 22,567 9.06%
---------------------------- ---------------------------
Total non interest earning assets 110,889 102,612
------------- --------------
TOTAL ASSETS $1,565,473 $1,077,189
============= ==============
INTEREST BEARING LIABILITIES
DEPOSITS:
Super NOW, NOW $15,182 66 1.71% $15,448 65 1.65%
Money Market 48,232 611 4.95% 45,334 525 4.53%
Presidential Money Market 1,793 14 3.07% 3,694 27 2.86%
Super Savings, Savings 5,080 40 3.06% 4,499 37 3.22%
Certificate of Deposits (including IRA) 1,100,236 16,099 5.73% 636,725 9,550 5.87%
Time Deposits with Banks (IBF) 117,603 1,730 5.76% 129,580 1,765 5.33%
Other 1,461 21 5.65% 59 0 0.00%
------------------------------------------ ------------------------------------------
TOTAL DEPOSITS 1,289,587 18,581 5.64% 835,339 11,969 5.61%
Federal Funds Purchased 2,098 31 5.80% 4,375 64 5.72%
Other Borrowings 6,116 117 7.48% 0 0 0.00%
------------------------------------------ ------------------------------------------
Total interest bearing liabilities $1,297,801 18,729 5.65% 839,714 12,033 5.61%
------------------------------------------ ------------------------------------------
Non interest bearing liabilities
Demand Deposits 69,775 64,496
Other Liabilities 83,285 80,951
------------- --------------
Total non interest bearing liabilities 153,060 145,447
Stockholders equity 114,612 92,028
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,565,473 $1,077,189
============= ==============
NET INTEREST INCOME / NET INTEREST SPREAD $13,721 3.08% $10,534 3.45%
=========================== ======================
MARGIN
INTEREST INCOME / INTEREST EARNING ASSETS 8.85% 9.06%
INTEREST EXPENSE / INTEREST EARNING ASSETS 5.11% 4.83%
----- -----
NET INTEREST MARGIN 3.74% 4.23%
===== =====
</TABLE>
(1) Interest income for calculating yields includes $34 and $56 thousand of loan
fees for the quarters ended September 30, 1998 and 1997 respectively.
25
<PAGE> 27
RESULTS OF OPERATION-THIRD QUARTER
NET INTEREST INCOME
Net interest income increased to $13.7 million for the quarter ended September
30, 1998 from $10.5 million for the same period in 1997, a 30.3 percent
increase. The increase was in average earning assets offset, to some extent, by
a decrease in net interest margin. Average earning assets increased to $1,454.6
million for the quarter ended September 30, 1998 from $974.6 million for the
same period in 1997, a 49.3 percent increase. Average loans and acceptances
discounted increased to $1,221.7 million for the quarter ended September 30,
1998 from $786.6 million for the same period in 1997, a 55.3 percent increase.
Average interest earning deposits with other banks increased to $140.9 million
for the quarter ended September 30, 1998 from $100.3 million for the same period
in 1997, a 40.5 percent increase. The increase in average loans and acceptances
has been led by the growth in trade financing activities and the Company's
ability to provide credit facilities through its higher legal lending limit. Net
interest margin decreased to 3.7 percent for the quarter ended September 30,
1998 from 4.2 percent for the same period in 1997, a decrease of 49 basis
points. The primary reasons for the decrease were (i) loan yields relative to
reference rates decreased in certain countries in the Region as a result of
general liquidity in the region during the period; and (ii) transactions with
larger corporate customers which command more competitive pricing.
Interest income increased to $32.5 million for the quarter ended September 30,
1998 from $22.6 million for the same period in 1997, a 43.8 percent increase.
Interest expense increased to $18.7 million for the quarter ended September 30,
1998 from $12.0 million for the same period in 1997, a 55.7 percent increase.
Average interest-bearing deposits increased to $1,289.6 million for the quarter
ended September 30, 1998, from $835.3 for the same period in 1997, a 54.4
percent increase. The growth in deposits was primarily a result of the Company
seeking deposits to fund asset growth. The Company's time deposits from banks
decreased to $117.6 million for the quarter ended September 30, 1998 from $129.6
million for the same period in 1997.
PROVISION FOR CREDIT LOSSES
The Company's provision for credit-losses increased to $3.0 million for the
quarter ended September 30, 1998 from $2.1 million for the same period in 1997,
a 48.3 percent increase. Net loan charge-offs during the third quarter in 1998
amounted to $6.1 million compared to $497 thousand for third quarter 1997.
NON-INTEREST INCOME
Non-interest income increase to $5.1 million for the quarter ended September
30, 1998 from $4.2 million for the same quarter in 1997. This increase is due to
a refund of state income taxes of prior years of $802 thousand including
interest which resulted from an examination of those years. 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 Quarter Ended September 30,
-----------------------------------
1997 to 1998
1997 Percent Change 1998
------ -------------- ------
<S> <C> <C> <C>
Trade finance fees and commissions $3,149 11.6% $3,513
Structuring and syndication fees, net 808 -30.3% 563
Customer service fees 146 -9.6% 132
Other non-recurring -- 100.0% 802
Other 75 -25.3% 56
Total non-interest income $4,178 21.3% $5,066
</TABLE>
OPERATING EXPENSES
Operating expenses increased to $6.8 million for the quarter ended September 30,
1998 from $5.4 million for the same period in 1997, a 25.9 percent
26
<PAGE> 28
increase. Other expenses increased to $2.7 million for the quarter ended
September 30, 1998 from $1.3 million for the same period in 1997 largely as a
result of an increase in legal expenses and expenses related to an additional
regional advisor in Latin America. The increase in legal expenses was the result
of an increase in the number of litigation cases in the ordinary course of
business during the period. Also included in Other operating expenses is a write
down of $587 thousand taken on a mutual fund investment classified as available
for sale which was deemed to be other than temporary.
The following table sets forth detail regarding the components of operating
expenses for the periods indicated.
OPERATING EXPENSES
(Dollars in thousands)
For the Quarter Ended September 30, 1998
-----------------------------------------
1997 to 1998
1997 Percent Change 1998
--------- -------------- -----------
Employee compensation and benefits $3,267 -7.2% $3,033
Occupancy and equipment 840 18.7% 997
Other operating expenses 1,338 104.0% 2,729
------ ----- ------
Total operating expenses $5,445 24.1% $6,759
====== ===== ======
27
<PAGE> 29
HAMILTON BANCORP, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ------------------------
1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic
Weighted average number of
common shares outstanding 10,046,377 9,827,949 9,960,679 8,462,114
Net income $5,685 $4,630 $16,144 $11,193
Basic earnings $0.57 $0.47 $1.62 $1.32
Diluted:
Weighted average number of
common shares outstanding 10,046,377 9,827,949 9,960,679 8,462,114
Common equivalent shares
outstanding - options 431,260 371,156 375,520 371,156
Total common and common
equivalent shares outstanding 10,477,637 10,199,105 10,336,199 8,833,270
Net income $5,685 $4,630 $16,144 $11,193
Diluted earnings per share $0.54 $0.45 $1.56 $1.27
</TABLE>
28
<PAGE> 30
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(d) As reported in Registrant's Form SR for the period ending June 25, 1997
relating to the use of proceeds from the sale of common stock pursuant to
Registrant's Registration Statement No. 2-20960 effective March 25, 1997
and in Registrant's Form 10-Q for the period ending June 30, 1998,
US$3,600,000 of the proceeds remain temporarily invested in short term
investments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 11 Calculation of Earnings Per Share.
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1998 Hamilton Bancorp Inc.
/s/ J. Carlos Bernace
--------------------------------------
J. Carlos Bernace
Executive Vice President
/s/ Maria F. Diaz
--------------------------------------
Maria F. Diaz,
Senior Vice President - Finance and
Principal Financial and Chief
Accounting Officer
<PAGE> 1
HAMILTON BANCORP, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(Dollars in thousands, except per share data)
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ------------------------
1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic
Weighted average number of
common shares outstanding 10,046,377 9,827,949 9,960,679 8,462,114
Net income $5,685 $4,630 $16,144 $11,193
Basic earnings $0.57 $0.47 $1.62 $1.32
Diluted:
Weighted average number of
common shares outstanding 10,046,377 9,827,949 9,960,679 8,462,114
Common equivalent shares
outstanding - options 431,260 371,156 375,520 371,156
Total common and common
equivalent shares outstanding 10,477,637 10,199,105 10,336,199 8,833,270
Net income $5,685 $4,630 $16,144 $11,193
Diluted earnings per share $0.54 $0.45 $1.56 $1.27
</TABLE>
28
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1998
QUARTERLY REPORT ON FORM 10-Q FOR HAMILTON BANCORP INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 23,967
<INT-BEARING-DEPOSITS> 181,844
<FED-FUNDS-SOLD> 73,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,474
<INVESTMENTS-CARRYING> 30,351
<INVESTMENTS-MARKET> 30,289
<LOANS> 1,202,013
<ALLOWANCE> 10,308
<TOTAL-ASSETS> 1,663,085
<DEPOSITS> 1,466,328
<SHORT-TERM> 6,116
<LIABILITIES-OTHER> 74,619
<LONG-TERM> 0
0
0
<COMMON> 100
<OTHER-SE> 58,314
<TOTAL-LIABILITIES-AND-EQUITY> 1,663,085
<INTEREST-LOAN> 77,640
<INTEREST-INVEST> 3,295
<INTEREST-OTHER> 8,527
<INTEREST-TOTAL> 89,463
<INTEREST-DEPOSIT> 50,161
<INTEREST-EXPENSE> 50,592
<INTEREST-INCOME-NET> 38,871
<LOAN-LOSSES> 7,121
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 19,132
<INCOME-PRETAX> 25,612
<INCOME-PRE-EXTRAORDINARY> 25,612
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,144
<EPS-PRIMARY> 2
<EPS-DILUTED> 2
<YIELD-ACTUAL> 4
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,317
<CHARGE-OFFS> 7,343
<RECOVERIES> 213
<ALLOWANCE-CLOSE> 10,308
<ALLOWANCE-DOMESTIC> 3,080
<ALLOWANCE-FOREIGN> 7,228
<ALLOWANCE-UNALLOCATED> 10,308
</TABLE>
