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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission file number 0-20960
Hamilton Bancorp Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Florida 65-0149935
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3750 N.W. 87th Avenue, Miami, Florida 33178
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (305) 717-5500
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark X whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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[COVER PAGE 1 OF 2 PAGES]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this From 10-K. [X]
The aggregate market value of Registrant's Common Stock held by
non-affiliates of the Registrant as of March 16, 1998 was $265,528,511 based
upon the average of the high and low price of a share of Common Stock as
reported by the NASDAQ National Market on such date. As of March 16, 1998,
9,847,699 shares of Registrant's Common Stock were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE.
Certain portions of the following documents (as more specifically
identified elsewhere in this Annual Report) are incorporated by reference
herein:
<TABLE>
<S> <C>
Part of Form 10-K into which
Name of Document the document is incorporated
Portions of the Registrant's Proxy Statement for Part III
1998 Annual Meeting of Stockholders
</TABLE>
[COVER PAGE 2 OF 2 PAGES]
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PART I
ITEM 1. BUSINESS.
General
Hamilton Bancorp Inc. ("Bancorp"), through it subsidiary, Hamilton
Bank, N.A. (the "Bank"), (Bancorp and the Bank are collectively referred to
herein as the "Company"), is engaged in providing global trade finance with
particular emphasis on trade with and between South America, Central America and
the Caribbean (collectively, the "Region") and the United States or otherwise
involving the Region. Management believes that trade finance provides the
Company with the opportunity for substantial and profitable growth, primarily
with moderate credit risk, and that the Bank is the only domestic financial
institution in the State of Florida focusing primarily on financing foreign
trade. Through its relationships with approximately 500 correspondent banks and
with importers and exporters in the United States and the Region, as well as its
location in South Florida, which is becoming a focal point for trade in the
Region, the Company has been able to take advantage of substantial growth in
this trade. Much of this growth has been associated with the adoption of
economic stabilization policies in the major countries of the Region.
The Company operates in all major countries throughout the Region and
has been particularly active in several smaller markets, such as Guatemala,
Ecuador, Panama and Peru. Management believes that these smaller markets are not
primary markets for the larger, multinational financial institutions and,
therefore, customers in such markets do not receive a similar level of service
from such institutions as that provided by the Company. To enhance its position
in certain markets, the Company has made minority investments in indigenous
financial institutions in Guyana and Haiti. The Company has also strengthened
its relationships with correspondent financial institutions in the Region by
acting as placement agent, from time to time, for debt instruments or
certificates of deposit issued by many of such institutions.
The Company seeks to generate income by participating in multiple
aspects of trade transactions that generate both fee and interest income. The
Company earns fees primarily from opening and confirming letters of credit and
discounting acceptances and earns interest on credit extended, primarily in the
form of commercial loans, for pre- and post-export financing, such as
refinancing of letters of credit, and to a lesser extent, from discounted
acceptances. As the economy in the Region has grown and stabilized and the
Company has begun to service larger customers, the balance of the Company's
trade financing activities has shifted somewhat from letters of credit to the
discounting of commercial trade paper and the granting of loans, resulting in
relatively less fee income but increased interest income. Virtually all of the
Company's business is conducted in United States dollars. Management believes
that the Company's primary focus on trade finance, its wide correspondent
banking network in the Region, broad range of services offered, management
experience, reputation and prompt decision-making and processing capabilities
provide it with important competitive advantages in the trade finance business.
The Company seeks to mitigate its credit risk through its knowledge and analysis
of the markets it serves, by obtaining third-party
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guarantees of both local banks and importers on many transactions, by often
obtaining security interests in goods being financed and by the short-term,
self-liquidating nature of trade transactions. At December 31, 1997, 68% of the
Company's loan portfolio consisted of short-term trade related loans with an
average original maturity of approximately 180 days and 80% maturing within 365
days. Credit is generally extended under specific credit lines for each customer
and country. These credit lines are reviewed at least annually.
Lending activities are funded primarily through domestic consumer
deposits gathered through a network of seven branches in Florida as well as
deposits received from correspondent banks, corporate customers and private
banking customers within the Region. The Company opened an additional branch in
San Juan, Puerto Rico in March, 1998. The Company's branches are strategically
located in markets where it believes that there is both a concentration of
retail deposits and foreign trade activity. The Company also participates in
various community lending activities, and under several United States and
Florida laws and regulations the Bank is considered a minority bank and is able
to participate in certain beneficial minority programs involving both deposits
and loans.
Background of the Company
Bancorp (initially known as Southern Bancorp Inc.) was formed as a bank
holding company in 1988 in Miami, Florida, to acquire 99.7% of the issued and
outstanding shares of the Bank, a Miami-based national bank then known as
Alliance National Bank. The Bank was acquired by Bancorp to take advantage of
perceived opportunities to finance foreign trade between United States corporate
customers and companies in the Region, as the area emerged from the Latin
American debt crisis of the early 1980's, particularly since most non-Regional
financial institutions had limited interest in financing trade with the Region
at that time. Members of Bank management, who had extensive experience in trade
finance in the Region, re-established contacts in the Region, primarily with
banks. The Bank initially offered its services confirming letters of credit for
banks in the Region. The Bank then began to market its other trade related
services and products to beneficiaries of its letters of credit. As the Bank's
relationships with correspondent banks developed and as it developed corporate
clients in the United States, the Bank's trade finance activity continued to
increase. The Bank's business expanded into its other products and services,
which primarily included other types of trade financing instruments.
Market for Company Services
International trade between the United States and the Region as well as
between the State of Florida and the Region has grown significantly during the
five year period ended December 31, 1997. Recent treaties and agreements
relating to trade are expected to eliminate certain trade barriers and open up
certain economic sectors to competition, as well as to liberalize trade between
the United States and many countries with respect to a variety of goods and
services. A high and increasing percentage of this trade requires financing. The
growth and importance of trade in the United States and the Region also
increases the number of small and medium-sized firms engaged
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in trade and in need of trade finance services. Many financial institutions in
the United States in general and Florida in particular are not adequately
staffed to handle such financing on a large scale, or to judge the
creditworthiness of companies or banks in the Region and, accordingly, eschew
trade financing or limit the scope of their trade financing activity. This has
been partially responsible for the expanding market for the Company's trade
financing services.
Management believes that the Company has carved out a niche for itself
as the only Florida financial institution the business of which is focused
predominantly on financing foreign trade in the Region. The Company initially
focused on providing services and products to smaller banks and corporate
customers in the Region and smaller companies in Florida doing business in the
Region, as well as financial institutions and customers in smaller countries in
the Region where a more limited number of large, multinational banks conduct
business. The Company's willingness to provide trade financing in these
situations frequently results in it obtaining business from the same customers
involving larger countries in the Region, as well. A significant percentage of
the Company's trade financing business now involves such larger countries. The
Company does not, however, have a significant share of the overall market in
larger countries in the Region, such as Brazil and Argentina, where it competes
more frequently with larger, multinational financial institutions. The Company
also provides products and services for multinational corporations, such as
major commodities houses, and purchases participation interests in the trade
financing of multinational financial institutions to companies in the Region.
The Company's trade financing allows for the movement of commodities such as
sugar, grain and steel, and consumer goods such as textiles and appliances, as
well as computer hardware, capital equipment and other items.
Trade Finance Services and Products
The manufacture or production and distribution of any products or goods
generally results in a number of trade transactions which, together, make up a
trade cycle. For example, a seller of shirts purchases buttons and materials,
arranges for manufacture and often contracts with a distributor who sells the
products to retailers. The Company attempts to become involved in and to finance
as many stages of a trade cycle as possible. Since the Company's primary focus
is on trade finance, the Company offers a wider array of trade finance products
and services than most institutions it competes with, although some of the
Company's products and services, such as import and export letters of credit,
are offered by almost all financial institutions engaged in trade finance, and
most of the Company's products are offered by some financial institutions. The
principal trade related products and services which the Company offers include:
. COMMERCIAL DOCUMENTARY LETTERS OF CREDIT. Commercial documentary letters of
credit are obligations issued by a financial institution in connection with
trade transactions where the financial institution's credit is effectively
substituted for that of its customer, who is buying goods or services from
the beneficiaries of those letters of credit. When the bank issuing a
letter of credit is not well known or is an unacceptable risk to the
beneficiary, the issuing bank must obtain a guarantee or confirmation of
the letter of credit by an acceptable bank in the beneficiary's market.
When the Company confirms a letter of credit it assumes the credit risk of
the issuing bank and generally takes a security interest in the goods being
financed. These obligations, which are governed by their own special set of
legal rules, call for payment by the financial institution against
presentation of certain documents showing that the purchased goods or
services have been provided or are
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forthcoming. From time to time, a financial institution issues a commercial
documentary letter of credit ("back-to-back") against receipt of a letter
of credit from another bank in order to finance the purchase of goods. The
Company commenced its trade financing activities by confirming letters of
credit for correspondent financial institutions in the Region and then
began to sell other products and services to the beneficiaries of such
letters of credit. Commercial letters of credit are contingent liabilities
of the Company that are not recorded on the Company's balance sheet and
which generate fee income. Upon payment of a letter of credit, the Company
may refinance the obligation through a loan which will be reflected on the
Company's balance sheet as "Loans-net."
. BANKERS' ACCEPTANCES. A bankers' acceptance is a time draft drawn on a bank
and accepted by it. Acceptance of the draft obligates the bank to
unconditionally pay the face value to whomever presents it at maturity.
Drafts accepted by the Company are reflected on the asset side of the
Company's balance sheet as "Due from Customers on Bankers' Acceptances" and
on the liability side as "Bankers' Acceptances Outstanding." The Company
receives a fee upon acceptance of a draft. Discounted bankers' acceptances
represent the purchase by a financial institution of a draft at a discount.
This assists an exporter in providing terms to an importer under a letter
of credit and also provides liquidity to the exporter. Discounted bankers'
acceptances are discounts of forward maturity items and are included on the
Company's balance sheet under "Loans-net." The Company receives both fee
and interest income from discounted bankers' acceptances.
. DISCOUNTED TRADE ACCEPTANCES. Discounted trade acceptances represent an
obligation of an importer to pay money on a certain date in the future,
which obligation has been accepted by the importer as payable to the
exporter, then sold by the exporter at a discount to a financial
institution. If with recourse, at maturity of the acceptance, the financial
institution as holder of this instrument has recourse to the exporter as
well as the accepting importer. If without recourse, the financial
institution holding the acceptance has no recourse to the exporter, but
only to the accepting importer. Discounted trade acceptances are discounts
of forward maturity items and are included on the Company's balance sheet
under "Loans-net." The Company receives primarily interest income from
discounted trade acceptances.
. PRE-EXPORT FINANCING. Pre-export financing is provided by a financial
institution, either directly or indirectly through a second bank, to an
exporter who has a definitive international contract for the sale of
certain goods or services. Such financing funds the exporter's manufacture,
assembly and sale of these goods or services to the purchaser abroad.
Pre-export financing is reflected on the balance sheet as "Loans-net". The
Company receives primarily interest income from pre-export financing.
. WAREHOUSE RECEIPT FINANCING. Warehouse receipt financing provides temporary
financing, usually at a significant loan to collateral discount, for goods
temporarily held in an independent warehouse pending their sale and/or
delivery in a trade transaction. The goods are evidenced by a receipt
issued by the independent warehouse where the goods are stored. Possession
of that receipt gives the financial institution a perfected security
interest in those goods to collateralize the credit that it is providing.
Warehouse receipt financing is reflected on the balance sheet as
"Loans-net". The Company receives primarily interest income from warehouse
receipt financing.
. DOCUMENTARY COLLECTIONS. For a fee, a United States financial institution
will assist financial institutions to collect at maturity various drafts,
acceptances or other obligations which have come due and which are owed by
parties abroad or in the United States. Documentary collections are not
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reflected on the balance sheet and are not contingent obligations of the
Company. The Company receives fee income from documentary collections.
. FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange services consist of the
purchase of foreign currency on behalf of a customer. This service includes
both spot and forward transactions. Such transactions may be conducted in
both hard and soft currencies (i.e., those which are widely accepted
internationally and those that are not). The Company conducts such
transactions in both types of currencies. Foreign exchange transactions are
not reflected on the balance sheet and represent contingent liabilities of
the Company. The Company receives fee income from foreign exchange
transactions.
. STANDBY LETTERS OF CREDIT. Standby letters of credit effectively represent
a guarantee of payment to a third party by a financial institution, usually
not in connection with an individual trade transaction. The Company does
not favor standby letters of credit. They are only issued by the Company in
situations where the Company believes it is adequately and properly secured
or that the customer is in very strong financial condition. Standby letters
of credit are not reflected on the balance sheet and represent contingent
liabilities of the Company. The Company receives fee income from standby
letters of credit.
. INTERNATIONAL CASH MANAGEMENT. The Company assists corporations and banks
in the Region with the clearing of checks drawn on United States financial
institutions. As a United States financial institution and a member of the
Federal Reserve System, the Bank is able to provide quick and efficient
clearing of these items. The provision of these services often leads to the
Company providing other products and services to corporations and banks.
Most of the Company's customers are serviced through its International
Banking and Domestic Corporate Trade Departments. The International Banking
Department services the Company's international corporate and correspondent
banking customers. The Domestic Corporate Trade Department services United
States-based relationships, primarily with domestic corporate clients. Each
corporate customer's account is coordinated by a specific officer at the
Company. Each such customer will also generally do business with the Company
officers responsible for the countries involved in a particular transaction.
Company officers meet in person with key officials from each of the
correspondent banks and corporate customers each year. In addition, the Company
communicates with its correspondent banks and corporate customers in a variety
of other ways.
Competition
International trade financing is a highly competitive industry that is
dominated by large, multinational financial institutions such as Citibank, N.A.,
Swiss Bank Corporation and Barclays, among others. With respect to trade finance
in or relating to larger countries in the Region, primarily in South America,
these larger institutions are the Company's primary competition. The Company has
less competition from these multinational financial institutions providing trade
finance services with or in smaller countries in the Region, primarily in
Central America and the Caribbean, because the volume of trade financing in such
smaller countries has not been as attractive to these larger institutions. With
respect to Central American and Caribbean countries, as well as United States
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domestic customers, the Company also competes with regional United States and
smaller local financial institutions engaged in trade finance. Many of the
Company's competitors, particularly multinational financial institutions, have
substantially greater financial and other resources than the Company. In
general, the Company competes on the basis of the range of services offered,
convenience and speed of service, correspondent banking relationships and on the
basis of the rates of fees and commissions charged. Management believes that
none of the Company's significant United States competitors have the focus on
trade finance and offer the range of services that the Company offers.
Management further believes that the Company's strong trade culture, range of
services offered, liquid portfolio, management experience, reputation, and
prompt decision-making and processing capabilities provide it with a competitive
advantage that allows it to compete favorably with its competitors for the trade
finance business in the Region. The Company also has adjusted to its competition
by often participating in transactions with certain of its competitors,
particularly the larger, multinational financial institutions.
Although to date the Company has competed successfully, on a limited
basis, in those countries in the Region which have high trade volumes, such as
Brazil and Argentina, there can be no assurance that the Company will be able to
continue competing successfully in those countries with either large,
multinational financial institutions or regional United States or local
financial institutions. Any significant decrease in the Company's trade volume
in such large-volume countries could adversely affect the Company's result of
operations. Although the Company faces less competition from multinational
financial institutions in those countries in the Region, particularly countries
in Central America and the Caribbean, where the trading volume has not been
large enough to be meaningful for multinational financial institutions, there
can be no assurance that such financial institutions will not seek to finance
greater volumes of trade in those countries or that the Company would be able to
successfully compete with such financial institutions in the event of increased
competition. In addition, there is no assurance that the Company will be able to
continue to compete successfully in smaller countries with the regional United
States financial institutions and smaller local financial institutions engaged
in trade finance in such countries. Continued political stability and
improvement in economic conditions in such countries are likely to result in
increased competition.
Employees
At December 31, 1997 the Company had 250 full-time employees. The
Company's employees are not represented by a collective bargaining group, and
the Company considers its overall relations with its employees to be good.
Bancorp Regulation
GENERAL
As a result of its ownership of the Bank, Bancorp is registered as a
bank holding company, and is regulated and subject to periodic examination by
the Board of Governors of the Federal
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Reserve System ("FRB") under the United States Bank Holding Company Act ("BHC
Act").
Pursuant to the BHC Act and the FRB's regulations, Bancorp is limited
to the business of owning, managing or controlling banks and engaging in certain
other financial related activities, including those activities that the FRB
determines from time to time to be so closely related to the business of banking
as to be a proper incident thereto.
The BHC Act requires, among other things, the prior approval of the FRB
in any case where a bank holding company proposes to (i) acquire all or
substantially all of the assets of a bank, (ii) acquire direct or indirect
ownership or control of more than 5% of the outstanding voting stock of any bank
(unless it already owns a majority of such bank's voting shares) or (iii) merge
or consolidate with any other bank holding company.
Bancorp is required by the FRB to act as a source of financial strength
and to take measures to preserve and protect the Bank. As a result, Bancorp may
be required to inject capital in the Bank if the Bank at any time lacks such
capital and requires it. The FRB may charge a bank holding company such as
Bancorp with unsafe and unsound practices for failure to commit resources to a
subsidiary bank when required. Any loans from Bancorp to the Bank which would
count as capital of the Bank must be on terms subordinate in right of payment to
deposits and to most other indebtedness of the Bank.
The FRB, the Office of the Comptroller of the Currency ("OCC") and the
Federal Deposit Insurance Corporation ("FDIC") collectively have extensive
enforcement authority over bank holding companies and national banks in the
United States. This enforcement authority, initiated generally for violations of
law and unsafe or unsound practices, includes, among other things, the ability
to assess civil money penalties, to initiate injunctive actions and to terminate
deposit insurance in extreme cases.
The FRB's, the OCC's and the FDIC's enforcement authority was enhanced
substantially by the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"). FIRREA significantly increased the amount and the grounds
for civil money penalties. Also, under FIRREA, should a failure of the Bank
cause a loss to the FDIC, any other FDIC-insured subsidiaries of Bancorp could
be required to compensate the FDIC for the estimated amount of the loss (Bancorp
does not currently have any such subsidiaries). Additionally, pursuant to
FDICIA, Bancorp in the future could have the potential obligation to guarantee
the capital restoration plans of any undercapitalized FDIC insured depository
institution subsidiaries it may control.
CAPITAL ADEQUACY
The federal bank regulatory authorities have adopted risk-based capital
guidelines to which Bancorp and the Bank are each subject. The guidelines
establish a systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profile among
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banking organizations, takes off-balance sheet exposures into explicit account
in assessing capital adequacy and minimizes disincentives to holding liquid,
low-risk assets. These risk-based capital ratios are determined by allocating
assets and specified off-balance sheet financial instruments into four weighting
categories, with higher levels of capital being required for the categories
perceived as representing greater risk.
Under these guidelines a banking organization's capital is divided into
two tiers. The first tier (Tier 1) includes common equity, perpetual preferred
stock (excluding auction rate issues) and minority interests that are held by
others in a consolidated subsidiary, less goodwill and any disallowed
intangibles. Supplementary (Tier 2) capital includes, among other items,
cumulative and limited-life preferred stock, mandatory convertible securities,
subordinated debt and the allowance for loan and lease losses, subject to
certain limitations and less required deductions as provided by regulation.
Banking organizations are required to maintain a risk-based capital
ratio of total capital (Tier 1 plus Tier 2) to risk-weighted assets of 8% of
which at least 4% must be Tier 1 capital. The federal bank regulatory
authorities may, however, set higher capital requirements when a banking
organization's particular circumstances warrant. As a general matter, banking
organizations are expected to maintain capital ratios well above the regulatory
minimums. The risk-based capital ratios of Bancorp and the Bank as of December
31, 1996 and 1997 are discussed under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources."
In addition, the federal bank regulatory authorities have established
guidelines for a minimum leverage ratio (Tier 1 capital to average total
assets). These guidelines provide for a minimum leverage ratio of 3% for banking
organizations that meet certain specified criteria, including excellent asset
quality, high liquidity, low interest rate exposure and the highest regulatory
rating. Banking organizations not meeting these criteria or which are
experiencing or anticipating significant growth are required to maintain a
leverage ratio which exceeds the 3% for banking organizations that meet certain
specified criteria, including excellent asset quality, high liquidity, low
interest rate exposure and the highest regulatory rating. Banking organizations
not meeting these criteria or which are experiencing or anticipating significant
growth are required to maintain a leverage ratio which exceeds the 3% minimum by
at least 100 to 200 basis points. The leverage ratios of Bancorp and the Bank as
of December 31, 1996 and 1997 are discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Failure to meet applicable capital guidelines could subject a bank or
bank holding company to a variety of enforcement remedies available to the
federal bank regulatory authorities, including limitation on the ability to pay
dividends, the issuance of a capital directive to increase capital and, in the
case of a bank, the termination of deposit insurance by the FDIC or (in severe
cases) the appointment of a conservator or receiver.
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INTERSTATE BANKING
As of September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "RNA") permitted adequately capitalized
and managed bank holding companies to acquire control of banks in any state.
Although individual states could authorize interstate branches earlier,
beginning on June 1, 1997, the RNA provides for banks to branch across state
lines, unless a state elects to opt-out entirely. Florida has allowed bank
holding companies from the Southeastern United States to acquire banks in
Florida since 1984, and in 1994 this was expanded to include bank holding
companies from other parts of the United States as well. In 1996 Florida enacted
legislation which allows out-of-state banks as of June 1, 1997 to enter Florida
by merger with an existing Florida-based bank, and thereafter to branch
throughout the state. This may further increase competition for the Bank by
allowing large banks from other parts of the United States to operate directly
in Florida.
Regulation of the Bank
GENERAL
The Bank, as an FDIC-insured national bank, is subject to regulation
primarily by the OCC, and secondarily by the FDIC. Also, as a national bank, the
Bank is a member of the Federal Reserve System, and its operations are therefore
also subject to certain FRB regulations. Various other federal and state
consumer laws and regulations also affect the operations of the Bank.
As a national bank, the Bank may be able to engage in certain
activities approved by the OCC which the FRB would not necessarily approve for
Bancorp or its non-national bank subsidiaries. The OCC has been particularly
aggressive in recent years in allowing national banks to undertake an
ever-increasing range of securities and insurance activities. Along these lines,
pursuant to certain revisions to the OCC's regulations pertaining to national
bank activities effective on December 31, 1996, national banks, among other
things, will be permitted on a case-by-case basis to operate subsidiaries that
may engage in activities some of which are not permissible for the bank itself.
Although the revised regulations do not authorize any new activities per se, it
is expected that national banks, if eligible and if they obtain the approval of
the OCC, will use them to expand further into the businesses of insurance and
securities underwriting.
The revised OCC regulations contain "fire walls" intended to protect a
national bank from the risks taken by its subsidiary, including a 10% cap on the
amount of bank capital that may be invested in the new subsidiary, as well as
requirements that extensions of credit to the operating subsidiary be
fully-collateralized and that transactions between the bank and the subsidiary
be conducted at arm's-length. Also, other safeguards are that the parent
national bank's exposure to any losses the subsidiary may incur be limited to
the bank's equity investment in the subsidiary, and that the parent national
bank be well-capitalized both before and after the investment is made.
Since OCC approval is required on a case-by-case basis for an eligible
bank to be permitted
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to engage in activities not permissible for the bank to conduct directly, it is
unclear at this time what the effect of these revised regulations on the
operations of national banks will be.
As a national bank, the Bank may not ordinarily lend more than 15% of
its capital unsecured to any one borrower, and may lend up to an additional 10%
of its capital to that same borrower on a fully secured basis involving readily
marketable collateral having a market value, as determined by reliable and
continuously available price quotations, equal at least to the amount borrowed.
In addition, there are various other circumstances in which the Bank may lend in
excess of such limits, including authority to lend up to 35% of capital and
surplus when the loan is secured by documents of title to readily marketable
staples and certain other exceptions relevant to international trade finance.
Federal law also imposes additional restrictions on the Bank with
respect to loans and extensions of credit to certain related parties and
purchases from and other transactions with Bancorp's principal shareholders,
officers, directors and affiliates. Extensions of credit (i) must be made on
substantially the same terms (including interest rates and collateral) as, and
follow credit underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions with members of the general
public or otherwise available to any employee of the Bank, and (ii) must not
involve more than the normal risk of repayment or present other unfavorable
features. In addition, extensions of credit to each such person beyond certain
limits set by applicable law must be approved by the Bank's Board of Directors,
with the individual who is applying for the credit abstaining from participation
in the decision. The Bank also is subject to certain lending limits and
restrictions on overdrafts to such persons. A violation of these restrictions
may result in the assessment of substantial civil monetary penalties against the
Bank or any officer, director, employee, agent or other person participating in
the conduct of the affairs of the Bank or the imposition by the FRB of a cease
and desist order.
DIVIDENDS
The Bank is subject to legal limitations on the frequency and amount of
dividends that can be paid to Bancorp. The OCC, in general, also has the ability
to prohibit dividends by the Bank which would otherwise be permitted under
applicable regulations if the OCC determines that such distribution would
constitute an unsafe or unsound practice.
For the Bank, the approval of the OCC is required for the payment of
dividends in any calendar year if the total of all dividends declared by the
Bank in that year exceeds the current year's net income combined with the
retained net income of the two preceding years. "Retained net income" means the
net income of a specified period less any common or preferred stock dividends
declared for that period. Moreover, no dividends may be paid by a national bank
in excess of its undivided profits account.
In addition, the FRB and the FDIC have issued policy statements which
provide that, as a general matter, insured banks and bank holding companies may
pay dividends only out of current operating earnings.
10
<PAGE> 13
In accordance with the above regulatory restrictions, the Bank
currently has the ability to pay dividends, and on December 31, 1997 an
aggregate of $31.3 million was available for the payment of dividends to Bancorp
without prior regulatory approval.
There are also statutory limits on other transfer of funds to Bancorp
and any other future non-banking subsidiaries of Bancorp by the Bank, whether in
the form of loans or other extensions of credit, investments or asset purchases.
Such transfers by the Bank generally are limited in amount to 10% of the Bank's
capital and surplus, to Bancorp or any such future Bancorp subsidiary, or 20% in
the aggregate to Bancorp and all such subsidiaries. Furthermore, such loans and
extensions of credit are required to be fully collateralized in specified
amounts depending on the nature of the collateral involved.
FDICIA
FDICIA was enacted on December 19, 1991. It substantially revised the
bank regulatory and funding provisions of the Federal Deposit Insurance Act and
made significant revisions to other federal banking statutes. FDICIA provided
for, among other things, (i) a recapitalization of the Bank Insurance Fund of
the FDIC (the "BIF") by increasing the FDIC's borrowing authority and providing
for adjustments in its assessments rates; (ii) annual on-site examinations of
federally-insured depository institutions by banking regulators; (iii) publicly
available annual financial condition and management reports for financial
institutions, including audits by independent accountants; (iv) the
establishment of uniform accounting standards by federal banking agencies; (v)
the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with more scrutiny
and restrictions placed on depository institutions with lower levels of capital;
(vi) additional grounds for the appointment of a conservator or receiver; (vii)
a requirement that the FDIC use the least-cost method of resolving cases of
troubled institutions in order to keep the costs to insurance funds at a
minimum; (viii) more comprehensive regulation and examination of foreign banks;
(ix) consumer protection provisions, including a Truth-in-Savings Act; (x) a
requirement that the FDIC establish a risk-based deposit insurance assessment
system; (xi) restrictions or prohibitions on accepting brokered deposits, except
for institutions which significantly exceed minimum capital requirements; and
(xii) certain additional limits on deposit insurance coverage.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions they
supervise. Under these regulations, a depository institution is classified in
one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically under-capitalized." Based on the current regulatory capital position
of the Bank, Bancorp believes that the Bank is in the highest classification of
"well capitalized."
11
<PAGE> 14
FDICIA generally prohibits the Bank from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to Bancorp if the Bank would thereafter be undercapitalized.
Undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans acceptable to the federal
banking agencies. If a depository institution fails to submit an acceptable
plan, it is treated as if it is "significantly undercapitalized."
Significantly undercapitalized depository institutions may be subject
to a number of other requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, and requirements to
reduce total assets and to stop accepting deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator, generally within 90 days of the date such institution
is determined to be critically undercapitalized.
FDICIA also provided for increased funding of the FDIC insurance funds.
Under the FDIC's risk-based insurance premium assessment system, each bank whose
deposits are insured by the BIF is assigned one of the nine risk classifications
based upon certain capital and supervisory measures and, depending upon its
classification, is assessed premiums. On November 14, 1995, the FDIC board of
directors voted to lower the BIF premium range to zero from .27% effective
January 1996. The rate schedule is subject to future adjustments by the FDIC. In
addition, the FDIC has authority to impose special assessments from time to
time. 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's ("FICO") bonds issued to deal with the
savings and loan crisis of the late 1980's. As a result, commercial bank
deposits are now also subject to assessment by FICO upon the approval by the
FDIC Board ("FICO Assessment") of such assessment. Beginning in 1997 and until
the earlier of December 31, 1999 or the date on which the last saving
association ceases to exist, the assessment rate FICO imposes on a commercial
bank must be at a rate equal to one-fifth the assessment rate applicable to
deposits assessable by the Savings Association Insurance Fund.
RESERVE REQUIREMENTS
The Bank is required to maintain reserves against its transaction
account. The reserves must be maintained in an interest-free account at the
Federal Reserve Bank of Atlanta. Reserve requirements and the amount of required
reserves is subject to adjustment by the FRB from time to time. The current rate
for reserves is 3% of a depository institution's transaction accounts (less
certain permissible deductions) up to $52 million, plus 10% of the amount over
$52 million.
ITEM 2. PROPERTIES.
The Company's operations are currently managed from their corporate
headquarters located
12
<PAGE> 15
in Miami, Florida, where a branch office is also located. The Bank's other
branch offices are located in Tampa, Winter Haven, Sarasota, West Palm Beach and
Miami, Florida, and in San Juan, Puerto Rico. Three of the facilities are owned
by the Company and five are leased (including the Company's headquarters).
The table below summarizes the Company's owned and leased facilities.
<TABLE>
<CAPTION>
APPROXIMATE LEASED OR
LOCATION TYPE OF FACILITY SQUARE FEET OWNED
- -------- ---------------- ----------- ---------
<S> <C> <C> <C>
Miami, Florida Corporate 75,500 Leased
headquarters
and branch
Miami, Florida Branch 3,000 Leased
Miami, Florida Branch 3,000 Owned
San Juan, Branch 3,500 Leased
Puerto Rico
Sarasota, Florida Branch 2,000 Owned
Tampa, Florida Branch 3,000 Leased
West Palm Beach, Branch 5,000 Leased
Florida
Winter Haven, Florida Branch 4,500 Owned
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
On January 13, 1998 Development Specialists, Inc., the Liquidating
Trustee of the Model Imperial Liquidating Trust established under the Plan of
Reorganization in the Model Imperial, Inc. Chapter 11 Bankruptcy proceeding,
filed an action against the Bank in the United States Bankruptcy Court for the
Southern District of Florida objecting to the Bank's proof of claim in the
Chapter 11 proceeding and affirmatively seeking damages against the Bank of $34
million for alleged involvement with former officers and directors of Model
Imperial, Inc. in a scheme to defraud Model Imperial, Inc. and its bank lenders.
The action is one of several similar actions filed by the Trustee against other
defendants that were involved with Model Imperial seeking the same damages as in
the action against the Bank. The Company believes the claims are without merit
either as a matter of law or fact and intends to vigorously defend the action.
Neither Bancorp nor the Bank is involved in any other legal proceedings
except for routine
13
<PAGE> 16
litigation incidental to the business of banking, none of which is expected to
have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) The Company's Common Stock is traded on the NASDAQ National Market.
The following table sets forth the high and low sales prices of a share of
Common Stock as reported by the NASDAQ National Market.
QUARTER HIGH LOW
------- ---- ---
March 26, 1997 (date of public
offering) - March 31, 1997 $17.375 $16.50
Second Quarter 1997 26.75 16.75
Third Quarter 1997 31.00 21.00
Fourth Quarter 1997 31.00 26.00
As of March 16, 1998 there were approximately 96 holders of record of
the Company's Common Stock and the closing price of Common Stock as reported by
the NASDAQ National Market for such date was $34.125. The Company has not paid
any cash dividends to date on its Common Stock and does not intend to pay any
such cash dividends in the foreseeable future.
(b) As reported in Registrant's Form SR for the period ending June 25,
1997 relating to the use of proceeds from the sale of common stock pursuant to
Registrant's Registration Statement No. 2-20960 effective March 25, 1997,
US$8,600,000 of the proceeds were temporarily invested at that date, and remain
temporarily invested, in short term investments.
ITEM 6. SELECTED FINANCIAL DATA.
TABLE ONE. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA.
The selected consolidated income statement data for the five years
ended December 31, 1997, the consolidated
14
<PAGE> 17
financial statements as of and for the years ended December 31, 1997, 1996,
1995, 1994 and 1993 have been audited by Deloitte & Touche LLP, independent
auditors. The data set forth below should be read in conjunction with the
consolidated financial statements and related notes, and "Management's
Discussion and Analysis of Financial Condition" contained elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands except per share amounts) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net interest income $ 38,962 $ 27,250 $ 23,885 $ 17,201 $ 13,209
Provision for Credit Losses 6,980 3,040 2,450 2,875 2,550
----------- ----------- ----------- ----------- -----------
Net Interest income after provision for credit losses 31,982 24,210 21,435 14,326 10,659
Trade finance fees and commissions 12,768 9,325 9,035 7,422 6,572
Structuring and Syndication fees 2,535 138 419 1,410 1,634
Customer services fees 713 1,252 890 1,044 943
Net gain (loss) on sale of securities available for sale 108 -- 3 (168) 11
Other income 318 270 342 322 403
----------- ----------- ----------- ----------- -----------
Total non-interest income 16,442 10,985 10,689 10,030 9,563
----------- ----------- ----------- ----------- -----------
Operating expenses 23,423 19,630 18,949 14,946 13,014
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes 25,001 15,565 13,175 9,410 7,208
Provision for income taxes 9,098 5,855 5,172 3,721 2,761
----------- ----------- ----------- ----------- -----------
Net income $ 15,903 $ 9,710 $ 8,003 $ 5,689 $ 4,447
=========== =========== =========== =========== ===========
PER COMMON SHARE DATA:
Net income per common share (1) $ 1.73 $ 1.79 $ 1.47 $ 1.05 $ 0.82
Book value per common share $ 10.00 $ 8.07 $ 6.41 $ 5.06 $ 3.10
Average weighted shares(1) 9,173,680 5,430,030 5,430,030 5,430,030 5,430,030
AVERAGE BALANCE SHEET DATA:
Total assets $ 1,007,846 $ 687,990 $ 534,726 $ 391,606 $ 276,825
Total loans 737,921 485,758 370,568 270,798 190,364
Total deposits 842,117 574,388 444,332 317,176 222,397
Stockholders' equity 79,311 39,969 32,358 22,195 15,267
PERFORMANCE RATIOS:
Net interest spread 3.53% 3.85% 4.20% 4.33% 4.76%
Net interest margin 4.28% 4.52% 4.94% 5.06% 5.48%
Return on average equity 20.05% 24.29% 24.73% 25.63% 29.13%
Return on average assets 1.58% 1.41% 1.50% 1.45% 1.61%
Efficiency ratio (2) 42.28% 51.31% 54.68% 54.89% 57.15%
ASSET QUALITY RATIOS:
Allowance for credit losses as a percentage of total loans 1.07% 1.07% 1.05% 1.31% 1.66%
Non-performing assets as a percentage of total loans 0.64% 0.91% 1.07% 0.59% 1.33%
Allowance for credit losses as a percentage of
non-performing assets 166.03% 117.97% 98.56% 221.13% 125.00%
Net loan charge-offs as a percentage of average
outstanding loans 0.32% 0.36% 0.58% 0.74% 0.50%
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL RATIOS:
Leverage capital ratio 7.88% 5.80% 5.68% 5.48% 5.21%
Tier 1 capital 12.43% 10.20% 9.98% 10.30% 9.35%
Total capital 13.78% 11.50% 10.92% 11.47% 10.60%
Average equity to average assets 7.87% 5.81% 6.05% 5.67% 5.53%
</TABLE>
(1) Represents diluted earnings per share and average weighted shares
outstanding, respectively.
(2) Amount reflects operating expenses as a percentage of net interest income
plus non-interest income.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1997 COMPARED TO 1996
OVERVIEW
Hamilton Bancorp Inc. ("Bancorp") is a bank holding company which conducts
operations principally through its 99.8 percent owned subsidiary Hamilton Bank,
N.A. (the "Bank") collectively (the "Company"). The Bank is a national bank
which specializes in financing trade flows between domestic and international
companies on a global basis. The Bank has a network of seven FDIC-insured
branches in Florida, with locations in Miami, Sarasota, Tampa, West Palm Beach
and Winter Haven. In addition, the Bank opened a branch in San Juan, Puerto Rico
in the first quarter of fiscal 1998.
The Company completed its initial public offering of 2,400,000 shares of common
stock on March 26, 1997. Following the public offering, on April 9, 1997 the
Company issued 360,000 additional shares of common stock upon the exercise of
the over-allotment option granted to Oppenheimer and Company, Inc., and NatWest
Securities Ltd.
The Company's strong asset growth and earnings was primarily a result of the
Company's ability to deploy the capital raised during the initial public
offering. The increased capital base allowed the Bank to double its lending
limit and take advantage of demand for loans and trade finance services which
resulted in the strong earnings growth of 64 percent increase in net income to
$15.9 million in 1997 compared to $9.7 million in 1996. As a result of a 69
percent increase in average shares outstanding (basic), comparing 1997 to 1996
net income per share (basic) was reported at $1.81 from $1.87 and (diluted)
reported at $1.73 from $1.79.
16
<PAGE> 19
KEY PERFORMANCE HIGHLIGHTS FOR 1997
During 1997, the Company achieved significant earnings growth relative to the
prior year, primarily as a result of (i) increases in net interest income of
43.0 percent as a result of the growth in average assets of 46.5 percent fueled
in part by the Company's initial public offering, (ii) an increase of 50.0
percent in non-interest income related to the Company's core trade finance
business (iii) overall favorable credit quality as evidenced by the .32 percent
net charge offs to average loans, and (iv) improved operating efficiencies.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
NET INTEREST INCOME
An analysis of the Company's net interest income and average balance sheet for
the last five years is presented in TABLE ONE AND TABLE TWO. 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 $39.0
million for 1997 from $27.2 million for 1996, a 43.0 percent increase. The
increase was due largely to the growth in average earning assets offset, to some
extent, by a decrease in net interest margin. Average earning assets increased
to $903.4 million for 1997 from $597.2 million for 1996, a 51.3 percent
increase, while yields earned on average assets decreased by 27 basis points
during the same period. Average loans and acceptances discounted increased to
$737.9 million for 1997 from $485.8 million for 1996, a 51.9 percent increase,
while average interest earning deposits due from other banks increased to $102.4
million for 1997 from $62.4 million for 1996, a 64.1 percent increase. Net
interest margin decreased to 4.3 percent for 1997 from 4.5 percent for 1996, a
20 basis point decrease. The primary reasons for this decrease were (i) loan
yields relative to reference rates decreased in certain countries in the Region
as a result of perceived economic stability and lower credit risk, (ii) loans to
larger corporate and bank customers, which command more competitive pricing and
(iii) excess liquidity in the Region.
Interest income increased to $83.2 million for 1997 from $56.7 million for 1996,
a 46.7 percent increase, reflecting an increase in loans in the Region and the
United States, 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 $44.2 million for 1997 from $29.4 million for 1996, a 50.3 percent
increase, reflecting the increase in deposits to fund asset growth and 5 basis
points increase in interest rates paid. Average interest-bearing deposits
increased to $778.2 million for 1997 from $525.3 million for 1996, a 48.1
percent increase. The growth in deposits was primarily a result of the Company
increasing its core deposit base from its expanding branch network as well as
its international customers. The Company's time deposits due from banks also
increased to $128.0 million for 1997 from $93.7 million for 1996.
17
<PAGE> 20
An analysis of the Company's yields earned and average loan balances segregating
domestic and foreign earning assets is presented in TABLE THREE. The yields
earned on domestic loans have decreased by 50 basis points to 10.4 percent from
10.9 percent.
18
<PAGE> 21
TABLE TWO. YIELDS EARNED AND RATES PAID
(Dollars in thousands)
<TABLE>
<CAPTION>
For The Years Ended
--------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996
-------------------------------------------- -------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- ---------- -------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Total Interest Earning Assets
Loans:
Commercial loans $ 611,744 $ 56,996 (1) 9.32% $ 375,054 $ 36,454 (1) 9.72%
Mortgage loans 11,144 934 8.38% 11,089 936 8.44%
Installment loans 325 31 9.56% 400 39 9.74%
Acceptances Discounted 107,818 10,733 9.95% 93,511 9,395 10.05%
Overdraft 6,890 1,307 18.96% 5,704 1,007 17.65%
---------- ---------- -------------- ---------- ---------- --------------
Total Loans (1) 737,921 70,001 9.49% 485,758 47,831 9.85%
Investments 44,978 2,980 6.63% 25,498 1,551 6.08%
Federal funds sold 18,186 1,008 5.54% 23,490 1,274 5.42%
Time Deposit with Banks 102,360 8,909 8.70% 62,404 5,751 9.22%
---------- ---------- -------------- ---------- ---------- --------------
Total Investments and
Interest Earning Deposits
with Banks 165,524 12,897 7.79% 111,392 8,576 7.70%
Total Interest Earning assets 903,445 $ 82,898 9.18% 597,150 $ 56,407 9.45%
---------- -------------- ---------- --------------
Total non interest earning assets 104,401 90,840
---------- ----------
Total Assets $1,007,846 $ 687,990
========== ==========
Interest Bearing Liabilities
Deposits:
Super NOW, NOW $ 15,675 $ 300 1.91% $ 16,086 $ 516 3.20%
Money Market 43,752 2,060 4.71% 40,779 2,021 4.96%
Presidential Market 3,385 97 2.87% 3,370 127 3.77%
Super Savings, Savings 4,426 139 3.14% 8,636 281 3.25%
Certificate of Deposits
(including IRA) 582,933 34,463 5.91% 362,724 21,435 5.91%
Time Deposits from Banks (IBF) 127,964 6,853 5.36% 93,670 5,010 5.35%
Collateral Accounts 61 2 2.92% 71 3 0.00%
---------- ---------- -------------- ---------- ---------- --------------
Total Deposits 778,196 43,913 5.64% 525,336 29,392 5.59%
Federal Funds Purchased 4,975 284 5.70% 240 14 5.68%
Other Borrowings 0 0 0.00% 164 10 6.29%
---------- ---------- -------------- ---------- ---------- --------------
Total interest bearing liabilities 783,171 44,197 5.64% 525,740 29,416 5.60%
---------- ---------- -------------- ---------- ---------- --------------
Non interest bearing liabilities
Demand Deposits 63,921 49,052
Other Liabilities 81,443 73,229
---------- ----------
Total non interest
bearing liabilities 145,364 122,281
Stockholders' equity 79,311 39,969
---------- ----------
Total liabilities and
stockholder's equity $1,007,846 $ 687,990
========== ==========
Net Interest income/net
interest spread $ 38,701 3.53% $ 26,991 3.85%
========== ============== =========== ==============
Margin:
Interest income/interest
earning assets 9.18% 9.45%
Interest expense/interest
earning assets 4.89% 4.93%
-------------- --------------
Net interest margin 4.28% 4.52%
============== ==============
<CAPTION>
For The Years Ended
-----------------------------------------------
December 31, 1995
-----------------------------------------------
Average
Average Yield/
Balance Interest Rate
---------- ---------- --------------
<S> <C> <C> <C>
Total Interest Earning Assets
Loans:
Commercial loans $ 272,046 $ 27,953 (1) 10.28%
Mortgage loans 11,059 941 8.51%
Installment loans 348 33 9.48%
Acceptances Discounted 80,592 8,540 10.60%
Overdraft 6,523 1,151 17.65%
---------- ---------- --------------
Total Loans (1) 370,568 38,618 10.42%
Investments 26,277 1,652 6.29%
Federal funds sold 17,899 1,144 6.39%
Time Deposit with Banks 39,480 4,550 11.52%
---------- ---------- --------------
Total Investments and
Interest Earning Deposits
with Banks 83,656 7,346 8.78%
Total Interest Earning assets 454,224 $ 45,964 10.12%
---------- --------------
Total non interest earning assets 80,502
----------
Total Assets $ 534,726
==========
Interest Bearing Liabilities
Deposits:
Super NOW, NOW $ 16,232 $ 465 2.86%
Money Market 29,236 1,637 5.60%
Presidential Market 3,140 125 3.98%
Super Savings, Savings 8,750 280 3.20%
Certificate of Deposits
(including IRA) 274,916 17,028 6.19%
Time Deposits from Banks (IBF) 65,354 4,006 6.13%
Collateral Accounts 121 4 3.31%
---------- ---------- --------------
Total Deposits 397,749 23,545 5.92%
Federal Funds Purchased 0 0 0.00%
Other Borrowings 0 0 0.00%
---------- ---------- --------------
Total interest bearing liabilities 397,749 23,545 5.92%
---------- ---------- --------------
Non interest bearing liabilities
Demand Deposits 46,583
Other Liabilities 58,036
----------
Total non interest
bearing liabilities 104,619
Stockholders' equity 32,358
----------
Total liabilities and
stockholder's equity $ 534,726
==========
Net Interest income/net
interest spread $ 22,419 4.20%
========== ==============
Margin:
Interest income/interest
earning assets 10.12%
Interest expense/interest
earning assets 5.18%
--------------
Net interest margin 4.94%
==============
</TABLE>
(1) Interest income for calculating yields excludes $261 thousand, $260
thousand and $1.7 million of loan fees for the years ended December 31,
1997, 1996 and 1995, respectively.
19
<PAGE> 22
TABLE THREE. YIELDS EARNED - DOMESTIC AND FOREIGN EARNINGS ASSETS (Dollars in
thousands)
<TABLE>
<CAPTION>
For The Years Ended
----------------------------------------------------
December 31, 1997
----------------------------------------------------
% of Total
Average Average Average
Balance Interest Yield/Rate Assets
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total Interest Earning Assets
Loans:
Domestic $ 175,209 $ 18,172(1) 10.4% 17.4%
Foreign 562,712 51,829 9.2% 55.8%
---------- ---------- ------ -------
Total Loans 737,921 70,001 9.5% 73.2%
Investments and time deposits with banks
Domestic 45,786 2,487 5.4% 4.5%
Foreign 119,738 10,410 8.7% 11.9%
---------- ---------- ------ -------
Total Investments and Interest Earnings with Banks 165,524 12,897 7.8% 16.4%
Total Interest Earning assets 903,445 $ 82,898 9.2% 89.6%
========== ======
Total non interest earning assets 104,401 10.4%
---------- -------
Total Assets $1,007,846 100.0%
========== =======
<CAPTION>
For The Years Ended
---------------------------------------------------------
December 31, 1996
----------------------------------------------------------
% Total
Average Average Average
Balance Income Yield/Rate Assets
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Total Interest Earning Assets
Loans:
Domestic $ 156,453 $ 17,079 10.9% 22.7%
Foreign 329,305 30,752 9.3% 47.9%
---------- ---------- ----------- --------
Total Loans 485,758 47,831 9.8% 70.6%
Investments and time deposits with banks
Domestic 44,655 2,416 5.4% 6.5%
Foreign 66,737 6,160 9.2% 9.7%
---------- ---------- ----------- --------
Total Investments and Interest Earnings with Banks 111,392 8,576 7.7% 16.2%
Total Interest Earning assets 597,150 $ 56,407 9.4% 86.8%
========== ===========
Total non interest earning assets 90,840 13.2%
---------- --------
Total Assets $ 687,990 100.0%
========== ========
<CAPTION>
For The Years Ended
----------------------------------------------------------
December 31, 1995
-----------------------------------------------------------
% of Total
Average Average Average
Balance Income Yield/Rate Assets
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Total Interest Earning Assets
Loans:
Domestic $ 145,952 $ 15,702(1) 10.8% 21.2%
Foreign 224,616 22,916 10.2% 42.0%
---------- -------- ----- ----------
Total Loans 370,568 38,618 10.4% 69.3%
Investments and time deposits with banks
Domestic 40,114 2,379 5.9% 7.5%
Foreign 43,542 4,967 11.4% 8.1%
---------- -------- ----- ----------
Total Investments and Interest Earnings with Banks 83,656 7,346 8.8% 15.6%
Total Interest Earning assets $ 454,224 $ 45,964 10.1% 84.9%
======== =====
Total non interest earning assets 80,502 15.1%
---------- ----------
Total Assets $ 534,726 100.0%
========== ==========
</TABLE>
(1) Interest income for calculating yields includes $261 thousand, $260
thousand and $1.7 million of loan fees for the years ended December 31,
1997, 1996 and 1995, respectively.
20
<PAGE> 23
PROVISION FOR CREDIT LOSSES
The Company's provision for credit-losses increased to $6.9 million for 1997
from $3.0 million for 1996. This $3.9 million increase was largely a function of
the 80.3 percent loan portfolio growth. Net loan chargeoffs during 1997 amounted
to $2.4 million compared to $1.8 million for the year 1996. The allowance for
credit losses was increased to $10.3 million at December 31, 1997 from $5.7
million for the end of the year 1996, an 80.7 percent increase. The ratio of the
allowance for credit losses to total loans remained the same at 1.07 percent at
December 31, 1997 and 1996. A more detailed review of the provision for credit
losses is presented in TABLE SEVENTEEN through TABLE TWENTY.
NON-INTEREST INCOME
Non-interest income increased to approximately $16.4 million for 1997 from $11.0
million for 1996, a 49.1 percent increase. Trade finance fees and commissions
increased by $3.4 million due largely to higher letter of credit volume, which
increased 20.0 percent in overall volume in 1997 relative to 1996. In addition,
lending facility fees increased by $1.2 million during 1997 compared to 1996 as
a result of the growth in loans. Structuring and syndication fees (formerly
Capital market fees) increased by $2.4 million as a result of various
structuring and syndication transactions completed during the year increasing
these fees to $2.5 million from $138 thousand. The globalization of investments
in the region created more structuring and syndication opportunities. Customer
service fees decreased by $538.4 thousand as a result of lower overdrafts
experienced in the period. The changes in non-interest income from year to year
are analyzed in TABLE SIX.
21
<PAGE> 24
TABLE FOUR. RATE VOLUME ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
COMPARED TO YEAR ENDED COMPARED TO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
CHANGES DUE TO: CHANGES DUE TO:
-------------------------------------- --------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net interest
income due to:
Loans:
Commercial Loans $ 23,006 $ (2,463) $ 20,543 $ 10,589 $ (2,088) $ 8,501
Residential mortgage loans 5 (7) (2) 3 (8) (5)
Acceptances discounted (7) (1) (8) 1,369 (514) 855
Installment loans 1,437 (99) 1,338 5 1 6
Overdrafts 209 91 300 (145) 1 (144)
Investments:
Investment securities 1,185 244 1,429 (49) (52) (101)
Federal funds sold (288) 21 (267) 357 (227) 130
Interest earning deposits with
other banks 3,682 (524) 3,158 2,642 (1,441) 1,201
-------- -------- -------- -------- -------- --------
Total earning assets 29,229 (2,738) 26,491 14,771 (4,328) 10,443
-------- -------- -------- -------- -------- --------
Deposits:
Super NOW, NOW (13) (203) (216) (4) 54 50
Money Market 147 (108) 39 646 (262) 384
Presidential market 1 (31) (30) 9 (7) 2
Super Savings, Savings (137) (5) (142) (4) 5 1
Certificates of deposits 13,028 0 13,028 5,435 (1,028) 4,407
Time deposits from banks 1,834 9 1,843 1,736 (732) 1,004
Collateral accounts 0 (1) (1) (2) 1 (1)
Federal funds purchased 271 (1) 270 0 14 14
Other borrowings (10) 0 (10) 0 10 10
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $ 15,121 $ (340) $ 14,781 $ 7,816 $ (1,945) $ 5,871
-------- -------- -------- -------- -------- --------
Change in net interest income $ 14,108 $ (2,398) $ 11,710 $ 6,955 $ (2,383) $ 4,572
======== ======== ======== ======== ======== ========
</TABLE>
22
<PAGE> 25
TABLE FIVE. RATE VOLUME ANALYSIS - DOMESTIC AND FOREIGN
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
COMPARED TO YEAR ENDED COMPARED TO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
CHANGES DUE TO: CHANGES DUE TO:
---------------------------------- ----------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
interest income due to:
Loans:
Domestic $ 2,047 $ (954) $ 1,093 $ 1,130 $ 247 $ 1,377
Foreign 21,797 (720) 21,077 10,681 (2,845) 7,836
Investments and time deposits with banks:
Domestic 61 10 71 269 (232) 37
Foreign 4,892 (642) 4,250 2,646 (1,453) 1,193
------- ------- ------- ------- ------- -------
Total earning assets $28,797 $(2,306) $26,491 $14,726 $(4,283) $10,443
======= ======= ======= ======= ======= =======
</TABLE>
TABLE SIX. NON-INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 to 1996 1996 to 1997
1995 % CHANGE 1996 % CHANGE 1997
------- -------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Trade finance fees and commissions $ 9,035 3.2% $ 9,325 36.9% $12,768
Structuring and syndication Fees 419 (67.0) 138 1,737.0 2,535
Customer service fees 890 40.7 1,252 (43.1) 713
Other 345 (21.7) 270 (59.8) 426
------- ------ ------- --------- -------
Total non-interest income $10,689 2.8% $10,985 49.7% $16,442
======= ====== ======= ========= =======
</TABLE>
OPERATING EXPENSES
Operating expenses increased to $23.4 million for 1997 from $19.6 million for
1996, a 19.3 percent increase. The growth in expenditures was primarily to
support revenue growth. A discussion of the significant components of
noninterest expense in 1997 compared to 1996 is as follows: Employee
compensation and benefits increased to $13.2 million for 1997 from $10.9 million
for 1996, a 20.4 percent increase. This was primarily due to an increase in the
number of employees to 250 at December 31 1997 from 220 at December 31, 1996,
the majority of the employees were added to support the two branches opened
during 1997 as well as salary increases for existing personnel. Occupancy
expenses increased slightly to $3.3 million from $2.9 million as a result of the
two new branches. Other expenses increased to $5.8 million for 1997 from $4.6
million for 1996, primarily due to a loss realized as a result of a default on a
loan in which inventory was acquired in 1996 and fully liquidated in 1997.
Directors fees decreased by 18.9 percent for 1997 as a result of discontinuing
the payment of retainer and meeting fees to an inside director and the
consolidation of committee meetings. Insurance and examination fees (FDIC and
OCC) increased to $325,000 for the year ended December 31, 1997 from $173,000
for 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
experienced a
23
<PAGE> 26
favorable decrease to 42.3 percent from 51.3 percent for 1997 and 1996,
respectively. The changes in operating expenses from year to year are analyzed
in TABLE SEVEN.
The Company's income tax expense for 1997 was $9.1 million, for an effective tax
rate of 36.4 percent of pretax income. Income tax expense for 1996 was $5.9
million for an effective rate of 37.5 percent. The year to year increase of
income tax expense was the result of the 61 percent increase in pretax income.
As the Company increases its foreign loans and investments in relation to total
assets these activities are not taxable in the State of Florida thus reducing
the overall effective tax rate. NOTE SIX of the consolidated financial
statements includes an analysis of the components of the provision for income
taxes.
TABLE SEVEN. OPERATING EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 to 1996 1996 to 1997
1995 % CHANGE 1996 % CHANGE 1997
------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Employee compensation and
benefits $10,090 8.4% $10,935 20.4% $13,162
Occupancy and equipment 2,867 1.4 2,907 11.8 3,251
Other operating expenses 4,693 (1.6) 4,617 27.2 5,876
Directors' fees 812 22.9 998 (18.9) 809
Insurance and examination fees
(FDIC and OCC) 487 (64.4) 173 87.9 325
------- ------ ------- ------ -------
Total operating expenses $18,949 3.6% $19,630 19.3% $23,423
======= ====== ======= ====== =======
</TABLE>
YEAR 2000
The Company began the process of assessing and preparing its computer systems
and applications to be functional on January 1, 2000 in June 1996. The Company
has also been communicating with third parties which interface with the Company,
such as customers, counterparties, payment systems, vendors and others to
determine whether they will be functional. The Company can give no guarantee
that these parties will be timely converted. Management believes that the
process of modifying all significant applications of the Company is
substantially complete and expects to have substantially all of the testing and
changes completed by December 31, 1998.
Management believes the total costs to be Year 2000 compliant are not material
to its financial position or results or operations. Any purchased hardware or
software in connection with this process will be capitalized in accordance with
normal Company policy. Personnel and all other cost are being expensed as
incurred.
The costs and dates on which the Company plans to complete the Year 2000 process
are based on management's best estimates. However, there can be no guarantee
that these estimates will be achieved and actual results could differ.
24
<PAGE> 27
1996 COMPARED TO 1995
NET INTEREST INCOME
Net interest income constitutes the Company's principal source of income. Net
interest income increased to $27.3 million for 1996 from $23.9 million for 1995,
a 14.2 percent increase. The primary reason for the increase was an increase in
average earning assets offset, to some extent, by a decrease in net interest
margin. Average earning assets increased to $597.2 million for 1996 from $454.2
million for 1995, a 31.5 percent increase. The increase was generally due to
economic stability in the Region resulting in increased trade activity, as well
as the Company's growth, which allowed it to provide more trade financing.
Average loans and acceptances discounted increased to $485.8 million for 1996
from $370.6 million for 1995, a 31.1 percent increase, while average interest
earning deposits with other banks increased to $62.4 million for 1996 from $39.5
million for 1995, a 58.0 percent increase. Net interest margin decreased to 4.52
percent for 1996 from 4.94 percent for 1995, 42 basis points. The primary
reasons for this decrease were that (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, (ii) loans to larger corporate and bank
customers, which command more competitive pricing, increased as a percentage of
total loans, (iii) changes in interest rates on retail deposits lagged behind
changes in interest rates charged on loans, as is customary in a decreasing rate
environment, and (iv) certificates of deposit, which have a higher cost to the
Company but typically are more stable relative to other deposits, continued to
grow.
Interest income increased to $56.7 million for 1996 from $47.4 million for 1995,
a 19.6 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
$29.5 million for 1996 from $23.5 million for 1995, a 25.1 percent increase,
reflecting growth in deposits to fund asset growth. Average interest-bearing
deposits increased to $525.3 million for 1996 from $397.7 million for 1995, a
32.1 percent increase. The growth in deposits was primarily a result of the Bank
seeking new deposits to fund asset growth. As the Company's other sources of
deposits increased, deposits obtained through the interbank certificate of
deposit network decreased to $495,000 at December 31, 1996 from $3.4 million at
December 31, 1995.
PROVISION FOR CREDIT LOSSES
The Company's provision for credit losses increased to $3.0 million for 1996
from $2.5 million for 1995, a 20.0 percent increase. Net loan chargeoffs during
1996 amounted to $1.8 million compared to net loan chargeoffs of $2.1 million
for 1995. The allowance for credit losses was increased to $5.7 million at
December 31, 1996 from $4.5 million at December 31, 1995, a 26.7 percent
increase. This increase was primarily due to an increase in the size of the
Company's loan portfolio. The ratio of the allowance for credit losses to total
loans increased slightly to approximately 1.07 percent at December 31, 1996 from
approximately 1.05 percent at December 31, 1995.
NON-INTEREST INCOME
Non-interest income increased to approximately $11.0 million for 1996 from $10.7
million for 1995, a 2.8 percent increase. Trade finance fees and commissions
increased by $290 thousand due largely to higher letters of credit volume.
Structuring and syndication fees decreased by $281 thousand as a result of fewer
transactions. Customer service fees increased by $362,000 as a result of higher
overdrafts experienced in the period. Net gains on sale of securities available
for sale were nominal as the Company generally holds securities until maturity.
25
<PAGE> 28
OPERATING EXPENSES
Operating expenses increased to $19.6 million for 1996 from $18.8 million for
1995, a 4.3 percent increase. Employee compensation and benefits increased to
$10.9 million for 1996, from $10.0 million for 1995 a 9.0 percent increase. This
increase was primarily due to an increase in the number of employees to 220 at
December 31, 1996 from 203 at December 31, 1995, as well as salary increases for
existing personnel. Occupancy expenses increased to $2.9 million for 1996 from
$2.8 million for 1995, a 3.6 percent increase, primarily due to expenses related
to the occupancy and maintenance of additional space at Company headquarters to
accommodate the increase in personnel. In addition, occupancy expenses increased
due to additional equipment rentals related to the Company's branch network.
Other operating expenses remained stable from 1995 to 1996. FDIC assessments
decreased to $173,000 for 1996 from $487,000 for 1995, a 64.5 percent decrease,
due to a non-recurring decrease in assessments by the FDIC. Management continues
to monitor operating expenses closely. The Company's efficiency ratio is
favorably below the industry average at 51.3 percent for 1996, an improvement
from 54.7 percent reported for the prior year.
BALANCE SHEET REVIEW
The Company manages its balance sheet by monitoring interest rate sensitivity,
credit risk, liquidity risk and capital positions to reduce the potential
adverse impact on net interest income that might result from changes in interest
rates. Control of interest rate risk is conducted through systematic monitoring
of maturity mismatches. The Company's investment decision-making takes into
account not only the rates of return and their underlying degree of risk, but
also liquidity requirements, including minimum cash reserves, withdrawal and
maturity of deposits and additional demand for funds.
Total consolidated assets increased 77.6 percent, or $586.6 million, for 1997.
This increase resulted from an increase of $527.7 million in interest earning
assets and an increase of $58.9 million in non-interest earning assets. The
increase in total consolidated assets reflects increases of $425.2 million in
net loans and $33.3 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 due to banks and deposits due to 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 to further
support 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 $91.4 million at December
31, 1997 compared to $33.1 million at December 31, 1996.
INTEREST-EARNING DEPOSITS WITH OTHER BANKS AND SECURITIES
Interest-earning deposits with other banks increased to $113.7 million at
December 31, 1997 from $80.5 million at December 31, 1996. As part of its
overall liquidity management process, the Company places funds with foreign
correspondent banks. These placements are typically short-term maturing within
180 days or less. The purpose of these placements is to obtain an enhanced
return on high quality short-term instruments and to solidify existing
relationships with correspondent
26
<PAGE> 29
banks. The banks with which placements are made and the amount placed are
currently approved by the Bank's Asset Liability Committee. In addition, this
Committee reviews adherence with internal interbank liability policies and
procedures. As indicated in TABLE EIGHT these interest-earning deposits with
other banks are well-diversified throughout the Region and in other countries.
The level of such deposits has grown as the overall assets of the Company have
increased during 1997. The short-term nature of these deposits allows the
Company the flexibility to redeploy these assets into higher yielding loans
which are largely related to the financing of trade.
Investment securities increased to $54.6 million at December 31, 1997 from $29.0
million at December 31, 1996. The increase was primarily in foreign government
bills and U.S. Treasury bill obligations. These investments are short-term and
allow the Company the flexibility of liquidity and the ability to convert these
assets into higher yielding loans as these become accessible.
NOTE TWO of the consolidated financial statements reports amortized fair value
and maturity information on the securities portfolio.
TABLE EIGHT. INTEREST-EARNING DEPOSITS WITH OTHER BANKS
(Dollars in thousands)
Country December 31, 1997
The Bahamas (1) $ 27,500
Jamaica 24,334
Brazil 13,809
Suriname 12,287
Panama 11,500
Ecuador 10,000
Bolivia 6,500
El Salvador 4,000
Grand Cayman 3,000
United States 800
--------
Total $113,730
========
(1) Consists of placements in the Bahamas branch of a multinational financial
institution.
LOAN PORTFOLIO
The Company's loan portfolio increased by $429.2 million, or 80.1 percent,
during 1997 in relation to 1996. This was due to management's ability to
increase lending to its existing customer base as a result of the new capital
which increased the Bank's legal lending limit. In addition, the growth also
reflected the overall increased economic trade activity throughout the Region.
Commercial-domestic loans increased by $68.6 million and loans to banks and
other financial institutions - foreign increased by $222.0 million. Details on
the loans by type are shown in the TABLE NINE below. At December 31, 1997
approximately 25 percent of the Company's portfolio consisted of loans to
domestic borrowers and 75 percent of the Company's portfolio consisted of loans
to foreign borrowers. The Company's loan portfolio is relatively short-term, as
approximately 68.9 percent of loans at December 31, 1997 were short-term trade
finance loans with average maturities of approximately 180 days and 81.5 percent
maturing within 365 days as detailed on TABLE TEN.
The Company's loan portfolio is an important source of liquidity since the
Company's predominant
27
<PAGE> 30
business, international trade finance is self liquidating in nature and a
significant part of the loans and extensions of credit mature within one year.
The term to maturity of the Company's loans at December 31, 1997 are shown on
TABLE TEN.
TABLE NINE. LOANS BY TYPE
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial and industrial(1) $179,435 $110,322 $ 96,511 $ 66,413 $ 60,195
Acceptances discounted 45,153 23,314 33,059 42,764 48,420
Residential mortgages 12,008 10,610 11,363 11,050 8,943
Installment 238 428 345 334 551
-------- -------- -------- -------- --------
Subtotal Domestic 236,834 144,674 141,278 120,561 118,109
Foreign:
Banks and other financial
institutions 352,862 129,376 136,681 96,563 46,013
Commercial and industrial (1) 319,925 179,824 81,433 77,897 31,949
Acceptances discounted 55,301 80,935 62,838 19,962 720
Government and official
institutions 872 750 750 550 550
-------- -------- -------- -------- --------
Subtotal Foreign 727,960 390,885 281,702 194,972 79,232
-------- -------- -------- -------- --------
Total loans $964,794 $535,559 $422,980 $315,533 $197,341
======== ======== ======== ======== ========
</TABLE>
(1) Includes pre-export financing, warehouse receipts and refinancing of
letters of credits.
28
<PAGE> 31
TABLE TEN. LOAN MATURITIES
(In thousands)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 (1)
--------------------------------------------------
MATURE
MATURE AFTER ONE BUT MATURE
WITHIN WITHIN AFTER FIVE
ONE YEAR FIVE YEARS YEARS TOTAL
-------- ------------- ----------- --------
<S> <C> <C> <C> <C>
Domestic loans:
Commercial and industrial $132,102 $ 35,775 $ 11,558 $179,435
Acceptances discounted 45,153 0 0 45,153
Foreign loans:
Commercial and industrial 532,519 139,715 425 672,659
Acceptances discounted 55,301 0 0 55,301
-------- -------- -------- --------
Total $765,075 $175,490 $ 11,983 $952,548
======== ======== ======== ========
Fixed $542,995 $124,258 $ 7,479 $674,732
Adjustable 222,080 51,232 4,504 277,816
-------- -------- -------- --------
Total Fixed and Adjustable $765,075 $175,490 $ 11,983 $952,548
======== ======== ======== ========
</TABLE>
(1) Does not include mortgage loans and installment loans in the aggregate
amount of $12,246.
TABLE ELEVEN reflects 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 outstanding by country. The aggregate amount of the
Company's crossborder outstandings by primary credit risk includes 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 December 31 1997 approximately 38.4 percent in principal amount of the
Company's loans were outstanding to borrowers in five countries other than the
United States: Guatemala (9.45 percent), Panama (8.01 percent), Ecuador (7.72
percent), Peru (7.06 percent) and Honduras (6.16 percent). The Company's loan
growth was achieved while maintaining diversification of the portfolio with no
country exposure greater than 10 percent.
29
<PAGE> 32
TABLE ELEVEN. LOANS BY COUNTRY
(Dollars in thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- -----------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
Country AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
United States $236,834 24.55% $144,674 27.01% $141,278 33.40%
Argentina 58,477 6.06 35,241 6.58 23,607 5.58
Bolivia 38,058 3.94 15,815 2.95 15,932 3.77
Brazil 58,040 6.02 27,255 5.09 24,335 5.75
British West Indies(1) -- -- 14,740 2.75 -- --
Colombia (1) 23,768 2.46 0 0 -- --
Dominican Republic(1) 40,161 4.16 9,450 1.76 -- --
Ecuador 74,485 7.72 29,799 5.56 23,415 5.54
El Salvador 40,306 4.18 28,472 5.32 17,493 4.14
Guatemala 91,178 9.45 79,483 14.84 40,303 9.53
Honduras 59,439 6.16 24,277 4.53 17,307 4.09
Jamaica (1) -- -- 10,971 2.05 6,377 1.51
Panama 77,295 8.01 50,553 9.44 23,566 5.57
Peru 68,094 7.06 26,658 4.98 29,480 6.97
Russia 17,500 1.81 0 0 0 0
Venezuela 16,299 1.69 10,245 1.91 15,853 3.75
Other (2) 64,860 6.73 27,926 5.31 44,034 10.40
-------- --------- -------- --------- -------- ---------
Total $964,794 100.00% $535,559 100.00% $422,980 100.00%
======== ========= ======== ========= ======== =========
</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.
30
<PAGE> 33
At December 31, 1997 approximately 30.8 percent in cross-border outstanding were
due from borrowers in five countries other than the United States: Guatemala
(6.9 percent), Ecuador (6.7 percent), Brazil (6.3 percent), Peru (5.5 percent)
and Panama (5.4 percent).
TABLE TWELVE. TOTAL CROSS-BORDER OUTSTANDING BY COUNTRY AND TYPE
(Dollars in millions)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
1997 ASSETS 1996 ASSETS 1995 ASSETS
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Argentina $ 69 5.2% $ 58 7.7% $ 28 4.6%
Bolivia 44 3.3 27 3.6 25 4.1
Brazil 85 6.3 36 4.7 51 8.3
British W
Indies (1) 11 0.8 11 1.5 -- --
Colombia (1) 24 1.8 6 0.8 -- --
Dom. Rep 39 2.9 6 0.8 6 1.0
Ecuador 90 6.7 35 4.6 31 5.0
El Salvador 46 3.4 32 4.2 20 3.3
Guatemala 92 6.9 96 12.7 60 9.8
Guyana (1) -- -- -- -- 5 0.8
Honduras 52 3.9 33 4.4 15 2.4
Jamaica 32 2.4 22 2.9 7 1.1
Nicaragua (1) 12 0.9 -- -- -- --
Panama 72 5.4 41 5.4 19 3.1
Peru 74 5.5 26 3.4 40 6.5
Russia (1) 17 1.3 -- -- -- --
Venezuela (1) -- -- 10 1.3 8 1.3
Other (2) 39 2.8 17 2.3 15 2.4
---- ------ ---- ------ ---- ------
Total $798 59.5% $456 60.3% $330 53.7%
==== ====== ==== ====== ==== ======
</TABLE>
(1) These countries had cross-border outstanding which did not exceed .75
percent of total assets in the period indicated.
(2) Other consists of cross-border outstanding to countries in which such
cross-border outstanding did not exceed 0.75 percent of the Company's total
assets at any of the dates shown.
31
<PAGE> 34
TOTAL CROSS-BORDER OUTSTANDINGS BY TYPE
(In millions)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Government and official institutions $3 $1 $1
Banks and other financial institutions 451 161 161
Commercial and industrial 288 213 105
Acceptances discounted 56 81 63
------ ----- -----
Total $ 798 $ 456 $ 330
====== ===== =====
</TABLE>
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 $95.3 million and $8.4 million, respectively, at December 31, 1997
compared to $60.8 million and $7.3 million, respectively, at December 31, 1996.
These assets represent a customer's liability to the Company while the Company's
corresponding liability to third parties is reflected on the balance sheet as
"Bankers' Acceptances Outstanding" and "Deferred Payment Letters of Credit
Outstanding".
DEPOSITS
The primary sources of Company's domestic time deposits are its seven Bank
branches located in Florida. The Company has three Bank branches in Miami, one
in Tampa, Winter Haven, Sarasota and West Palm Beach. The Company has opened a
branch in San Juan, Puerto Rico in the first quarter of fiscal 1998. In pricing
its deposits, the Company analyzes the market carefully, attempting to price its
deposits competitively with the larger financial institutions in the area. TABLE
TWO provides information on average deposit amounts and rates paid to each
deposit category. Total deposits were $1,135.0 million at December 31, 1997
compared to $638.6 million at December 31, 1996.
Average interest bearing deposits increased by 48.1 percent to $778.2 million as
of December 31, 1997 from $525.3 million as of December 31, 1996. The average
customer deposit from the branches is $40,000 with a retention rate at maturity
of these deposits of approximately 80%. During the year the Company also
increased deposits from other financial institutions. In addition, the Company
obtained deposits from the State of Florida as the Bank is a qualified public
depository pursuant to Florida law and has also obtained approximately $74.8
million of brokered deposits participated out by the broker in denominations of
less than $100,000 through a retail certificate of deposit program. These
deposits were used to further diversify the Company's deposit base and as a cost
effective alternative for the short term funding needs of the Company.
TABLE THIRTEEN reports maturity periods of certificate of deposits greater than
$100,000.
32
<PAGE> 35
TABLE THIRTEEN. MATURITIES OF AND AMOUNTS OF CERTIFICATES OF
DEPOSITS AND OTHER TIME DEPOSITS OF $100,000 OR MORE
(In thousands)
CERTIFICATES OTHER TIME
OF DEPOSIT DEPOSITS
$100,000 OR MORE $100,000 OR MORE TOTAL
---------------- ---------------- --------
Three months or less $129,528 $106,247 $235,775
Over 3 through 6 months 83,487 1,355 84,842
Over 6 through 12 months 76,570 1,955 78,525
Over 12 months 59,066 0 59,066
-------- -------- --------
Total $348,651 $109,557 $458,208
======== ======== ========
OFF-BALANCE SHEET
CONTINGENCIES
In the normal course of business, the Company utilizes various financial
instruments with off- balance sheet risk to meet the financing needs of its
customers, including commitments to extend credit, commercial letters of credit,
shipping guarantees, standby letters of credit and forward foreign exchange
contracts.
TABLE FOURTEEN reports the total volume and average monthly volume of the
Company's export and import letters of credit for the periods indicated. The
letter of credit volume increased by 20.1 percent to $819.5 million from $682.3
million and was the primary contributor of the 36.9 percent increase in trade
finance fees.
TABLE FOURTEEN. CONTINGENCIES - COMMERCIAL LETTERS OF CREDIT
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- ----------------------
Average Average Average
Total Monthly Total Monthly Total Monthly
Volume Volume Volume Volume Volume Volume
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Export Letters of Credit (1) $424,748 $ 35,396 $369,367 $ 30,781 $375,717 $ 31,310
Import Letters of Credit (1) 394,758 32,897 312,964 26,080 282,788 23,566
-------- -------- -------- -------- -------- --------
Total $819,506 $ 68,293 $682,331 $ 56,861 $658,505 $ 54,876
======== ======== ======== ======== ======== ========
</TABLE>
(1) Represents certain contingent liabilities not reflected on the Company's
balance sheet.
The Company provides letter of credit services globally. TABLE FIFTEEN 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 59.1
percent to $198.1 million at December 31, 1997 from $131.7 million at December
31, 1996. Individual fluctuations
33
<PAGE> 36
reflect relative changes in the flow of trade.
TABLE FIFTEEN. CONTINGENT LIABILITIES (1)
(In thousands)
AT DECEMBER 31,
------------------------------------
1997 1996 1995
-------- -------- --------
Argentina (2) $ -- $ 7,095 $ 1,916
Bolivia 3,883 4,401 4,221
Brazil 4,123 4,770 5,876
Colombia (2) 3,936 -- --
Costa Rica (2) 3,168 -- --
Dominican Republic 4,759 2,719 4,791
Ecuador 17,839 1,858 2,079
El Salvador 3,837 5,616 3,877
Guatemala 11,577 13,981 13,377
Haiti (2) 7,857 -- --
Honduras 5,550 8,315 5,923
Jamaica (2) -- 1,556 1,508
Nicaragua (2) 3,386 1,414 --
Panama 12,439 9,803 5,369
Paraguay 2,395 5,105 10,269
Peru 5,566 5,864 5,346
United States 94,629 55,991 57,564
Venezuela (2) -- -- 1,400
Other (3) 13,139 3,224 2,258
-------- -------- --------
Total $198,083 $131,712 $125,774
======== ======== ========
(1) Includes export and import letters of credit, standby letters of credit and
letters of indemnity.
(2) These countries had contingencies which did not exceed 1 percent of the
Company's total contingencies during the period indicated.
(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.
LIQUIDITY AND ASSET AND LIABILITY MANAGEMENT
The Company seeks to manage its assets and liabilities to reduce the potential
adverse impact on net interest income that might result from changes in interest
rates through systematic monitoring of maturity mismatches. The Company's
investment decision-making takes into account not only the rates of return and
their underlying degree of risk, but also liquidity requirements, including
minimum cash reserves, withdrawal and maturity of deposits and additional demand
for funds. For any given period, the pricing structure is matched when an equal
amount of assets and liabilities reprice. An excess of assets or liabilities
over these matched items results in a gap or mismatch, as shown on TABLE
SIXTEEN. A positive gap denotes asset sensitivity and normally means that an
increase in interest rates would have a positive effect on net interest income
while a decrease in interest rates would have a negative effect on 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. All of the
Company's assets and liabilities
34
<PAGE> 37
are denominated in dollars an therefore the Company has no material foreign
exchange risk.
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, but are not limited to, scheduled cash flows from
existing assets, contingencies and liabilities, as well as projected liquidity
needs arising from anticipated extensions of credit. Furthermore, the liquidity
position is monitored daily by management to maintain a level of liquidity
conducive to efficient operations and is continuously evaluated as part of the
asset/liability management process.
Historically, the Company has increased its level of deposits to allow for its
planned asset growth. Customer deposits have increased through the branch
network, from private banking customers, as well as deposits related to the
trade activity. The majority of the Company's deposits are short-term and
closely match the short-term nature of the Company's assets. At December 31,
1997 interest-earning assets maturing within 180 days were $836.9 million,
representing 68 percent of total earning assets. The short-term nature of the
loan portfolio and the fact that a portion of the loan portfolio consists of
bankers' acceptances provides additional liquidity to the Company. Liquid assets
at December 31, 1997 were $224.6 million, 16.7 percent of total assets, and
consisted of cash and cash equivalents, due from banks-time and U.S. and foreign
treasury bills. At December 31, 1997 the Company had been advised of $109.5
million in available interbank funding.
TABLE SIXTEEN 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 December 31 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.
35
<PAGE> 38
TABLE SIXTEEN. INTEREST RATE SENSITIVITY REPORT
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------------
0 to 30 31 to 90 91 to 180 181 to 365
Days Days Days Days
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earning Assets:
Loans $ 166,534 $ 256,400 $ 241,766 $ 120,998
Federal funds sold 62,000
Investment securities 2,992 25,794 11,562 600
Interest earning deposits with
other banks 15,687 30,615 39,641 20,987
---------- ---------- ---------- ----------
Total 247,213 312,809 292,969 142,585
---------- ---------- ---------- ----------
Funding Sources:
Savings and transaction deposits 22,168 47,802
Time deposits of $100 or more 64,737 64,791 83,487 76,570
Time deposits under $100 57,321 68,462 144,780 195,912
Other time deposits 56,885 49,362 1,355 1,955
Funds overnight 53,200
---------- ---------- ---------- ----------
Total $ 254,311 $ 230,417 $ 229,622 $ 274,437
========== ========== ========== ==========
Interest sensitivity gap $ (7,098) $ 82,392 $ 63,347 $ (131,852)
========== ========== ========== ==========
Cumulative gap $ (7,098) $ 75,294 $ 138,641 $ 6,789
========== ========== ========== ==========
Cumulative gap as a percentage
of total earning assets (.59)% 6.30% 11.60% 0.57%
========== ========== ========== ==========
<CAPTION>
December 31, 1997
--------------------------------------------
1 to 5 Over 5
Years Years Total
---------- ---------- ----------
<S> <C> <C> <C>
Earning Assets:
Loans $ 156,663 $ 22,433 $ 965,494
Federal funds sold 62,000
Investment securities 8,948 4,745 54,641
Interest earning deposits with
other banks 6,800 113,730
---------- ---------- ----------
Total 172,411 27,178 1,195,865
---------- ---------- ----------
Funding Sources:
Savings and transaction deposits 69,970
Time deposits of $100 or more 58,956 110 348,651
Time deposits under $100 8,607 79 475,161
Other time deposits 109,557
Funds overnight 53,200
---------- ---------- ----------
Total $ 67,563 $ 189 $1,056,539
========== ========== ==========
Interest sensitivity gap $ 104,848 $ 26,989 $ 139,326
========== ========== ==========
Cumulative gap $ 112,337 $ 139,326
========== ==========
Cumulative gap as a percentage
of total earning assets 9.39% 11.65%
========== ==========
</TABLE>
36
<PAGE> 39
CREDIT QUALITY REVIEW
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses reflects management's judgment of the level of
allowance adequate to provide for reasonably foreseeable losses, based upon the
following factors: (i) the economic conditions in those countries in the Region
in which the Company conducts trade finance activities; (ii) the credit
condition of its customers and correspondent banks, as well as the underlying
collateral, if any; (iii) historical experience; and (iv) the average maturity
of its loan portfolio.
In addition, although the Company's credit losses have been relatively limited
to date, management believes that the level of the Company's allowance should
reflect the potential for political and economic instability in certain
countries of the Region and the possibility that serious economic difficulties
in a country could adversely affect all of the Company's loans to borrowers in
or doing business with that country.
Determining the appropriate level of the allowance for credit losses requires
management's judgment, including application of the factors described above to
assumptions and estimates made in the context of changing political and economic
conditions in many of the countries of 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 December 31, 1997 the
allowance for credit losses was approximately $10.3 million, an increase of 80.7
percent from $5.7 million at December 31, 1996. This increase is largely a
function of the loan growth during the year.
TABLE SEVENTEEN 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.
37
<PAGE> 40
TABLE SEVENTEEN. CREDIT LOSS EXPERIENCE
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance of allowance for credit losses at
beginning of year $ 5,725 $ 4,450 $ 4,133 $ 3,270 $ 1,672
Charge-offs:
Domestic:
Commercial (1,693) (951) (1,097) (352) (474)
Acceptances 0 0 0 0 0
Residential 0 0 0 0 (13)
Installment (3) (8) (3) 0 0
--------- --------- --------- --------- -----------
Total domestic (1,696) (959) (1,100) (352) (487)
Foreign:
Government and official institutions 0 0 0 0 0
Banks and other financial institutions (896) (678) 0 0 0
Commercial and industrial 0 (146) (1,044)(1) (1,686)(1) (534)
Acceptances discounted 0 0 0 0 0
--------- --------- --------- --------- -----------
Total foreign (896) (824) (1,044) (1,686) (534)
--------- --------- --------- --------- -----------
Total charge-offs (2,592) (1,783) (2,144) (2,038) (1,021)
Recoveries:
Domestic
Commercial 203 16 10 19 60
Acceptances 0 0 0 0 0
Residential 0 0 0 0 0
Installment 1 2 1 7 9
Foreign 0 0 0 0 0
--------- --------- --------- --------- -----------
Total recoveries 204 18 11 26 69
--------- --------- --------- --------- -----------
Net (charge offs) recoveries (2,388) (1,765) (2,133) (2,012) (952)
Provision for credit losses 6,980 3,040 2,450 2,875 2,550
--------- --------- --------- --------- -----------
Balance at end of year $ 10,317 $ 5,725 $ 4,450 $ 4,133 $ 3,270
========= ========= ========= ========= ============
Average loans $ 735,735 $ 485,758 $ 370,568 $ 270,798 $ 190,364
Total loans $ 964,794 $ 535,559 $ 422,980 $ 315,533 $ 197,347
Net charge-offs to average loans 0.32% 0.36% 0.58% 0.74% 0.50%
Allowance to total loans 1.07% 1.07% 1.05% 1.31% 1.66%
</TABLE>
(1) Related to extension of credit to a domestic-based business operated by a
company organized under the laws of a foreign country.
TABLE EIGHTEEN sets 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.
38
<PAGE> 41
TABLE EIGHTEEN. ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Allocation of the allowance by category
of loans:
Domestic: $ 1,896 $ 1,900 $ 639 $ 1,694 $ 1,834
Commercial 315 226 333 299 373
Acceptances 59 54 57 55 45
Residential 3 6 4 4 7
Installment 154 58 37 19 101
--------- -------- -------- -------- --------
Overdraft 2,427 2,244 1,070 2,071 2,360
Total domestic
Foreign: 0 0 0 0 0
Government and official institutions 3,854 2,112 1,900 550 369
Banks and other financial institutions 3,442 920 1,101 1,381 450
Commercial and industrial 594 449 379 131 91
--------- -------- -------- -------- --------
Acceptances discounted 7,890 3,481 3,380 2,062 910
Total foreign $ 10,317 $ 5,725 $ 4,450 $ 4,133 $ 3,270
========= ======== ======== ======== ========
Total
Percent of loans in each category to total loans:
Domestic:
Commercial 18.0% 20.1% 21.9% 20.6% 25.8%
Acceptances 4.7% 4.4% 7.8% 13.6% 24.5%
Residential 1.2% 2.0% 2.7% 3.5% 4.5%
Installment 0.0% 0.1% 0.1% 0.1% 0.3%
Overdraft 0.6% 0.4% 0.8% 0.5% 4.7%
--------- -------- -------- -------- --------
Total domestic 24.5% 27.0% 33.3% 38.3% 59.8%
Foreign:
Government and official institutions 0.1% 0.1% 0.2% 0.2% 0.3%
Banks and other financial institutions 36.5% 24.2% 32.3% 30.5% 23.4%
Commercial and industrial 33.2% 33.6% 19.3% 24.7% 16.3%
Acceptances discounted 5.7% 15.1% 14.9% 6.3% 0.2%
--------- -------- -------- -------- --------
Total foreign 75.5% 73.0% 66.7% 61.7% 40.2%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
========= ======== ======== ======== ========
</TABLE>
39
<PAGE> 42
TABLE NINETEEN. ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES ALLOCATED TO FOREIGN
LOANS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 3,481 $ 3,380 $ 2,062 $ 910 $ 337
Provision for credit losses 5,302 925 2,362 2,838 1,107
Net charge-offs (896) (824) (1,044)(1) (1,686)(1) (534)
------- ------- ------- ------- -------
Balance, end of year $ 7,887 $ 3,481 $ 3,380 $ 2,062 $ 910
======= ======= ======= ======= =======
</TABLE>
(1) Related to extensions of credit to a domestic-based business operated by a
company organized under the laws of a foreign country.
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 usually places an asset on nonaccrual status when any payment of
principal or interest is over 90 days past due or earlier if management
determines the collection of principal or interest to be unlikely. Loans over 90
days past due may not be placed on nonaccrual if they are in the process of
collection and are either secured by property having a realizable value at least
equal to the outstanding debt and accrued interest or are fully guaranteed by a
financially responsible party whom the Company believes is willing and able to
discharge the debt, including accrued interest. In most cases, if a borrower has
more than one loan outstanding under its line with the Company and any of its
individual loans becomes over 90 days past due, the Company places all
outstanding loans to that borrower on nonaccrual status.
The Company accounts for impaired loans in accordance with Financial Accounting
Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan.
Under these standards, individually identified impaired loans are measured based
on the present value of payments expected to be received, using the historical
effective loan rate as the discount rate. Alternatively, measurement may also be
based on observable market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. The Company evaluates commercial loans individually for impairment,
while groups of smaller-balance homogeneous loans (generally residential
mortgage and installment loans) are collectively evaluated for impairment.
The following table sets forth information regarding the Company's nonperforming
loans at the dates indicated. There was an increase of 24.6 percent in
nonperforming loans from December 31, 1996 to December 31, 1997. However, the
nonperforming loans to total loans ratio has improved when compared to prior
year results.
40
<PAGE> 43
TABLE TWENTY. NONPERFORMING LOANS
(In thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Domestic:
Non accrual $3,100 $3,087 $1,345 $ 584 $ 458
Past due over 90 days and accruing 0 0 582 0 2,158
------ ------ ------ ------ ------
Total domestic nonperforming loans 3,100 3,087 1,927 584 2,616
------ ------ ------ ------ ------
Foreign
Non accrual 2,949 1,654 2,287 1,285 0
Past due over 90 days and accruing 0 112 301 0 0
------ ------ ------ ------ ------
Total foreign nonperforming loans 2,949 1,766 2,588 1,285 0
------ ------ ------ ------ ------
Total nonperforming loans $6,049 $4,853 $4,515 $1,869 $2,616
====== ====== ====== ====== ======
Total nonperforming loans to total loans 0.48% 0.91% 1.07% 0.59% 1.33%
Total nonperforming assets to total assets 0.64% 0.64% 0.73% 0.41% 0.83%
</TABLE>
(1) During such periods the Company did not have any loans which were deemed to
be "troubled debt restructurings" as defined in SFAS No. 15.
At December 31, 1996, and December 31, 1997 the Company had no nonaccruing
investment securities.
For the year ended December 31, 1997, the amount of interest income that was
accrued and that would have been accrued on the loans in the previous table in
accordance with their contractual terms were approximately $65,000, all of which
represented interest income on domestic loans, and $575,000, of which $236,000
represented interest income on domestic loans and $339,000 represented interest
income on foreign loans, respectively.
Management does not believe that there is a material amount of loans not
included in the foregoing table where known information about possible credit
problems of the borrowers would cause management to have serious doubts as to
the ability of the borrowers to comply with the present loan repayment terms and
which may result in such loans becoming nonaccruing loans.
CAPITAL RESOURCES
Stockholders' equity at December 31, 1997, was $98.3 million compared to $43.8
million at December 31, 1996. This increase was due to $39.0 million net
proceeds related to the initial public offering and $15.9 million from retained
earnings for 1997. In addition, during 1997 and 1996 the Company paid dividends
on preferred stock of $319,000 and $708,000, respectively, which were within the
amounts allowed by banking and holding Company regulations.
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 of Tier
I capital (as defined in the regulations) to total average assets (as defined)
and minimum ratios of Tier I and total capital (as defined) to risk- weighted
assets (as defined).
The Company completed its initial public offering on March 26, 1997 which
resulted in significantly higher capital ratios being reported for 1997. The
Company expects to continue to grow which will reduce these ratios. NOTE SEVEN
of the consolidated financial statements reports Company and Bank capital
ratios.
41
<PAGE> 44
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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, potential changes
in the outlook in market rates, global and regional economies, liquidity,
business strategies and other factors.
The Company's asset and liability management process is utilized to manage
interest rate risk through the structuring of balance sheet and off-balance
sheet portfolios. It is the strategy of the Company to maintain as neutral an
interest rate risk position as possible. By utilizing this strategy the Company
"locks in" a spread between interest earning assets and interest-bearing
liabilities. Given the matching strategy of the Company and the fact that it
does not maintain significant medium and/or long-term exposure positions, the
Company's interest rate risk is measured and quantified through interest rate
sensitivity reports. For any given period, the Company's pricing structure is
matched when an equal amount of assets and liabilities reprice. 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 on 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.
TABLE SIXTEEN provides the Company's Interest Rate Sensitivity Reports as of
December 31, 1997. This table shows that interest bearing liabilities maturing
or repricing within one year exceeded interest earning assets by $7.5 million.
The Company monitors that the assets and liabilities are closely matched to
minimize interest rate risk. On December 31, 1997 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 3
percent of net income.
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.
NOTE TWELVE of the consolidated financial statements reports fair value
calculations of financial instruments. As reported in this note, the carrying
values approximate their fair values which generally minimizes the exposure to
market risk resulting from interest rate fluctuations. This minimal risk is the
result of the short term nature of the Company's interest earning assets and the
matching maturity level of the interest bearing liabilities.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
42
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Hamilton Bancorp Inc.:
We have audited the accompanying consolidated statements of condition of
Hamilton Bancorp Inc. and its subsidiary, Hamilton Bank, N.A., as of December
31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial condition of Hamilton Bancorp Inc.
and its subsidiary, Hamilton Bank, N.A., at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Miami, Florida
January 30, 1998
43
<PAGE> 46
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
CASH AND DEMAND DEPOSITS WITH OTHER BANKS $ 29,433,736 $ 14,806,058
FEDERAL FUNDS SOLD 62,000,000 18,300,000
--------------- ---------------
Total cash and cash equivalents 91,433,736 33,106,058
INTEREST-EARNING DEPOSITS WITH OTHER BANKS 113,730,084 80,476,576
SECURITIES AVAILABLE FOR SALE (Amortized cost:
$54,725,605 in 1997 and $29,023,369 in 1996) 54,640,894 29,019,699
LOANS - NET 952,431,281 527,279,242
DUE FROM CUSTOMERS ON BANKERS ACCEPTANCES 95,311,823 60,760,690
DUE FROM CUSTOMERS ON DEFERRED PAYMENT LETTERS OF CREDIT 8,352,196 7,343,466
PROPERTY AND EQUIPMENT - NET 4,784,387 3,459,457
ACCRUED INTEREST RECEIVABLE 14,441,268 6,471,379
GOODWILL - NET 2,008,238 2,183,283
OTHER ASSETS 5,000,476 5,470,117
--------------- ---------------
TOTAL $ 1,342,134,383 $ 755,569,967
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $ 1,135,046,472 $ 638,641,051
BANKERS ACCEPTANCES OUTSTANDING 95,311,823 60,760,690
DEFERRED PAYMENT LETTERS OF CREDIT OUTSTANDING 8,352,196 7,343,466
OTHER LIABILITIES 5,096,242 5,024,658
--------------- ---------------
Total liabilities 1,243,806,733 711,769,865
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 11)
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 -- 1,012
Common stock, $.01 par value, 75,000,000 shares authorized, 9,827,949 shares
issued and outstanding at December 31, 1997 and 5,205,030 shares issued and
outstanding at December 31, 1996 98,279 52,050
Capital surplus 56,265,914 17,317,483
Retained earnings 42,015,980 26,431,832
Net unrealized loss on securities available for sale, net of taxes (52,523) (2,275)
--------------- ---------------
Total stockholders' equity 98,327,650 43,800,102
--------------- ---------------
TOTAL $ 1,342,134,383 $ 755,569,967
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE> 47
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $70,262,273 $48,090,326 $40,084,370
Deposits with other banks 8,909,224 5,751,196 4,549,460
Securities 2,980,037 1,550,770 1,652,179
Federal funds sold 1,007,546 1,274,131 1,144,143
----------- ----------- -----------
Total 83,159,080 56,666,423 47,430,152
----------- ----------- -----------
INTEREST EXPENSE:
Deposits 43,912,888 29,392,397 23,544,990
Federal funds purchased 283,627 23,943
----------- ----------- -----------
Total 44,196,515 29,416,340 23,544,990
----------- ----------- -----------
NET INTEREST INCOME 38,962,565 27,250,083 23,885,162
PROVISION FOR CREDIT LOSSES 6,980,444 3,040,000 2,450,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 31,982,121 24,210,083 21,435,162
----------- ----------- -----------
NON-INTEREST INCOME:
Trade finance fees and commissions 12,767,587 9,324,796 9,035,012
Structuring and syndication fees 2,535,222 137,984 418,538
Customer service fees 713,415 1,251,881 890,174
Net gain on sale of securities available for sale 108,018 -- 3,229
Other 317,514 269,905 341,705
----------- ----------- -----------
Total 16,441,756 10,984,566 10,688,658
----------- ----------- -----------
OPERATING EXPENSES:
Employee compensation and benefits 13,162,229 10,934,762 10,090,223
Occupancy and equipment 3,250,509 2,907,293 2,866,811
Directors' fees 808,700 998,500 811,900
Federal deposit and regulatory insurance 324,841 173,143 487,411
Other 5,876,441 4,616,631 4,692,671
----------- ----------- -----------
Total 23,422,720 19,630,329 18,949,016
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 25,001,157 15,564,320 13,174,804
PROVISION FOR INCOME TAXES 9,098,209 5,854,809 5,171,443
----------- ----------- -----------
NET INCOME $15,902,948 $ 9,709,511 $ 8,003,361
=========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ 1.81 $ 1.87 $ 1.54
=========== =========== ===========
Diluted $ 1.73 1.79 1.47
=========== =========== ===========
AVERAGE SHARES OUTSTANDING:
Basic 8,806,379 5,205,030 5,205,030
=========== =========== ===========
Diluted 9,173,680 5,430,030 5,430,030
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE> 48
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 101,207 $ 1,012 4,731,804 $ 47,318
Net change in unrealized loss on
securities available for sale, net
of taxes
Cash dividends on preferred stock,
net of withholding taxes
Net income
------------- -------------- ------------- ------------
BALANCE, DECEMBER 31, 1995 101,207 1,012 4,731,804 47,318
Net change in unrealized gain on securities
available for sale, net of
taxes
Cash dividends on preferred stock,
net of withholding
taxes
Stock dividend (10%) 473,226 4,732
Net income
------------- -------------- ------------- ------------
BALANCE, DECEMBER 31, 1996 101,207 1,012 5,205,030 52,050
Net change in unrealized loss on securities
available for sale, net of taxes
Cash dividends on preferred stock,
net of withholding taxes
Conversion of preferred stock into
common stock with 6.5 to 1 split (101,207) (1,012) 466,160 4,662
Conversion of bank stock and
warrants into common stock with 6.5 to 1 split 1,396,759 13,967
Sale of 2,760,000 shares of common
stock in public offering, net 2,760,000 27,600
Net income
------------- -------------- ------------- ------------
BALANCE, DECEMBER 31, 1997 -- -- 9,827,949 98,279
============= ============== ============= ============
<CAPTION>
NET UNREALIZED (LOSS)
GAIN ON SECURITIES TOTAL
CAPITAL RETAINED AVAILABLE FOR SALE, STOCKHOLDERS'
SURPLUS EARNINGS NET OF TAXES EQUITY
------------ ------------ ------------------- ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $ 14,410,015 $ 13,032,871 $ (27,338) $ 27,463,878
Net change in unrealized loss on
securities available for sale, net
of taxes 29,125 29,125
Cash dividends on preferred stock,
net of withholding taxes (693,267) (693,267)
Net income 8,003,361 8,003,361
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1995 14,410,015 20,342,965 1,787 34,803,097
Net change in unrealized gain on securities
available for sale, net of
taxes (4,062) (4,062)
Cash dividends on preferred stock,
net of withholding
taxes (708,444) (708,444)
Stock dividend (10%) 2,907,468 (2,912,200)
Net income 9,709,511 9,709,511
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 17,317,483 26,431,832 (2,275) 43,800,102
Net change in unrealized loss on securities
available for sale, net of taxes (50,248) (50,248)
Cash dividends on preferred stock,
net of withholding taxes (318,800) (318,800)
Conversion of preferred stock into
common stock with 6.5 to 1 split (3,650)
Conversion of bank stock and
warrants into common stock with 6.5 to 1 split (13,967)
Sale of 2,760,000 shares of common
stock in public offering, net 38,966,048 38,993,648
Net income 15,902,948 15,902,948
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 56,265,914 $ 42,015,980 $ (52,523) $ 98,327,650
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
46
<PAGE> 49
HAMILTON BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,902,948 $ 9,709,511 $ 8,003,361
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,023,698 1,073,882 1,070,040
Provision for credit losses 6,980,444 3,040,000 2,450,000
Deferred tax (benefit) provision (2,615,691) 72,795 (110,995)
Net gain on sale of securities available for sale (108,018) (3,229)
Net gain on sale of other real estate owned (8,041)
Proceeds from the sale of bankers acceptances
and loan participations, net of loan
participations purchased 80,006,663 102,353,546 104,944,752
Increase in accrued interest
receivable and other assets (5,248,087) (3,922,884) (218,598)
Increase (decrease) in other liabilities 107,343 793,903 (265,837)
------------- ------------- -------------
Net cash provided by operating activities 96,049,300 113,112,712 115,869,494
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in interest-earning deposits with other banks (33,253,508) (42,058,446) (4,867,295)
Purchase of securities available for sale (201,446,579) (59,430,529) (17,440,898)
Purchase of securities held to maturity (58,874,233)
Proceeds from maturities of securities
held to maturity 20,946,175 54,725,879
Proceeds from sales and maturities of
securities available for sale 176,203,052 38,374,930 16,138,394
Increase in loans - net (512,139,146) (216,710,529) (213,566,338)
Purchases of property and equipment - net (2,165,710) (640,208) (1,498,830)
Proceeds from sale of other real estate owned 56,399
------------- ------------- -------------
Net cash used in investing activities (572,801,891) (259,462,208) (225,383,321)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits - net 496,405,421 133,575,464 131,716,915
Net proceeds from issuance of common stock 38,993,648
Cash dividends on preferred stock (318,800) (708,444) (693,267)
------------- ------------- -------------
Net cash provided by financing activities 535,080,269 132,867,020 131,023,648
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 58,327,678 (13,482,476) 21,509,821
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 33,106,058 46,588,534 25,078,713
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 91,433,736 $ 33,106,058 $ 46,588,534
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the year $ 42,555,112 $ 29,550,600 $ 22,815,743
============= ============= =============
Income taxes paid during the year $ 9,077,000 $ 5,540,000 $ 4,520,000
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Other real estate owned acquired through foreclosure $ 165,000 $ 48,358
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE> 50
HAMILTON BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hamilton Bancorp, Inc. (the "Company") is a holding company formed in 1988
primarily to acquire ownership in Hamilton Bank, N.A. (the "Bank"), a national
Federal Reserve member bank which commenced operations in February 1983. As of
December 31, 1997, the Company owned 99.78% of the outstanding common stock of
the Bank. The Bank's business is focused primarily on foreign trade and
providing innovative services for its financial correspondents and
exporting/importing firms. The Bank offers these services through its main
office and three branches in Miami, Florida, and a branch in Tampa, Winter
Haven, Sarasota, West Palm Beach, Florida and San Juan, Puerto Rico.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and to general practices within the banking
industry. The following summarizes the more significant of these policies:
BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the accounts of the Company and the Bank. All significant intercompany
amounts have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - For purposes of the consolidated statements of cash
flows, the Company considers cash, demand deposits with other banks, and federal
funds sold as cash and cash equivalents. Generally, federal funds are sold for
one-day periods.
The Federal Reserve requires banks to maintain certain average reserve balances,
in the form of vault cash or funds on deposit with the Federal Reserve, based
upon the total of a bank's net transaction accounts. At December 31, 1997 and
1996, the Bank met its average reserve requirement.
INVESTMENT SECURITIES - Investment securities are accounted for under Statement
of Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under SFAS No. 115, investment
securities must be classified and accounted for under the following conditions:
TRADING ACCOUNT SECURITIES - Trading account securities are held in anticipation
of short-term sales or market movements. Trading account securities are stated
at fair value. Gains or losses on the sale of trading account securities, as
well as unrealized fair value adjustments, are included in operating income. At
December 31, 1997 and 1996, the Company held no trading account securities.
48
<PAGE> 51
SECURITIES AVAILABLE FOR SALE - Securities to be held for unspecified periods of
time including securities that management intends to use as part of its
asset/liability strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, or other similar factors are classified as
available for sale and are carried at fair value. Unrealized gains or losses are
reported as a net amount in a separate component of stockholders' equity until
realized. Gains and losses are recognized using the specific identification
method upon realization.
SECURITIES HELD TO MATURITY - Securities that management has a positive intent
and the ability to hold to maturity are carried at cost, adjusted for
amortization of premiums and accretions of discounts over the life of the
securities using a method which approximates the level-yield method. At December
31, 1997 and 1996, the Company held no securities classified as securities held
to maturity.
ALLOWANCE FOR CREDIT LOSSES - The allowance for credit losses is established
through a provision for credit losses charged to expense based on management's
evaluation of the potential losses in its loan portfolio. Such evaluation, which
includes a review of all loans for which full collectability may not be
reasonably assured, considers, among other matters, historical loss experience,
net realizable value of collateral, current economic conditions and trends,
geographical considerations, and such other factors as in management's judgment
deserve recognition. Many of these factors involve a significant degree of
estimation and are beyond management's control or are subject to changes which
may be unforeseen. Although management believes the allowance is adequate to
absorb losses on existing loans that may become uncollectible, the ultimate
losses may vary significantly from the current estimates.
IMPAIRED LOANS - The Company accounts for impaired loans in accordance with 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
Company has classified all non-accrual loans as impaired.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed by the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized by the straight-line method over the
remaining term of the applicable leases or their useful lives, whichever is
shorter. The useful lives used are as follows:
Building 30 years
Leasehold improvements 5 - 10 years
Furniture and equipment 5 - 7 years
Automobiles 5 years
GOODWILL - Goodwill of approximately $861,000 arising from the acquisition of
the Bank during 1988 and of approximately $1,980,000 arising from the Bank's
branch purchase and assumption of deposits during 1994 are being amortized on a
straight-line basis over a period of twenty and fifteen years, respectively. The
Company reviews goodwill periodically for events or changes in circumstances
that may indicate that the carrying amount is not recoverable on an undiscounted
cash flow basis.
49
<PAGE> 52
FEDERAL FUNDS PURCHASED - Federal funds purchased generally mature within one to
four days from the transaction date. At December 31, 1997 and 1996, there were
no federal funds purchased outstanding.
INCOME RECOGNITION - Interest income on loans is recognized based upon the
principal amounts outstanding. Loans over 90 days past due may not be placed on
nonaccrual if they are in the process of collection and are either secured by
property having a realizable value at least equal to the outstanding debt and
accrued interest or are fully guaranteed by a financially responsible party whom
the Bank believes is willing and able to discharge the debt, including accrued
interest. Loans are placed on a nonaccruing status when management believes that
interest on such loans may not be collected in the normal course of business.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.
Trade finance fees and commissions include fees for letters of credit and
acceptances. Nonrefundable fees on letters of credit and acceptances are
recognized at execution date.
Syndication and structuring fees are earned in connection with the purchase,
participation and placement, without recourse or future obligation, of trade
finance obligations and for arranging financing for domestic and foreign
customers. Nonrefundable fees earned for such transactions are fully recognized
in income at the time the transaction is consummated.
INCOME TAXES - The provision for income taxes is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets
and liabilities. The Company provides for deferred taxes under the liability
method. Under such method, deferred taxes are adjusted for tax rate changes as
they occur. Deferred income tax assets and liabilities are computed annually for
differences between the financial statements and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
RECLASSIFICATIONS - Certain amounts in the 1996 and 1995 financial statements
have been reclassified for comparative purposes.
NET INCOME PER COMMON SHARE - The Company adopted SFAS No. 128, EARNINGS PER
SHARE, for fiscal year 1997. Under SFAS No. 128, basic earnings per share is
computed based on the average number of common shares outstanding and diluted
earnings per share is computed based on the average number of common and common
equivalent shares (consisting of stock options, see Note 8) outstanding. SFAS
No. 128 required the restatement of all prior-period earnings per share data.
STOCK SPLIT - On January 21, 1997, the Company's Board of Directors (the
"Board") approved a 6.5 for 1 common stock split (see Note 7). Retroactive
restatement has been made to all share amounts to reflect the stock split.
50
<PAGE> 53
STOCK - BASED COMPENSATION - SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, encourages, but does not require, companies to record compensation
cost for stock-based employee and non-employee members of the Board compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation to employees and non-employee members of the Board
using the intrinsic value method as prescribed by Accounting Principles Board
Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. Accordingly, compensation cost for stock options issued to
employees and non-employee of the Board are measured as the excess, if any, of
the fair value of the Company's stock at the date of grant over the amount an
employee or non-employee member of the Board must pay for the stock.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1996, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF Liabilities, which is effective for
transactions occurring after December 31, 1996. SFAS No. 125 provides guidance
for determining whether a transfer of a financial asset is treated as a sale
versus a financing. Additionally, if a transfer qualifies as a financing
transaction, the statement contains provisions that may require the recognition
of collateral received or provided, in addition to the financing balance.
In December 1996, the FASB issued SFAS No. 127, DEFERRAL OF THE EFFECTIVE DATE
OF CERTAIN PROVISIONS OF FASB STATEMENT NO. 125, which defers for one year the
effective date of the collateral provisions for all transactions and the sale
provisions for repurchase agreement, securities lending, and similar
transactions. These provisions will be applied prospectively to transactions
entered into after December 31, 1997. The adoption of such provisions is not
expected to have a significant impact on the Company's results of operations.
The provisions of SFAS No. 125 not deferred by SFAS No. 127 have been adopted as
of January 1, 1997, and did not have a material impact on the Bank's results of
operations.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS
No. 130 requires that all components of comprehensive income be reported on one
of the following: (1) the statement of income, (2) the statement of changes in
stockholders' equity, or (3) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by owners (changes in paid-in capital)
and distributions to owners (dividends). SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 130 is not
expected to have a material impact on the Company's financial statements
presentation.
51
<PAGE> 54
2. INVESTMENT SECURITIES
A comparison of the amortized cost and fair value of investment securities at
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government and agency securities $29,716,609 $ 5,373 $29,711,236
Foreign debt securities 20,179,393 $ 14,479 20,193,872
Federal reserve bank stock 1,262,000 1,262,000
Foreign bank stocks 1,880,768 98,945 1,781,823
Mutual funds 1,686,835 95,268 90,140 1,691,963
----------- ----------- ----------- -----------
Total $54,725,605 $ 109,747 $ 194,458 $54,640,894
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government and agency securities $27,468,916 $ 3,670 $27,465,246
Federal reserve bank stock 354,850 354,850
Foreign bank stocks 1,049,579 1,049,579
Mutual funds 150,024 150,024
----------- ----------- -----------
Total $29,023,369 $ 3,670 $29,019,699
=========== =========== ===========
</TABLE>
During the years ended December 31, 1997 and 1995, gross realized gains were
approximately $109,000 and $7,000, respectively, and gross realized losses were
$1,000 and $4,000, respectively, on the sale of securities available for sale.
There were no sales of securities available for sale during the year ended
December 31, 1996.
Investment securities with an amortized cost and fair value of approximately
$29,717,000 and $29,711,000, respectively, at December 31, 1997, were pledged as
collateral for public deposits.
The following table shows the amortized cost and the fair value by maturity
distribution of the securities portfolio at December 31, 1997:
52
<PAGE> 55
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
------------------------------------------------
AMORTIZED FAIR WEIGHTED
COST VALUE AVERAGE RATE
<S> <C> <C> <C>
Within one year $40,948,010 $40,957,855 6.19%
One to five years 8,947,992 8,947,253 8.54%
----------- -----------
Total 49,896,002 49,905,108
Federal reserve bank stock 1,262,000 1,262,000 --
Foreign bank stocks 1,880,768 1,781,823 --
Mutual funds 1,686,835 1,691,963 --
----------- -----------
Total securities $54,725,605 $54,640,894 --
=========== ===========
</TABLE>
3. LOANS
Loans consist of the following at December 31, 1997 and 1996:
1997 1996
------------ ------------
Commercial (primarily trade related):
Domestic $179,434,813 $110,322,486
Foreign 672,659,527 309,950,041
Acceptances discounted - trade related:
Domestic 45,152,658 23,313,663
Foreign 55,301,075 80,934,508
Residential mortgages 12,007,913 10,609,936
Installment 237,810 428,492
------------ ------------
Total 964,793,796 535,559,126
Less:
Unearned income:
Acceptances discounted 1,809,399 2,318,378
Other 236,556 236,543
Allowance for credit losses 10,316,560 5,724,963
------------ ------------
Loans - net $952,431,281 $527,279,242
============ ============
53
<PAGE> 56
The Bank's business activity is mostly with customers and correspondent banks
located in South Florida, Central America, and the Caribbean. The majority of
the credits are for the finance of imports and exports and above have
maturities of up to 180 days. These credits are secured either by banks,
factored receivables, cash, or the underlying goods. Management closely
monitors its credit concentrations by industry, geographic locations, and type
of collateral as well as individual customers.
A summary of the activity in the allowance for credit losses for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at the beginning of year $ 5,724,963 $ 4,450,454 $ 4,133,012
Provision charged to operations 6,980,444 3,040,000 2,450,000
Loan charge-offs, net of recoveries (2,388,847) (1,765,491) (2,132,558)
------------ ------------ ------------
Balance at the end of year $ 10,316,560 $ 5,724,963 $ 4,450,454
============ ============ ============
</TABLE>
At December 31, 1997 and 1996, the recorded investment in impaired loans was
approximately $6,049,000 and $4,617,000, respectively. These impaired loans
required an allowance for credit losses of approximately $2,294,000 and
$2,810,000, respectively. The average recorded investment in impaired loans
during the years ended December 31, 1997 and 1996 was approximately $5,743,000
and $2,616,000, respectively. For the years ended December 31, 1997 and 1996,
the Bank recognized interest income on these impaired loans prior to their
classification as impaired of approximately $65,000 and $207,000, respectively.
4. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31, 1997 and
1996:
1997 1996
---------- ----------
Land $ 810,485 $ 575,000
Building and improvements 1,448,349 1,141,171
Leasehold improvements 2,437,446 1,723,185
Furniture and equipment 5,064,481 4,233,942
Automobiles 80,230
---------- ----------
Total 9,840,991 7,673,298
Less accumulated depreciation and amortization 5,056,604 4,213,841
---------- ----------
Property and equipment - net $4,784,387 $3,459,457
========== ==========
Depreciation and amortization expense related to property and equipment for the
years ended December 31, 1997, 1996 and 1995 was approximately $841,000,
$899,000 and $895,000, respectively.
The Bank owns the land and the building for one of its Miami branches, the
Winter Haven and Sarasota branches and leases its main facilities, five branches
and certain equipment under noncancelable agreements (accounted for as operating
leases). The leases have renewal periods of five to ten years, available to the
Bank under the same terms and conditions as the initial leases and one subject
to annual rent adjustments based upon the Consumer Price Index.
54
<PAGE> 57
The approximate future minimum payments, by year and in the aggregate, on these
leases at December 31, 1997 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
1998 $ 1,893,000
1999 1,854,000
2000 1,811,000
2001 1,707,000
2002 1,612,000
Thereafter 6,185,000
------------
Total minimum lease payments $ 15,062,000
============
Rent expense was approximately $1,381,000, $1,006,000 and $1,015,000, for the
years ended December 31, 1997, 1996 and 1995, respectively.
5. DEPOSITS
Deposits consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Noninterest-bearing $ 78,507,634 $ 58,273,217
-------------- --------------
Interest-bearing:
NOW, money market and savings 69,970,014 67,634,768
Time, under $100,000 475,161,098 271,330,961
Time, $100,000 and over 348,650,861 163,209,320
International Banking Facility (IBF) deposits 162,756,865 78,192,785
-------------- --------------
Total interest-bearing 1,056,538,838 580,367,834
-------------- --------------
Total $1,135,046,472 $ 638,641,051
============== ==============
</TABLE>
55
<PAGE> 58
Time deposits in amounts of $100,000 and over at December 31, 1997 mature as
follows:
AMOUNT
------------
Three months or less $129,528,000
Three months to twelve months 160,057,000
One year to five years 58,956,000
Over five years 110,000
------------
Total $348,651,000
============
6. INCOME TAXES
The components of the provision for income taxes are as follows for the years
ended December 31, 1997, 1996 and 1995:
1997 1996 1995
------------ ------------ ------------
Current income taxes:
Federal $ 10,352,939 $ 4,628,539 $ 3,991,026
State 480,833 263,189 770,317
Foreign 880,128 890,286 521,095
------------ ------------ ------------
11,713,900 5,782,014 5,282,438
------------ ------------ ------------
Deferred income taxes:
Federal (2,515,779) 69,450 (95,342)
State (99,912) 3,345 (15,653)
------------ ------------ ------------
(2,615,691) 72,795 (110,995)
------------ ------------ ------------
Total $ 9,098,209 $ 5,854,809 $ 5,171,443
============ ============ ============
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to pretax income for the following reasons:
1997 1996 1995
------ ------ ------
Federal statutory rate 35.0 % 35.0 % 35.0 %
Increase in taxes:
State income tax, net of
federal income tax benefit 1.0 1.7 3.7
Other, net 0.4 0.8 0.3
------ ------ ------
Effective income tax rate 36.4 % 37.5 % 39.0 %
====== ====== ======
56
<PAGE> 59
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. The tax effects of significant
items comprising the Company's net deferred tax asset as of December 31, 1997
and 1997 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Difference between book and tax basis property $ 268,482
Other $ 3,445 199,602
---------- ----------
Total deferred tax liabilities 3,445 468,084
---------- ----------
Deferred tax assets:
Difference between book and tax basis
of allowance for credit losses 3,550,763 1,653,406
Other 293,406 44,641
---------- ----------
Total deferred tax assets 3,844,169 1,698,047
---------- ----------
Net deferred tax assets $3,840,724 $1,229,963
========== ==========
</TABLE>
Recognition of deferred tax assets is based on management's belief that it is
more likely than not that the tax benefit associated with certain temporary
differences and tax credits will be realized. A valuation allowance is recorded
for those deferred tax items for which it is more likely than not that
realization will not occur. No valuation allowances have been recorded at
December 31, 1997 and 1996.
7. STOCKHOLDERS' EQUITY
REGULATORY MATTERS - The Bank is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which its is subject.
As of December 31, 1997 and 1996, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
57
<PAGE> 60
The Company's consolidated and the Bank's actual capital amounts and ratios are
also presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------------- ---------------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
COMPANY
Total Capital (to Risk Weighted Assets) $106,093,000 13.7% $ 62,053,000 8.0%
============ =========== ============ ============
Tier I Capital (to Risk Weighted Assets) $ 96,405,000 12.4% $ 31,027,000 4.0%
============ =========== ============ ============
Tier I Capital (to Average Assets) $ 96,405,000 7.9% $ 36,858,000 3.0%
============ =========== ============ ============
BANK
Total Capital (to Risk Weighted Assets) $ 96,217,000 12.4% $ 61,917,000 8.0% $ 77,396,000 10.0%
============ =========== ============ ============ ============ ==========
Tier I Capital (to Risk Weighted Assets) $ 86,551,000 11.2% $ 30,959,000 4.0% $ 46,438,000 6.0%
============ =========== ============ ============ ============ ==========
Tier I Capital (to Average Assets) $ 86,551,000 7.1% $ 48,785,000 4.0% $ 60,982,000 5.0%
============ =========== ============ ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------------- ---------------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
COMPANY
Total Capital (to Risk Weighted Assets) $46,744,000 11.5% $32,657,000 8.0%
=========== ========== =========== ==========
Tier I Capital (to Risk Weighted Assets) $41,634,000 10.2% $16,329,000 4.0%
=========== ========== =========== ==========
Tier I Capital (to Average Assets) $41,634,000 5.8% $21,713,000 3.0%
=========== ========== =========== ==========
BANK
Total Capital (to Risk Weighted Assets) $46,470,000 11.4% $32,712,000 8.0% $40,890,000 10.0%
=========== ========== =========== ========== =========== ========
Tier I Capital (to Risk Weighted Assets) $41,351,000 10.1% $16,356,000 4.0% $24,534,000 6.0%
=========== ========== =========== ========== =========== ========
Tier I Capital (to Average Assets) $41,351,000 5.7% $29,009,000 4.0% $36,261,000 5.0%
=========== ========== =========== ========== =========== ========
</TABLE>
The Bank is subject to certain restrictions on the amount of dividends that it
may declare without prior regulatory approval. At December 31, 1997,
approximately $31,299,000 of retained earnings were available for dividend
declaration without prior regulatory approval. During 1997 and 1996,
approximately $1,105,000 and $713,000 of dividends were paid by the bank,
respectively, which are within the amounts allowed by regulations.
58
<PAGE> 61
PUBLIC OFFERING - On March 26, 1997 the Company completed its initial public
offering issuing an aggregate of 2,760,000 shares at $15.50 per share with net
proceeds of approximately $38,994,000. 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 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 466,160 shares (post-stock split) of
common stock and (ii) the issuance of an aggregate of 1,396,759 shares
(post-stock split) of common stock for all outstanding warrants to purchase
shares of common stock of the Bank.
PREFERRED STOCK - During June 1994, the Company's Board amended and restated the
Company's articles of incorporation providing for the issuance of shares of
Series B and Series C ("Preferred Shares"), 14% fixed rate, non-cumulative,
non-voting, perpetual preferred stock.
The Company, on June 30, 1994, issued an aggregate of 60,207 shares of Series B
Preferred Shares at $50 per share and on December 31, 1994 issued 41,000 shares
of Series C Preferred Shares at $50 per share. In connection with the public
offering and reorganization the preferred shares were converted into 466,160
shares (post-stock split) of common stock.
WARRANTS - In connection with the stock purchase and sale agreement dated March
21, 1988, stock warrants were issued which granted an option to acquire
additional common shares of the Bank in an amount equal to twenty percent of the
outstanding common shares of the Bank at the time of exercise, at $.01 per
share. The option was for a period of ten years that commenced on May 28, 1988.
In connection with the public offering and reorganization, the warrants (and
bank stock resulting from exercise of warrants) were converted into 1,396,759
shares (post-stock split) of common stock.
8. STOCK OPTION PLAN
In December 1993, the Company adopted the 1993 Stock Option Plan (the "1993
Plan"), pursuant to which 877,500 shares of Common Stock (post-stock split) were
reserved for issuance upon exercise of options. The 1993 Plan is designed as a
means to retain and motivate key employees and directors. The Company's
Compensation Committee, or in the absence thereof, the Board, administers and
interprets the 1993 Plan and is authorized to grant options thereunder to all
eligible employees of the Company, including executive officers and directors
(whether or not they are employees) of the Company or affiliated companies.
Options granted under the 1993 Plan are on such terms and at such prices as
determined by the Compensation Committee, except that the per share exercise
price of incentive stock options cannot be less than the fair market value of
the Common Stock on the date of grant. The 1993 Plan will terminate on December
31, 2003, unless sooner terminated by the Company's Board.
59
<PAGE> 62
Options outstanding and the activity for 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
NUMBER OPTION FAIR
1997 OF SHARES PRICE VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance 585,000 $ 9.230
Granted (3) 193,500 29.125 $ 6.55
Exercised -- --
Forfeited 1,625 9.230
Canceled -- --
--------- ---------------
Ending Balance 776,875 $9.23 - $29.125
========= ===============
Options which became exercisable
during the year 0
Options exercisable at December 31, 0
<CAPTION>
NUMBER OPTION FAIR
1996 OF SHARES PRICE VALUE
- ---------------------------------------------------------------------------------------
Beginning balance -- --
Granted (2) 585,000(1) $ 9.23 $ 1.69
Exercised -- --
Canceled -- --
--------- ---------------
Ending Balance 585,000 $ 9.23
========= ===============
Options which became exercisable
during the year 0
Options exercisable at December 31, 0
</TABLE>
(1) - Shares reflect 6.5 to 1 stock split.
(2) - The grants vest immediately as to 50% of the grant with the remaining 50%
vesting fifteen months after grant or upon the death of the option holder
if earlier.
(3) - The grants vest twelve (12) months after the grant as to 33.3% of the
grant, 33.3% vesting (18) months after grant and the remaining 33.4%
vesting twenty-four (24) months after grant or upon the death of the option
holder if earlier.
OPTIONS OUTSTANDING
------------------------------------------------------------------
OPTIONS REMAINING
OUTSTANDING CONTRACTED LIFE EXERCISE PRICE
----------- --------------- --------------
583,375 8.8 years $ 9.230
193,500 10 years $29.125
The Company applies APB No. 25 and related interpretations in accounting for its
stock options plan to employees and non-employee members of the Board as
described in Note 1. Accordingly, no compensation expense has been recognized in
the years ended December 31, 1997 and 1996, related to this plan.
60
<PAGE> 63
For purposes of the following proforma disclosures, the fair value of the
options granted in 1996 was estimated using the minimum value method prescribed
by SFAS No. 123 for nonpublic entities and the fair value of the options granted
in 1997 have been estimated on the date of grant using the Black-Scholes options
pricing model with the following assumptions, no dividend yield; expected
volatility of 32%; risk-free interest rate of 5.68% and an expected term of two
years. Had compensation cost been determined based on the fair value at the date
of grant consistent with requirement of SFAS 123 the Company's net income and
net income per common share would have been reduced to the proforma amounts
indicated below.
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996
------------------ ----------------
Net income:
As reported $ 15,902,948 $ 9,709,511
Proforma 15,762,387 9,515,769
Net income per common share:
Basic:
As reported 1.81 1.87
Proforma 1.79 1.83
Diluted:
As reported 1.73 1.79
Proforma 1.72 1.75
9. 401(K) PLAN
The Company maintains a 401(k) plan, which was initiated in 1993, for its
executive officers and other employees. Under the terms of the 401(k) plan, for
each dollar contributed by an employee, the Company intends to contribute a
discretionary amount on behalf of participants (the "Matching Contribution"). In
addition, at the end of the plan year, the Company may make an additional
contribution (the "Additional Contributions") on behalf of participants.
Additional Contributions are allocated in the same proportion that the Matching
Contribution made on the participant's behalf bears to the Matching Contribution
made on behalf of all participants during the year. The amount that the Company
contributes to the 401(k) plan has historically varied from year to year. During
the years ended December 31, 1997, 1996 and 1995, the Company's matching and
additional contributions amounted to approximately $128,000, $52,000 and
$105,000, respectively.
10. RELATED PARTY TRANSACTIONS
Directors, officers and their related entities have borrower and depositor
relationships with the Bank in the ordinary course of business. Loan balances to
these individuals and their related entities approximated $4,936,000 and
$4,912,000 at December 31, 1997 and 1996, respectively, and the balance of
deposit accounts approximated $2,154,000 and $5,896,000 at December 31, 1997 and
1996, respectively. Outstanding commercial and standby letters of credit
transactions with these individuals and their related entities approximated
$678,000 at December 31, 1996. There were no such transactions outstanding with
these individuals at December 31, 1997.
11. OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank utilizes various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers, including commitments to extend credit, commercial
61
<PAGE> 64
letters of credit, shipping guarantees, standby letters of credit and forward
foreign exchange contracts. These financial instruments involve, to varying
degrees, elements of credit risk. The credit risk associated with these
financial instruments, as further discussed herein, is not recorded in the
statement of condition. The contractual or notional amounts of such instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments. The credit risks associated with financial instruments
are generally managed in conjunction with the Bank's statements of condition
activities and are subject to normal credit policies, financial controls, and
risk limiting and monitoring procedures.
Credit losses are incurred when one of the parties fails to perform in
accordance with the terms of the contract. The Bank's exposure to credit loss is
represented by the contractual or notional amount of the commercial letters of
credit, shipping guarantees, and standby letters of credit. This is the maximum
potential loss of principal in the event the commitment is drawn upon and the
counterparty defaults.
A summary of the Bank's contractual or notional amounts for financial
instruments with off-balance sheet risk as of December 31, 1997 and 1996 along
with a further discussion of these instruments, is as follows:
<TABLE>
<CAPTION>
Contractual or
Notional Amount
------------ ------------
1997 1996
------------ ------------
<S> <C> <C>
Commercial letters of credit $187,320,000 $119,170,000
Standby letters of credit 10,763,000 12,140,000
Shipping guarantees (indemnity letters) 402,000
Commitments to purchase foreign currency 7,712,000 6,234,000
Commitments to sell foreign currency 7,488,000 6,537,000
Commitments to extend credit 47,433,000 35,157,000
</TABLE>
A commercial letter of credit is an instrument containing the commitment of the
Bank that the Bank will honor drawings under and in full compliance with the
terms of the letter of credit. The letters of credit are usually drawn on the
presentation of certain required documents, such as commercial invoice and bills
of lading. Essentially, letters of credit facilitate the purchase of merchandise
by the Bank's customers by substituting the credit standing of the Bank for that
of the Bank's customer. Commercial letter of credit contracts are generally for
a short commitment period.
Standby letters of credit are commitments issued to guarantee the performance of
a customer to a third party. The Bank issues standby letters of credit to ensure
contract performance or assure payment by its customers. The guarantees extend
for periods up to 12 months. The risk involved in issuing standby letters of
credit is the same as the credit risk involved in extending loan facilities to
customers and they are subject to the same credit approvals and monitoring
procedures. The Bank holds certificates of deposit and guarantees from other
banks as collateral supporting those commitments for which collateral is deemed
necessary. The extent of collateral held for standby letters of credit
commitments at December 31, 1997 varies from zero percent to 100 percent.
Shipping guarantees (also known as indemnity letters) are letters of guarantee
issued by the Bank on behalf of its customer in favor of shipping agents.
Normally, such facility is extended in instances where goods purchased under
letters of credit have arrived at the port of destination and the shipping
documents necessary for the release of the goods have not been received by the
Bank. The purpose of the shipping guarantee is to indemnify the transportation
company for any loss that might arise from the release of goods to the Bank's
customer in the absence of the shipping documents.
62
<PAGE> 65
The Bank enters into forward foreign exchange contracts with its customers for
the delayed exchange of foreign currency for U.S. dollars on behalf of such
customers. These contracts provide a vehicle for the Bank's customers to hedge
their future obligations in foreign currency. Upon entering such contracts with
its customers, the Bank meets these foreign currency commitments by entering
into equivalent contracts with other banks to purchase or sell equal amounts of
the foreign currency to be delivered or received. Risks arise from the possible
inability of the Bank's counterparties to meet the terms of their contracts and
from movements in foreign currency exchange rates. However, the full notional
amount of the contract is not at risk, as the Bank has the ability to settle
these contracts in the foreign exchange market.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank, upon extension of credit, is based on management's
credit evaluation of the counterparty.
On January 31, 1998 Development Specialists, Inc., the Liquidating Trustee of
the Model Imperial Liquidating Trust established under the Plan of
Reorganization in the Model Imperial, Inc. Chapter 11 Bankruptcy proceeding,
filed an action against the Bank in the United States Bankruptcy Court for the
Southern District of Florida objecting to the Bank's proof of claim in the
Chapter 11 proceeding and affirmatively seeking damages against the Bank of $34
million for alleged involvement with former officers and directors of Model
Imperial, Inc. in a scheme to defraud Model Imperial, Inc. and its bank lenders.
The action is one of several similar actions filed by the Trustee against other
defendants that were involved with Model Imperial seeking the same damages as in
the action against the Bank. The Company believes the claims are without merit
either as a matter of law or fact and intends to vigorously defend the action.
From time to time the Bank is engaged in additional litigation incidental to its
operations.
While any litigation contains an element of uncertainty, the Bank, after
considering the advice of legal counsel, believes the outcome of all
aforementioned litigation will not have a material adverse effect on the Bank's
financial position, results of operations or liquidity.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of these financial
statements since December 31, 1997 and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
63
<PAGE> 66
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 91,434,000 $ 91,434,000 $ 33,106,000 $ 33,106,000
Interest-earning deposits
with other banks 113,730,000 113,730,000 80,477,000 80,477,000
Securities available for sale 54,641,000 54,641,000 29,020,000 29,020,000
Loans, net 952,431,000 951,624,000 527,279,000 525,737,000
Liabilities:
Demand deposits 148,478,000 148,478,000 125,908,000 125,908,000
Time deposits 986,569,000 986,445,000 512,733,000 512,507,000
Contingent assets and liabilities:
Bankers acceptances 95,312,000 477,000 60,761,000 304,000
Deferred payment letters of credit 8,352,000 30,000 7,343,000 26,000
Off-balance sheet instruments -
Unrealized gains (losses):
Commitments to extend credit 210,000 144,000
Commercial letters of credit 251,000 266,000
Standby letters of credit 108,000 181,000
Indemnity letters of credit 1,000
Commitments to purchase foreign currency 147,000 62,000
Commitments to sell foreign currency 137,000 (59,000)
</TABLE>
CASH AND CASH EQUIVALENTS - The carrying amount of cash on hand, demand deposits
with other banks, and federal funds sold is a reasonable estimate of fair value.
INTEREST-EARNING DEPOSITS WITH OTHER BANKS - The fair value of time deposits
with other banks (several of which are foreign) is estimated using the rates
currently offered for deposits of similar remaining maturities and taking into
account the creditworthiness of the other bank.
SECURITIES AVAILABLE FOR SALE - The fair values are based on quoted market
prices or dealer quotes. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
LOANS - The interest rates for commercial loans and acceptances discounted are
based on the prime lending rate. The Bank updates these interest rates on a
monthly basis. Thus, the carrying amount of commercial loans and acceptances
discounted is a reasonable estimate of fair value. The fair value of other types
of loans is estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities.
DEMAND DEPOSITS AND TIME DEPOSITS - The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
64
<PAGE> 67
CONTINGENT ASSETS AND LIABILITIES - The fair values of these assets and
corresponding liabilities are estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties.
OFF-BALANCE SHEET INSTRUMENTS - The fair value of commitments is estimated using
the fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of letters of credit is based on fees currently charged for similar
agreements, or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date. The fair values of
commitments to purchase and sell foreign currency are based on quoted market
prices or dealer quotes.
13. FOREIGN ACTIVITIES
The Company's foreign activities primarily consist of providing global trade
finance, with particular emphasis on trade finance, with and between South
America, Central America, the Caribbean (the "Region") and the United States or
otherwise involving the Region. The Company considers assets and revenues as
associated with foreign activities on the basis of the country of domicile of
the customer. The nature of the Company's operations make it difficult to
determine precisely foreign activities profitability since it involves the use
of certain judgmental allocations. Rates used to determine charges or credits
for funds used or generated by foreign activities are based on actual costs
during the period for selected interest-bearing sources of funds. Other
operating income and expenses are determined based upon internal allocations
appropriate to the individual activities. A summary of the Company's domestic
and foreign activities as of and for the years ended December 31, 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
INCOME BEFORE
OPERATING PROVISION FOR NET TOTAL
INCOME INCOME TAXES INCOME ASSETS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1997
Domestic $ 12,635,000 $ 5,548,000 $ 3,529,000 $ 426,130,000
Foreign 42,769,000 19,453,000 12,374,000 916,004,000
-------------- -------------- -------------- --------------
Total $ 55,404,000 25,001,000 15,903,000 $1,342,134,000
============== ============== ============== ==============
1996
Domestic $ 13,639,000 $ 5,808,000 $ 3,623,000 $ 279,283,000
Foreign 24,596,000 9,756,000 6,087,000 476,287,000
-------------- -------------- -------------- --------------
Total $ 38,235,000 15,564,000 9,710,000 755,570,000
============== ============== ============== ==============
1995
Domestic $ 14,317,000 $ 5,681,000 $ 3,451,000 $ 288,299,000
Foreign 20,157,000 7,494,000 4,552,000 326,808,000
-------------- -------------- -------------- --------------
Total $ 34,474,000 $ 13,175,000 $ 8,003,000 $ 615,107,000
============== ============== ============== ==============
</TABLE>
65
<PAGE> 68
14. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for Hamilton Bancorp, Inc. (Parent Company only)
is as follows:
STATEMENTS OF CONDITION
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
ASSETS
Demand deposits with subsidiary $ 8,195,227 $ 155,551
Securities available for sale 1,446,671 248,226
Goodwill, net 447,408 490,453
Other assets 301,100
Investment in subsidiary 73,187,244 38,161,310
Investment in subsidiary's preferred stock 14,750,000 4,750,000
----------- -----------
Total $98,327,650 $43,805,540
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 5,438
Stockholders' equity $98,327,650 43,800,102
----------- -----------
Total $98,327,650 $43,805,540
=========== ===========
<TABLE>
<CAPTION>
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest income $ 339,114 $ 7,538 $ 3,199
Dividend from subsidiary and other income 1,104,792 712,500 674,691
----------- ----------- -----------
Total income 1,443,906 720,038 677,890
Operating expenses 294,087 43,065 62,482
----------- ----------- -----------
Income before equity in undistributed income of subsidiary 1,149,819 676,973 615,408
Equity in undistributed income of subsidiary 14,786,829 9,032,538 7,387,953
----------- ----------- -----------
Income before provision for income taxes 15,936,648 9,709,511 8,003,361
----------- ----------- -----------
Provision for Income taxes 33,700
Net income $15,902,948 $ 9,709,511 $ 8,003,361
=========== =========== ===========
</TABLE>
66
<PAGE> 69
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,902,948 $ 9,709,511 $ 8,003,361
Adjustments to reconcile net income to
net cash provided by operations:
Equity in undistributed income of
subsidiary (14,786,829) (9,032,538) (7,387,953)
Amortization of goodwill 43,045 43,045 43,045
Other (268,850) 7 321
------------ ------------ ------------
Net cash provided by operating
activities 890,314 720,025 658,774
------------ ------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale (96,504,300) (248,222)
Proceeds from maturities of securities
available for sale 95,215,713 60,000
Payment for investment in subsidiary (20,236,899)
Payment for investment in preferred stock
of subsidiary (10,000,000)
------------ ------------ ------------
Net cash provided by (used in)
investing activities (31,525,486) (248,222) 60,000
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock IPO 38,993,648
Cash dividends on preferred stock (318,800) (708,444) (693,267)
------------ ------------ ------------
Net cash (used in) provided by financing
activities 38,674,848 (708,444) (693,267)
------------ ------------ ------------
Net increase (decrease) in cash 8,039,676 (236,641) 25,507
Cash at beginning of year 155,551 392,192 366,685
------------ ------------ ------------
Cash at end of year $ 8,195,227 $ 155,551 $ 392,192
============ ============ ============
</TABLE>
* * * * *
67
<PAGE> 70
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to information under the captions "Information as to
Directors, and Executive Officers and "Meetings of the Board of Directors and
Committees" in the Registrant's definitive proxy statement relating to its 1998
Annual Meeting of Stockholders, which will be filed with the Commission within
120 days after the close of the Registrant's fiscal year ended December 31,
1997, all of which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the information set forth in the Registrant's
definitive proxy statement relating to its 1998 Annual Meeting of Stockholders
under the caption "Executive Compensation" and continuing through the caption
"Certain Transactions with Management" (excluding the information set forth
under the caption "Compensation Committee Report") which will be filed with the
Commission within 120 days after the close of the Registrant's fiscal year ended
December 31, 1997, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the information set forth under the caption
"Ownership of Equity Securities" in the Registrant's definitive proxy statement
relating to its 1998 Annual Meeting of Stockholders, which will be filed with
the Commission within 120 days after the close of the Registrant's fiscal year
ended December 31, 1997, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information set forth under the caption
"Certain Transactions with Management" in the Registrant's definitive proxy
statement relating to its 1998 Annual Meeting of Stockholders, which will be
filed with the Commission within 120 days after the close of the Registrant's
fiscal year ended December 31, 1997, which information is incorporated herein by
reference.
68
<PAGE> 71
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. The following financial statements and financial
statement schedules are contained herein or are incorporated herein by
reference:
<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
Consolidated Statements of Condition as of
December 31, 1997 and 1996 44
Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995 45
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996, and 1995 46
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995 47
Notes to Consolidated Financial Statements 48
Independent Auditors' Report 43
All Schedules are omitted because they are either not
required or the information is otherwise included
in the consolidated financial statements or
notes thereto.
</TABLE>
2. Exhibits. The following exhibits are contained herein or are
incorporated herein by reference:
DESCRIPTION OF EXHIBIT
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1, Registration No. 333-20435)
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form S-1,
Registration No. 333- 20435)
4.1 Form of Common Stock certificate (incorporated by reference to Exhibit 4.1
of the Company's Registration Statement on Form S-1, Registration No.
333-20435)
10.1 Company's 1993 Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.1 of the Company's Registration Statement on Form S-1,
Registration No. 333-20435)
10.2 Lease Agreement, dated December 20, 1996, by and between Hamilton Bank,
N.A. and System Realty Twelve, Inc. regarding the Company's corporate
headquarters (incorporated by reference to Exhibit 10.2 of the Company's
Registration Statement on Form S-1, Registration No. 333-20435)
69
<PAGE> 72
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 of
the Company's Registration Statement on Form S-1, Registration No.
333-20435)
23.1 Consent of Deloitte & Touche LLP.
(b) No reports on Form 8-K were filed during the fourth quarter of 1997.
70
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by the reference in Registration Statement No.
333-34725 of Hamilton Bancorp Inc. on Form S-8 of our report dated January 30,
1998, appearing in this Annual Report on Form 10-K of Hamilton Bancorp Inc. for
the year ended December 31, 1997. We also consent to the reference to us under
the heading "Selected Financial Data" in such Annual Report on Form 10-K.
DELOITTE & TOUCHE LLP
Miami, Florida
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE DECEMBER 31, 1997
ANNUAL REPORT ON FORM 10-K 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 29,434
<INT-BEARING-DEPOSITS> 113,730
<FED-FUNDS-SOLD> 62,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,641
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 952,431
<ALLOWANCE> 10,317
<TOTAL-ASSETS> 1,342,134
<DEPOSITS> 1,135,046
<SHORT-TERM> 0
<LIABILITIES-OTHER> 108,760
<LONG-TERM> 0
0
0
<COMMON> 98
<OTHER-SE> 98,230
<TOTAL-LIABILITIES-AND-EQUITY> 1,342,134
<INTEREST-LOAN> 70,262
<INTEREST-INVEST> 2,980
<INTEREST-OTHER> 9,917
<INTEREST-TOTAL> 83,159
<INTEREST-DEPOSIT> 43,913
<INTEREST-EXPENSE> 44,196
<INTEREST-INCOME-NET> 38,963
<LOAN-LOSSES> 6,980
<SECURITIES-GAINS> 108
<EXPENSE-OTHER> 23,423
<INCOME-PRETAX> 25,001
<INCOME-PRE-EXTRAORDINARY> 25,001
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,903
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.73
<YIELD-ACTUAL> 4.28
<LOANS-NON> 6,049
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,725
<CHARGE-OFFS> 2,592
<RECOVERIES> 204
<ALLOWANCE-CLOSE> 10,317
<ALLOWANCE-DOMESTIC> 2,427
<ALLOWANCE-FOREIGN> 7,890
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
