<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to_______________
Commission file number: 0-20960
HAMILTON BANCORP INC.
(Exact Name of Registrant as Specified in Its Charter)
FLORIDA 65-0149935
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3750 N.W. 87TH AVENUE, MIAMI, FLORIDA 33178
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (305) 717-5500
---------------------------------------------------------------------
Indicate by check [X] whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
<PAGE> 2
ITEM 1
PART I. FINANCIAL INFORMATION
HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
-------------- ------------
2000 1999
----------- -----------
<S> <C> <C>
(Unaudited) (Audited)
ASSETS
CASH AND DEMAND DEPOSITS WITH OTHER BANKS $ 22,716 $ 21,710
FEDERAL FUNDS SOLD 39,933 63,400
----------- -----------
Total cash and cash equivalents 62,649 85,110
INTEREST EARNING DEPOSITS WITH OTHER BANKS 129,039 187,685
SECURITIES AVAILABLE FOR SALE 367,819 274,277
LOANS-NET 1,077,589 1,091,976
DUE FROM CUSTOMERS ON BANKERS ACCEPTANCES 42,998 27,767
DUE FROM CUSTOMERS ON DEFERRED PAYMENT LETTERS OF CREDIT 1,616 5,835
PROPERTY AND EQUIPMENT-NET 4,892 5,209
ACCRUED INTEREST RECEIVABLE 19,043 19,111
GOODWILL-NET 1,571 1,658
OTHER ASSETS 18,444 22,672
----------- -----------
TOTAL $ 1,725,660 $ 1,721,300
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS $ 1,505,747 $ 1,535,606
TRUST PREFERRED SECURITIES 12,650 12,650
BANKERS ACCEPTANCES OUTSTANDING 42,998 27,767
DEFERRED PAYMENT LETTERS OF CREDIT OUTSTANDING 1,616 5,835
OTHER LIABILITIES 12,049 5,544
----------- -----------
Total liabilities 1,575,060 1,587,402
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 75,000,000 shares
authorized, 10,081,147 shares
issued and outstanding at June 30, 2000
and December 31, 1999 101 101
Capital surplus 60,702 60,708
Retained earnings 96,935 82,175
Accumulated other comprehensive loss (7,138) (9,086)
----------- -----------
Total stockholders' equity 150,600 133,898
----------- -----------
TOTAL $ 1,725,660 $ 1,721,300
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME: (Unaudited) (Unaudited)
Loans, including fees $ 26,940 $ 25,606 $ 56,345 $ 51,136
Deposits with other banks 3,437 3,754 7,278 6,995
Investment securities 6,414 1,744 9,466 4,499
Federal funds sold 815 383 1,518 849
----------- ----------- ----------- -----------
Total 37,606 31,487 74,607 63,479
INTEREST EXPENSE:
Deposits 21,490 16,846 41,655 35,014
Trust preferred securities 308 313 617 615
Federal funds purchased and other borrowing -- 39 1 144
----------- ----------- ----------- -----------
Total 21,798 17,198 42,273 35,773
----------- ----------- ----------- -----------
NET INTEREST INCOME 15,808 14,289 32,334 27,706
PROVISION FOR CREDIT LOSSES -- 1,746 750 2,646
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES 15,808 12,543 31,584 25,060
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
Trade finance fees and commissions 2,219 3,442 4,984 6,432
Structuring and syndication fees 699 1,220 2,187 1,797
Customer service fees 449 356 849 771
Gain on sale of assets 1,343 27 1,250 214
Other 84 56 188 175
----------- ----------- ----------- -----------
Total 4,794 5,101 9,458 9,389
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Employee compensation and benefits 3,783 3,167 7,069 6,511
Occupancy and equipment 1,154 1,037 2,452 1,997
Other 3,641 3,257 8,071 6,122
----------- ----------- ----------- -----------
Total 8,578 7,461 17,592 14,630
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 12,024 10,183 23,450 19,819
PROVISION FOR INCOME TAXES 4,468 3,750 8,690 7,318
----------- ----------- ----------- -----------
NET INCOME $ 7,556 $ 6,433 $ 14,760 $ 12,501
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
BASIC $ 0.75 $ 0.64 $ 1.46 $ 1.24
=========== =========== =========== ===========
DILUTED $ 0.74 $ 0.63 $ 1.44 $ 1.22
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING:
BASIC 10,081,147 10,065,908 10,081,147 10,061,037
=========== =========== =========== ===========
DILUTED 10,230,315 10,274,527 10,225,838 10,276,353
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
NET INCOME $ 7,556 $ 6,433 $ 14,760 $ 12,501
OTHER COMPREHENSIVE INCOME, Net of tax:
Net change in unrealized loss on securities available
for sale during period 958 70 2,350 414
Less: Reclassification adjustment for gains included
in net income (750) 0 (402) 0
Less: Reclassification adjustment for write off of a
foreign bank stock 0 0 0 (187)
-------- -------- -------- --------
Total (208) 70 1,948 227
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 7,348 $ 6,503 $ 16,708 $ 12,728
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 5
HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
-------------------- Capital Retained Comprehensive Stockholders'
Shares Amount Surplus Earnings Loss Equity
---------- ------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 (audited) 10,081,147 $ 101 $ 60,708 $ 82,175 ($9,086) $ 133,898
Adjustment of tax liabilities
due to stock options excercised (6) (6)
Net change in unrealized loss on
securities available for sale,
net of taxes 1,948 1,948
Net income for the six months ended
June 30, 2000 14,760 14,760
---------- ------ ---------- ---------- ------- ----------
Balance as of June 30, 2000
(Unaudited) 10,081,147 $ 101 $ 60,702 $ 96,935 ($7,138) $ 150,600
========== ====== ========== ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
HAMILTON BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For Six Months Ended June 30,
-----------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,760 $ 12,501
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 749 665
Provision for credit losses 750 2,646
Deferred tax (credit) provision (385) 59
Write off of available for sale security 0 187
Net loss gain on sale of loans 0 (188)
Net loss gain on sale of other real estate owned 0 (26)
Net loss gain on sale of fixed assets (13) 0
Net loss gain on sale of investments (1,165) 0
Proceeds from the sale of bankers acceptances 6,510 14,397
Decrease (increase) in accrued interest receivable and other assets 3,525 (2,304)
Increase (decrease) in other liabilities 6,500 (1,550)
--------- ---------
Net cash provided by operating activities 31,231 26,387
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in interest-earning deposits with other banks 58,646 26,601
Purchase of securities available for sale (494,722) (401,679)
Purchase of securities held to maturity 0 (10,760)
Proceeds from sales and maturities of securities available for sale 405,463 413,172
Proceeds from paydowns of securities held to maturity 0 1,864
Proceeds from sale of loans 0 11,148
Decrease (increase) in loans-net 7,128 (7,900)
Purchases of property and equipment-net (348) (581)
Proceeds from sale of other real estate owned 0 38
--------- ---------
Net cash (used in) provided by investing activities (23,833) 31,903
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (29,859) (64,064)
Proceeds from trust preferred securities offering 0 1,650
Payment of other borrowing 0 (6,116)
Net proceeds from exercise of common stock options 0 188
--------- ---------
Net cash used in financing activities (29,859) (68,342)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (22,461) (10,052)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 85,110 111,790
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 62,649 $ 101,738
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 32,535 $ 37,002
========= =========
Income taxes paid during the period $ 3,109 $ 7,569
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
HAMILTON BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1: BASIS OF PRESENTATION
The consolidated statements of condition for Hamilton Bancorp Inc. and
Subsidiary (the "Company") as of June 30, 2000 and December 31, 1999, the
related consolidated statements of income, stockholders' equity and the cash
flows for the six months ended June 30, 2000 and 1999 included in the Form 10-Q
have been prepared by the Company in conformity with the instructions to Form
10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements are unaudited except for the
consolidated statement of condition as of December 31, 1999.
The accounting policies followed for interim financial reporting are consistent
with the accounting policies set forth in Note 1 to the consolidated financial
statements appearing in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 as filed with the Securities and Exchange Commission.
NOTE 2: NET INCOME PER COMMON SHARE
Basic earnings per share is computed by dividing the Company's net income by the
weighted average number of shares outstanding during the period.
Diluted earnings per share is computed by dividing the Company's net income by
the weighted average number of shares outstanding and the dilutive impact of
potential common stock, primarily stock options. The dilutive impact of common
stock is determined by applying the treasury stock method.
NOTE 3: STOCK OPTIONS
On January 3, 2000, the Company granted 96,759 options at an exercise price of
$17.75. These options vest in thirds; twelve, eighteen and twenty-four months
after the grant if the individual is then employed with the Company.
NOTE 4: REGULATORY CAPITAL
The Company is subject to risk-based capital and leverage guidelines issued by
the Board of Governors of the Federal Reserve System. These guidelines are used
to evaluate capital adequacy and include required minimums. Following an
examination conducted by the Federal Reserve examiners, the Company was directed
by the Federal Reserve to file required reports following generally accepted
accounting principles and not in accordance with the regulatory accounting
interpretations of the Office of the Comptroller of the Currency ("OCC"). The
Bank was directed by the OCC to record certain adjustments for regulatory
reporting purposes discussed in the Capital Resources section. These adjustments
amount to $35,445,000 and $42,651,000 for June 30, 2000 and December 31, 1999,
respectively. The notes to the financial statements of December 31, 1999
discussed additional adjustments as disputed items not recorded by the Bank.
Subsequently and in the interest of regulatory compliance, these adjustments in
the amount of $17,776,000 were recorded for regulatory reporting purposes and
the corresponding reports were amended as mandated by the OCC. During the first
six months, these adjustments were reduced by the following events: (I) a
reduction of the allocated transfer risk reserve of $2,810,000 and (ii) realized
gains in the sales of assets previously written down of $4,396,000.
6
<PAGE> 8
The capital ratios presented for the Company in the Capital Resources section
are calculated using the following components of Tier I and Total Capital:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ---------
<S> <C> <C>
Stockholders' equity per generally accepted accounting principles $ 150,600 $ 133,898
Trust preferred securities 12,650 12,650
Less intangible assets (1,571) (1,658)
Other accumulated comprehensive loss 7,117 9,086
--------- ---------
Tier I Capital 168,796 153,976
Tier II Capital 14,884 14,776
--------- ---------
Total Capital $ 183,680 $ 168,752
========= =========
</TABLE>
7
<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Hamilton Bancorp Inc. ("Bancorp") is a bank holding company which conducts
operations principally through its 99.8 percent subsidiary, Hamilton Bank, N.A.
(the "Bank" and, collectively with Bancorp, the "Company"). The Bank is a
national bank which specializes in financing trade flows between domestic and
international companies on a global basis, with particular emphasis on trade
with and between South America, Central America, the Caribbean (collectively,
the "Region") and the United States. The Bank has a network of nine FDIC-insured
branches with eight Florida locations in Miami, Sarasota, Tampa, West Palm
Beach, Winter Haven and Weston, and a branch in San Juan, Puerto Rico.
FINANCIAL CONDITION - JUNE 30, 2000 VS. DECEMBER 31, 1999.
Total consolidated assets remained relatively the same at $1.72 billion at June
30, 2000 although there were changes within the asset categories. Cash and cash
equivalents decreased by $22.5 million or 26.4 percent. Securities available for
sale increased by 34.1 percent to $367.8 million of which approximately $163.2
million represents additional liquidity.
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 $62.6 million at June 30, 2000 compared to $85.1 million at
December 31, 1999.
INTEREST-EARNING DEPOSITS WITH OTHER BANKS AND INVESTMENT SECURITIES
Interest-earning deposits with other banks decreased to $129.0 million at
June 30, 2000 from $187.7 million at December 31, 1999. These deposits are
placed with correspondent banks in the Region, generally on a short-term basis
(less than 365 days), to increase yields and enhance relationships with the
correspondent banks. The level of such deposits has diminished as the exposure
in the Region has decreased during the six months ended June 30, 2000. The
short-term nature of these deposits allows the Company the flexibility to later
redeploy assets into higher yielding loans component.
Investment securities increased to $367.8 million at June 30, 2000 from
$274.3 million at December 31, 1999. The increase has been primarily in
U.S. government agency securities and to a lesser extent U. S. government
mortgage backed securities. The government agency securities are short term in
nature and allow the Company the flexibility of liquidity and the ability to
convert these assets into higher yielding loans as these become accessible. The
mortgage backed securities diversify the Company's portfolio, are eligible
collateral for securing public funds and qualify as a Community Reinvestment Act
investment.
8
<PAGE> 10
LOANS
The Company's gross loan portfolio decreased by $16.0 million, during the first
six months of 2000 in relation to the year ended December 31, 1999. This
decrease was primarily in loans to banks and other financial institutions -
foreign which decreased by $23.3 million. Details on the loans by type are shown
in the table below. At June 30, 2000 approximately 43.6 percent of the Company's
portfolio consisted of loans to domestic borrowers and 56.4 percent of the
Company's portfolio consisted of loans to foreign borrowers. The Company's loan
portfolio is relatively short-term, as approximately 60.5 and 73.9 percent of
loans at June 30, 2000 were short-term loans with average maturities of less
than 180 and less than 365 days, respectively.
The following table sets forth the loans by type in the Company's loan portfolio
at the dates indicated.
LOANS BY TYPE
(in thousands)
June 30, 2000 December 31, 1999
------------- ------------------
Domestic:
Commercial (1) $ 402,845 $ 394,841
Acceptances discounted 74,723 59,040
Residential mortgages 2,057 2,140
---------- ----------
Subtotal Domestic 479,625 456,021
---------- ----------
Foreign:
Banks and other financial institutions 200,859 224,155
Commercial and industrial (1) 337,630 338,411
Acceptances discounted 39,763 59,256
Government and official institutions 42,319 38,358
---------- ----------
Subtotal Foreign 620,571 660,180
---------- ----------
Total Loans $1,100,196 $1,116,201
========== ==========
(1) Includes pre-export financing, warehouse receipts and refinancing of letter
of credits.
9
<PAGE> 11
The following tables largely reflect both the Company's growth and
diversification in financing trade flows between the United States and the
Region in terms of loans by country and cross-border outstandings by country.
The aggregate amount of the Company's crossborder outstandings by primary credit
risk include cash and demand deposits with other banks, interest earning
deposits with other banks, investment securities, due from customers on bankers
acceptances, due from customers on deferred payment letters of credit and loans,
net of related deposits. Exposure levels in any given country at the end of each
period may be impacted by the flow of trade between the United States (and to a
large extent Florida) and the given countries, as well as the price of the
underlying goods or commodities being financed.
At June 30, 2000 approximately 27.1percent in principal amount of the Company's
loans were outstanding to borrowers in four countries other than the United
States: Panama (12.2 percent), Guatemala (6.2 percent), El Salvador (4.9
percent) and Brazil (3.8 percent).
LOANS BY COUNTRY
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------- ----------------------
Percent of Percent of
Country Amount Total Loans Amount Total Loans
------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C>
United States $ 479,625 43.6% $ 456,021 40.9%
Argentina 22,910 2.1% 35,494 3.2%
Brazil 42,178 3.8% 49,214 4.4%
British West Indies (1) -- -- 22,082 2.0%
Colombia 24,722 2.2% 28,437 2.5%
Dominican Republic 38,740 3.5% 41,604 3.7%
Ecuador 40,912 3.7% 43,622 3.9%
El Salvador 53,383 4.9% 45,847 4.1%
Guatemala 67,897 6.2% 66,531 6.0%
Honduras 39,079 3.6% 42,352 3.8%
Jamaica 39,428 3.6% 28,628 2.6%
Panama 134,364 12.2% 127,419 11.4%
Peru 22,116 2.0% 29,648 2.7%
Venezuela 16,804 1.5% 17,842 1.6%
Other (2) 78,038 7.1% 81,460 7.3%
---------- ----- ---------- -----
Total $1,100,196 100.0% $1,116,201 100.0%
========== ===== ========== =====
</TABLE>
(1) These countries had loans in periods presented which did not exceed 1
percent of total loans.
(2) Other consists of loans to borrowers in countries in which loans did not
exceed 1 percent of total loans.
10
<PAGE> 12
At June 30, 2000 approximately 26.3 percent of total assets were cross-border
outstandings to borrowers in five countries other than the United States: Brazil
(7.2 percent), Panama (7.1 percent), Guatemala (4.5 percent), Ecuador (4.2
percent) and Argentina (3.3 percent).
TOTAL CROSS-BORDER OUTSTANDINGS BY COUNTRY
(Dollars in millions)
June 30, 2000 December 31, 1999
--------------------- ----------------------
% of Total % of Total
Amount Assets Amount Assets
------ ------ ------ ------
Argentina $57 3.3% $113 6.6%
Bahamas 17 1.0% 21 1.2%
Bolivia (1) - -% 18 1.0%
Brazil 124 7.2% 173 10.1%
Colombia 45 2.6% 48 2.8%
Dominican Republic 44 2.5% 55 3.2%
Ecuador 72 4.2% 78 4.5%
El Salvador 52 3.0% 44 2.6%
Guatemala 78 4.5% 68 4.0%
Honduras 38 2.2% 43 2.5%
Jamaica 44 2.5% 35 2.0%
Mexico 13 0.8% 20 1.2%
Panama 122 7.1% 116 6.7%
Peru 30 1.7% 42 2.4%
Suriname 36 2.1% 32 1.9%
United Kingdom 15 0.9% 15 0.9%
Venezuela 19 1.1% 17 1.0%
Other (2) 77 4.5% 75 4.4%
----- ---- ------- ----
Total $ 883 51.2% $ 1,013 58.9%
===== ==== ======= ====
(1) These countries had outstandings in periods presented which did not exceed
1 percent of total assets.
(2) Other consists of cross-border outstandings to countries in which such
cross-border outstandings did not exceed 0.75 percent of the Company's
total assets at any of the dates shown.
11
<PAGE> 13
CONTINGENCIES - COMMERCIAL LETTERS OF CREDIT
(in thousands)
The following table sets forth the total volume and average monthly volume of
the Company's export and import letters of credit for each of the periods
indicated. As shown by the table, the volume of commercial letters of credit
increased by 21.7 percent to $280.4 million for the six months ended June 30,
2000 when compared to the same period in 1999. This increase is due to greater
domestic import activities, which increased by 30.0 percent, and to a lesser
extent, export activities, which increased by 11.7 percent.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended
--------------------------------------------------- ----------------------
2000 1999 December 31, 1999
---------------------- ---------------------- ----------------------
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) $116,522 $ 19,420 $104,352 $ 17,392 $227,904 $ 18,992
Import Letters of Credit (1) 163,862 27,310 126,031 21,005 296,943 24,745
-------- -------- -------- -------- -------- --------
Total $280,384 $ 46,730 $230,383 $ 38,397 $524,847 $ 43,737
======== ======== ======== ======== ======== ========
</TABLE>
(1) Represents certain contingent liabilities not reflected on the Company's
balance sheet.
12
<PAGE> 14
The following table sets forth the distribution of the Company's contingent
liabilities by country of the applicant and issuing bank for import and export
letters of credit, respectively. As shown by the table, contingent liabilities
decreased by 1.5 percent from December 31, 1999 to June 30, 2000. Individual
fluctuations reflect relative changes in the flow of trade or instruments used
in financing such trade as well as the cyclical nature of certain trade
activities.
CONTINGENT LIABILITIES (1)
(in thousands)
June 30, 2000 December 31, 1999
------------- -----------------
Aruba (2) $ -- $ 3,720
Costa Rica (2) -- 9,893
Dominican Republic 5,879 4,707
El Salvador 2,172 2,734
Guatemala 6,235 9,475
Guyana 3,155 4,165
Haiti (2) -- 5,705
Honduras 4,097 4,174
Jamaica (2) 9,703 --
Panama 7,173 14,242
Paraguay (2) 4,317 --
Peru 3,431 3,573
Suriname 2,282 5,677
United States 95,895 74,643
Venezuela (2) -- 2,593
Other (3) 4,841 6,143
-------- --------
Total $149,180 $151,444
======== ========
(1) Includes export and import letters of credit, standby letters of credit
and letters of indemnity.
(2) These countries had contingencies which represented less than 1 percent
of the Company's total contingencies at periods presented in the above
dates.
(3) Other includes those countries in which contingencies represent less
than 1 percent of the Company's total contingencies at each of the
above dates.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses reflects management's judgment of the level of
allowance adequate to provide for reasonably foreseeable losses, based upon the
following factors: (i) the economic conditions in those countries in the Region
in which the Company conducts trade finance activities; (ii) the credit
condition of its customers and correspondent banks, as well as the underlying
collateral, if any; (iii) historical experience; and (iv) the average maturity
of its loan portfolio.
In addition, although the Company's credit losses have been relatively limited
to date, management believes that the level of the Company's 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
13
<PAGE> 15
losses will prove to be adequate in light of future events and developments. At
June 30, 2000 the allowance for credit losses was approximately $20.2 million.
The following table provides certain information with respect to the Company's
allowance for credit losses, provision for credit losses, charge-off and
recovery activity for the periods shown.
CREDIT LOSS EXPERIENCE
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31,1999
------------- ----------------
<S> <C> <C>
Balance of allowance for credit losses at
beginning of period $ 21,411 $ 12,794
Charge-offs:
Domestic:
Commercial (87) (3,299)
Acceptances (297) --
Installment -- (5)
----------- -----------
Total Domestic (384) (3,304)
----------- -----------
Foreign:
Banks and other financial institutions (200) (2,330)
Commercial and industrial (1,393) (6,216)
----------- -----------
Total Foreign (1,593) (8,546)
----------- -----------
Total charge-offs (1,977) (11,850)
----------- -----------
Recoveries:
Domestic:
Commercial 2 4
Foreign:
Banks and other financial institutions 41 163
----------- -----------
Total recoveries 43 167
----------- -----------
Net (charge-offs) recoveries (1,934) (11,683)
Provision for credit losses 750 20,300
----------- -----------
Balance at end of the period $ 20,227 $ 21,411
=========== ===========
Average loans $ 1,182,161 $ 1,194,667
Total loans $ 1,100,196 $ 1,116,201
Net charge-offs to average loans 0.17% 0.98%
Allowance to total loans 1.84% 1.92%
</TABLE>
14
<PAGE> 16
The following tables set forth an analysis of the allocation of the allowance
for credit losses by category of loans and the allowance for credit losses
allocated to foreign loans. The allowance is established to cover potential
losses inherent in the portfolio as a whole or is available to cover potential
losses on any of the Company's loans. Because of the decrease in foreign loans,
the allowance allocated to foreign loans was also reduced which reflects a
negative provision for credit losses attributable to foreign loans. The level
of allowance allocated to foreign loans was also influenced by the
strengthening of the Latin America economies, the collateral composition of
non-performing loans, the reduction in Ecuadorian loans and the low loan growth
during the period.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
(in thousands)
<TABLE>
<CAPTION>
As of As of
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Allocation of the allowance by category of loans:
Domestic:
Commercial $ 9,047 $ 3,199
Acceptances 299 269
Residential 10 10
--------- ---------
Total domestic 9,356 3,478
Foreign:
Government and official institutions 169 1,496
Banks and other financial institutions 1,105 5,152
Commercial and industrial 9,438 11,015
Acceptances discounted 159 270
--------- ---------
Total foreign 10,871 17,933
Total $ 20,227 $ 21,411
========= =========
Percent of loans in each category to total loans:
Domestic:
Commercial 36.6% 35.4%
Acceptances 6.8% 5.3%
Residential 0.2% 0.2%
--------- ---------
Total domestic 43.6% 40.9%
Foreign:
Banks and other financial institutions 18.3% 20.1%
Commercial and industrial 30.7% 30.3%
Acceptances discounted 3.6% 5.3%
Government and official Institutions 3.8% 3.4%
--------- ---------
Total foreign 56.4% 59.1%
Total 100.0% 100.0%
========= =========
</TABLE>
15
<PAGE> 17
ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES ALLOCATED TO FOREIGN LOANS
(in thousands)
June 30, 2000 December 31, 1999
------------- -----------------
Balance, beginning of year $ 17,933 $ 11,379
Provision for credit losses (5,510) 14,937
Net charge-offs (1,552) (8,383)
-------- --------
Balance, end of period $ 10,871 $ 17,933
======== ========
The Company does not have a rigid charge-off policy but instead charges off
loans on a case-by-case basis as determined by management and approved by the
Board of Directors. In some instances, loans may remain in the nonaccrual
category for a period of time during which the borrower and the Company
negotiate restructured repayment terms.
The Company attributes its favorable asset quality to the short-term nature of
its loan portfolio, the composition of its borrower base, the importance that
borrowers in the Region attach to maintaining their continuing access to
financing for foreign trade and the Company's loan underwriting policies.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for
Impairment of a Loan. Under these standards, individually identified impaired
loans are measured based on the present value of payments expected to be
received, using the historical effective loan rate as the discount rate.
Alternatively, measurement may also be based on observable market prices or, for
loans that are solely dependent on the collateral for repayment, measurement may
be based on the fair value of the collateral. The Company evaluates commercial
loans individually for impairment, while groups of smaller-balance homogeneous
loans (generally residential mortgage and installment loans) are collectively
evaluated for impairment.
The following table sets forth information regarding the Company's nonperforming
loans at the dates indicated.
NONPERFORMING LOANS
(in thousands)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
Domestic:
Non accrual $16,383 $ 6,995
Past due over 90 days and accruing 1,851 --
------- -------
Total domestic nonperforming loans 18,234 6,995
------- -------
Foreign:
Non accrual 16,608 9,588
Past due over 90 days and accruing -- 1,992
------- -------
Total foreign nonperforming loans 16,608 11,580
------- -------
Total nonperforming loans $34,842 $18,575
======= =======
Total nonperforming loans to total loans 3.12% 1.66%
Total nonperforming assets to total assets 2.18% 1.08%
</TABLE>
At June 30, 2000 the Company had $4.7 million in nonperforming investment
securities and other assets. At December 31, 1999 the Company had no
nonperforming investment securities
16
<PAGE> 18
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 $43.0 million and $1.6 million, respectively, at June 30, 2000
compared to $27.8 million and $5.8 million, respectively, at December 31, 1999.
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 the Company's domestic time deposits are its eight Bank
branches located in Florida and one in Puerto Rico. In pricing its deposits, the
Company analyzes the market carefully, attempting to price its deposits
competitively with the other financial institutions in the area.
Total deposits were $1.505 billion at June 30, 2000 compared to $1.536 billion
at December 31, 1999. The decrease in deposits during the six month period was
largely in certificates of deposits under $100,000 which decreased by $75.9
million . This decrease was offset by increases in overnight funds and
certificates of deposit over $100,000 of $37.6 and $16.0 million, respectively.
The following table indicates the maturities and amounts of certificates of
deposit and other time deposits issued in denominations of $100,000 or more as
of June 30, 2000:
MATURITIES OF AND AMOUNTS OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS
$100,000 OR MORE
(in thousands)
<TABLE>
<CAPTION>
Certificates of Deposit Other Time Deposits
$100,000 or More $100,000 or More Total
----------------------- ------------------- --------
<S> <C> <C> <C>
Three months or less $125,878 $ 21,482 $147,360
Over 3 through 6 months 91,255 336 91,591
Over 6 through 12 months 140,511 4,151 144,662
Over 12 months 67,839 -- 67,839
-------- -------- --------
Total $425,483 $ 25,969 $451,452
======== ======== ========
</TABLE>
STOCKHOLDERS' EQUITY
The Company's stockholders' equity at June 30, 2000 was $150.6 million compared
to $133.9 million at December 31, 1999. During this period stockholders' equity
increased by $16.7 million primarily due to the retention of net income and the
recovery in market value of the securities available for sale.
INTEREST RATE SENSITIVITY
The following table presents the projected maturities or interest rate
adjustments of the Company's earning assets and interest-bearing funding sources
based upon the contractual maturities or adjustment dates at June 30, 2000. 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.
17
<PAGE> 19
INTEREST RATE SENSITIVITY REPORT
(Dollars in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
0 to 30 31 to 90 91 to 180 181 to 365 1 to 5 Over 5
Days Days Days Days Years Years Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans $ 563,390 $ 162,947 $ 108,094 $ 79,613 $ 167,544 $ 18,608 $1,100,196
Federal funds sold 39,933 39,933
Investment securities 139,458 72,282 27,593 25,176 11,966 86,125 362,600
Interest earning deposits with
other banks 30,064 39,877 16,333 38,765 4,000 129,039
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 772,845 275,106 152,020 143,554 183,510 104,733 1,631,768
---------- ---------- ---------- ---------- ---------- ---------- ----------
Funding Sources:
Savings and transaction deposits 30,023 75,764 36,750 142,537
Certificates of deposits of $100K
or more 46,349 79,529 91,255 140,511 67,839 425,483
Certificates of deposits under
$100K 42,706 137,314 216,536 220,732 123,611 38 740,937
Other time deposits 18,480 3,002 336 4,151 25,969
Funds overnight 101,085 101,085
Trust preferred securities 12,650 12,650
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $ 238,643 $ 295,609 $ 344,877 $ 365,394 $ 191,450 $ 12,688 $1,448,661
========== ========== ========== ========== ========== ========== ==========
Interest sensitivity gap $ 534,202 $ (20,503) $ (192,857) $ (221,840) $ (7,940) $ 92,045 $ 183,107
========== ========== ========== ========== ========== ========== ==========
Cumulative gap $ 534,202 $ 513,699 $ 320,842 $ 99,002 $ 91,062 $ 183,107
========== ========== ========== ========== ========== ==========
Cumulative gap as a percentage
of total earning assets 32.74% 31.48% 19.66% 6.07% 5.58% 11.22%
========== ========== ========== ========== ========== ==========
</TABLE>
18
<PAGE> 20
LIQUIDITY
Cash and cash equivalents decreased by $22.5 million from December 31, 1999 to
June 30, 2000. During the first six months of 2000, net cash provided by
operating activities was $31.2 million, net cash used in investing activities
was $23.8 million and net cash used in financing activities was $29.9 million.
For further information on cash flows, see the Consolidated Statement of Cash
Flows.
The Company's principal sources of liquidity and funding are its diverse deposit
base and the sale 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.
The majority of the Company's deposits are short-term and closely match the
short-term nature of the Company's assets. See "Interest Rate Sensitivity
Report." At June 30, 2000 interest-earning assets maturing or repricing within
six months were $1.200 billion, representing 73.5 percent of total earning
assets. Earning assets maturing or repricing within one year were $1.344 billion
or 82.3 percent of total earning assets. The interest bearing liabilities
maturing within six months were $879.1 million or 60.7 percent of total interest
bearing liabilities and maturing within one year were $1.244 billion or 85.9
percent of the total at June 30, 2000.
The short-term nature of the loan portfolio and the fact that a portion of the
loan portfolio consists of bankers' acceptances provides additional liquidity to
the Company. Liquid assets at June 30, 2000 were $404.6 million, 23.5 percent of
total assets, and consisted of cash and cash equivalents, interest earning
deposits with other banks and available for sale investment securities maturing
within one year or less that are unpledged. At June 30, 2000 the Company had
been advised of $34 million in available interbank funding.
CAPITAL RESOURCES
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of 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.
As part of its examination process, the Office of the Comptroller of the
Currency ("OCC") has directed the Bank, among other things, to take $32 million
in transfer risk reserves related to the Bank's exposure in Ecuador and
valuation of certain assets based upon the OCC's interpretation of regulatory
accounting rules. While the Bank has taken the actions directed by the OCC for
regulatory reporting purposes only, it disagrees with the OCC's interpretations
of the regulatory accounting rules and is appealing such directions within the
OCC. In an attempt to resolve the issue, the Bank has asked its counsel to
independently review the facts underlying the events that led to the accounting
disagreement and render a report to the Bank which the Bank will then share with
its accountants. The OCC has initiated formal administrative action under
Section 8 of the Federal Deposit Insurance Act which the Bank has not agreed to
and which the Bank is appealing and disputing in appropriate administrative
actions within the OCC. As a part of the formal administrative action, the OCC
has issued a temporary cease and desist order to the Bank containing certain
accounting and capital requirements and requiring certain reports and filings,
all of which the Bank believes it has complied with or was already in compliance
with, except for certain reports which it will prepare and deliver in a timely
manner under the order. As a result of the formal administrative action,
however, the Bank may not accept new, or renew, "brokered deposits" without the
prior approval of the Federal Deposit Insurance Corporation or appoint new
directors or senior officers without the prior consent of the OCC. The Bank does
not anticipate that either of such restrictions will have any material adverse
effect on its business or operations. The Company is satisfied that the reserves
it recorded in the third quarter of 1999 relating to its Ecuador and other Latin
American exposures are adequate and in accordance with generally accepted
accounting principles ("GAAP").
19
<PAGE> 21
The Company is required by the Board of Governors of the Federal Reserve System
Bancorp and the Company to file its reports with the Federal Reserve in
accordance with GAAP, not in accordance with the OCC's regulatory accounting
interpretations. As such, the capital ratios presented for the Company are
calculated on a different basis than those presented for the Bank because of the
aforementioned adjustments.
COMPANY CAPITAL RATIOS
(Dollars in thousands)
June 30, 2000 December 31, 1999
--------------------- -------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
Tier 1 risk-weighted
Capital:
Actual $168,796 14.2% $153,976 13.1%
Minimum 48,078 4.0% 47,019 4.0%
Total risk-weighted
Capital:
Actual 183,680 15.5% 168,752 14.4%
Minimum 96,157 8.0% 94,037 8.0%
Leverage:
Actual 168,796 9.7% 153,976 8.9%
Minimum 52,381 3.0% 51,659 3.0%
BANK CAPITAL RATIOS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------------------ ------------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
<S> <C> <C> <C> <C>
Tier 1 risk-weighted capital:
Actual $ 124,760 11.0% $ 121,497 10.2%
Minimum to be well capitalized 69,349 6.0% 71,633 6.0%
Minimum to be adequately capitalized 46,233 4.0% 47,755 4.0%
Total risk-weighted capital:
Actual 139,492 12.2% 136,501 11.4%
Minimum to be well capitalized 115,582 10.0% 119,389 10.0%
Minimum to be adequately capitalized 92,466 8.0% 95,511 8.0%
Leverage:
Actual 124,760 7.4% 121,497 7.1%
Minimum to be well capitalized 84,843 5.0% 85,629 5.0%
Minimum to be adequately capitalized 67,874 4.0% 68,503 4.0%
</TABLE>
MARKET RISK MANAGEMENT
In the normal course of conducting business activities, the Company is exposed
to market risk which includes both price and liquidity risk. The Company's price
risk arises from fluctuations in interest rates, and foreign exchange rates that
may result in changes in values of financial instruments. The Company does not
have material direct market risk related to commodity and equity prices.
Liquidity risk arises from the possibility that the Company may not be able to
satisfy current and future financial commitments or that the Company may not be
able to liquidate financial instruments at market prices. Risk management
policies and procedures have been established and are utilized to manage the
Company's?exposure to market risk. The strategy of the Company is to operate at
an acceptable risk environment while maximizing its earnings.
20
<PAGE> 22
Market risk is managed by the Asset Liability Committee which formulates and
monitors the performance of the Company based on established levels of market
risk as dictated by policy. In setting the tolerance levels of market risk, the
Committee considers the impact on both earnings and capital, based on potential
changes in the outlook in market rates, global and regional economies,
liquidity, business strategies and other factors.
The Company's asset and liability management process is utilized to manage
interest rate risk through the structuring of balance sheet and off-balance
sheet portfolios. It is the strategy of the Company to maintain as neutral an
interest rate risk position as possible. By utilizing this strategy the Company
"locks in" a spread between interest earning assets and interest-bearing
liabilities. Given the matching strategy of the Company and the fact that it
does not maintain significant medium and/or long-term exposure positions, the
Company's interest rate risk will be measured and quantified through an interest
rate sensitivity report. An excess of assets or liabilities over these matched
items results in a gap or mismatch. A positive gap denotes asset sensitivity and
normally means that an increase in interest rates would have a positive effect
on net interest income. On the other hand a negative gap denotes liability
sensitivity and normally means that a decline in interest rates would have a
positive effect in net interest income. However, because different types of
assets and liabilities with similar maturities may reprice at different rates or
may otherwise react differently to changes in overall market rates or
conditions, changes in prevailing interest rates may not necessarily have such
effects on net interest income.
Interest Rate Sensitivity Report as of June 30, 2000 shows that interest earning
assets maturing or repricing within one year exceed interest bearing liabilities
by $99.0 million. The Company monitors that the assets and liabilities are
closely matched to minimize interest rate risk.
The level of imbalance between the repricing of rate sensitive assets and rate
sensitive liabilities will be measured through a series of ratios. Substantially
all of the Company's assets and liabilities are denominated in dollars,
therefore the Company has no material foreign exchange risk. In addition, the
Company has no trading account securities, therefore it is not exposed to market
risk resulting from trading activities.
On a daily basis the Bank's Controller and the Bank's Treasurer are
responsible for measuring and managing market risk.
RESULTS OF OPERATIONS-SIX MONTHS
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on loans
and investments and interest paid on deposits and other sources of funds. It
constitutes the Company's principal source of income. Net interest income
increased to $32.3 million for the six months ended June 30, 2000 from $27.7
million for the same period in 1999, a 16.6 percent increase. The increase was
due largely to an increase in the net interest margin as well as an increase in
average earning assets. Average earning assets increased to $1.646 billion for
the six months ended June 30, 2000 from $1.517 billion for the same period in
1999, an 8.5 percent increase. Average loans and acceptances discounted
increased to $1.182 billion for the six months ended June 30, 2000 from $1.165
billion for the same period in 1999, a 1.5 percent increase, despite the
reclassification of bearer debt securities underwritten as loans and considered
in the loan portfolio during 1999. Management changed its original intent to
hold these securities to maturity and approximately $166 million in foreign debt
securities were reclassified to investments available for sale. The overall
increase in loans was largely attributable to trade finance activities within
the Region. Net interest margin increased to 3.94 percent for the six months
ended June 30, 2000 from 3.68 percent for the same period in 1999, a 26 basis
point increase. This increase is due primarily to the increases in the prime
rate during the last six months which has in turn increased the base for pricing
commercial loans.
Interest income increased to $74.6 million for the six months ended June 30,
2000 from $63.5 million for the same period in 1999, a 17.5 percent increase,
reflecting the increase in commercial loan balances and the increase in
prevailing interest rates. Interest expense increased to $42.3 million for the
six months ended June 30, 2000 from $35.8 million for the same period in 1999,
an 18.2 percent increase. Average interest-bearing deposits increased to $1.440
billion for the six months ended June 30, 2000 from $1.329 billion for the same
period in 1999, an 8.4 percent increase. The growth in deposits was primarily a
result of the Company seeking additional deposits to fund asset growth.
21
<PAGE> 23
<TABLE>
<CAPTION>
YIELDS EARNED AND RATE PAID
------------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended
---------------------------------------------------------------------------
June 30, 2000 June 30, 1999
Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate
----------- -------- ------ ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Earning Assets
Loans:
Commercial loans $1,058,511 $49,927 9.33% $1,038,509 $45,004 8.62%
Acceptances Discounted 114,067 5,455 9.46% 113,276 5,031 8.83%
Overdraft 7,475 878 23.23% 9,271 985 21.13%
Mortgage loans 2,108 85 7.98% 3,711 116 6.22%
---------- ------- ---------- -------
Total Loans 1,182,161 56,345 9.43% 1,164,767 51,136 8.73%
Time Deposit with Banks 153,161 7,278 9.40% 158,758 6,995 8.76%
Investments 259,924 9,466 7.20% 159,007 4,499 5.63%
Federal funds sold 51,137 1,518 5.87% 34,764 849 4.86%
---------- ------- ----- ---------- ------- -----
Total Investments and Time Deposit with Banks 464,222 18,262 7.78% 352,529 12,343 6.96%
Total Interest Earning assets 1,646,383 74,607 8.96% 1,517,296 63,479 8.32%
------- ----- ------- -----
Total non interest earning assets 86,765 104,533
---------- ----------
Total Assets $1,733,148 $1,621,829
========== ==========
Interest Bearing Liabilities
Deposits:
NOW and savings accounts $ 21,916 265 2.39% $ 22,756 271 2.37%
Money Market 44,817 1,310 5.78% 44,762 1,028 4.57%
Presidential Money Market 68,578 1,921 5.54% 33,119 789 4.74%
Certificate of Deposits (including IRA) 1,217,235 35,794 5.82% 1,121,146 30,444 5.40%
Time Deposits with Banks (IBF) 87,530 2,365 5.34% 107,695 2,482 4.58%
---------- ------- ----- ---------- ------- -----
Total Deposits 1,440,076 41,655 5.72% 1,329,478 35,014 5.24%
Trust preferred securities 12,650 617 9.75% 12,522 615 9.77%
Federal Funds Purchased 27 1 6.48% 2,734 103 7.49%
Other Borrowings 0 0 0.00% 1,614 41 5.05%
---------- ------- ----- ---------- ------- -----
Total interest bearing liabilities 1,452,753 42,273 5.76% 1,346,348 35,773 5.28%
---------- ------- ----- ---------- ------- -----
Non interest bearing liabilities
Demand Deposits 78,032 73,940
Other Liabilities 56,076 71,832
---------- ----------
Total non-interest bearing liabilities 134,108 145,772
Stockholders' equity 146,287 129,709
---------- ----------
Total Liabilities and Stockholders' Equity $1,733,148 $1,621,829
========== ==========
Net Interest income/net interest spread $32,334 3.21% $27,706 3.04%
======= ===== ======= =====
Margin
Interest income/interest earning assets 9.09% 8.44%
Interest expense/interest earning assets 5.15% 4.76%
Net interest margin 3.94% 3.68%
</TABLE>
22
<PAGE> 24
PROVISION FOR CREDIT LOSSES
The Company's provision for credit losses decreased to $750 thousand for the six
months ended June 30, 2000 from $2.6 million for the same period in 1999. Net
loan charge-offs during the first six months of 2000 amounted to $1.93 million
compared to $2.74 million for the same period in 1999. The allowance for credit
losses increased from $12.7 million at June 30, 1999 to $20.2 million at June
30, 2000.
NON-INTEREST INCOME
Non-interest income remained relatively stable, $9.5 million for the six months
ended June 30, 2000 compared to $9.4 million for the same period in 1999. The
increase in structuring and syndication fees of $390 thousand, was offset by a
decrease in trade finance fees and commissions of $1.4 million. The Company
realized a gain on the sale of foreign debt securities of $1.2 million during
the six month period.
The following table sets forth details regarding the components of non-interest
income for the periods indicated.
NON-INTEREST INCOME
(Dollars in thousands)
For the Six Months Ended June 30,
---------------------------------------
1999 to 2000
1999 Percent Change 2000
---- -------------- ----
Trade finance fees and commissions $ 6,432 -22.5% $ 4,984
Structuring and syndication fees 1,797 21.7% 2,187
Customer service fees 771 10.1% 849
Gain (loss) on sale of assets 214 484.1% 1,250
Other 175 7.4% 188
------- ----- -------
Total non-interest income $ 9,389 0.7% $ 9,458
======= ===== =======
OPERATING EXPENSES
Operating expenses increased to $17.6 million for the six months ended June 30,
2000 from $14.6 million for the same period in 1999, a 20.6 percent increase.
The majority of this increase was in other losses and charge-offs which
increased to $2.6 million from $1.1 million largely as a result of a write off
of a receivable. The Company's efficiency ratio increased to 41.6 percent for
the six month period ended June 30, 2000 from 38.5 percent for the same period
in 1999.
The following table sets forth details regarding the components of operating
expenses for the periods indicated.
23
<PAGE> 25
OPERATING EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
1999 to 2000
1999 Percent Change 2000
------- -------------- -------
<S> <C> <C> <C>
Employee compensation and benefits $ 6,511 8.6% $ 7,069
Occupancy and equipment 1,997 22.8% 2,452
Legal Expenses 1,221 -12.3% 1,071
Other losses & charge-offs 1,093 136.1% 2,581
Other operating expenses 3,808 16.0% 4,419
-------- ---- --------
Total operating expenses $ 14,630 20.2% $ 17,592
======== ==== ========
</TABLE>
RESULTS OF OPERATIONS - SECOND QUARTER
Net interest income increased to $15.8 million for the quarter ended June 30,
2000 from $14.3 million for the same period in 1999, a 10.5 percent increase.
This increase was due to an increase in average earning assets of 12.1 percent
to $1.663 billion, from $1.483 billion for the same period in 1999. Average
loans decreased to $1.121 billion after excluding $136 million in loans
reclassified to investments available for sale discussed earlier. In addition,
average investments increased by approximately $86 million to $344.6 million
after considering the reclassification of investments recorded at December 31,
1999. Net interest margin decreased by 10 basis points to 3.81 percent for the
quarter ended June 30, 2000, from 3.91 percent for the same period in 1999. The
primary reason for the decrease in the net interest margin is a result of
increased liquidity during the quarter ended June 30, 2000.
Interest income increased to $37.6 million for the quarter ended June 30, 2000
from $31.5 for the same period in 1999 a 19.4 percent increase reflecting the
increase in average investments. In addition, the yield earned on loans
increased by 73 basis points to 9.50 percent at June 30, 2000 from 8.77 percent
at the same period in 1999. Interest expense increased to $21.8 million, an
increase of 26.7 percent when compared to the same period in 1999. Average
interest bearing liabilities increased by 12.0 percent to $1.465 billion when
compared to the same period in 1999. The increase in average interest bearing
deposits was primarily in certificate of deposits which increased by 12.5
percent to $1.218 billion at June 30, 2000 when compared to the same period in
1999. In addition, the yield paid on interest bearing liabilities increased by
63 basis points to 5.89 percent for the three months ended June 30, 2000 when
compared to the same period in 1999.
24
<PAGE> 26
<TABLE>
<CAPTION>
YIELDS EARNED AND RATE PAID
------------------------------------------------------------------------------------------------------------------------------------
For The Quarter Ended
---------------------------------------------------------------------------
June 30, 2000 June 30, 1999
----------------------------------- ---------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Earning Assets
Loans:
Commercial loans $ 996,724 $23,674 9.40% $1,048,923 $22,883 8.73%
Acceptances Discounted 113,569 2,733 9.52% 109,550 2,389 8.72%
Overdraft 9,191 491 21.13% 6,505 289 17.77%
Mortgage loans 2,089 42 7.95% 2,322 45 7.75%
---------- ------- ---------- -------
TOTAL LOANS 1,121,573 26,940 9.50% 1,167,300 25,606 8.77%
Time Deposit with Banks 144,214 3,437 9.43% 162,295 3,754 9.25%
Investments 344,565 6,414 7.36% 122,672 1,744 5.69%
Federal funds sold 52,386 815 6.15% 31,084 383 4.93%
---------- ------- ----- ---------- ------- -----
Total Investments and Time Deposit with Banks 541,165 10,666 7.80% 316,051 5,881 7.44%
Total Interest Earning assets 1,662,738 37,606 8.95% 1,483,351 31,487 8.49%
------- ----- ------- -----
Total non interest earning assets 84,877 87,781
---------- ----------
Total Assets $1,747,615 $1,571,132
========== ==========
Interest Bearing Liabilities
Deposits:
NOW and savings accounts $ 21,663 133 2.43% $ 23,847 162 2.72%
Money Market 45,578 680 5.90% 43,686 499 4.57%
Presidential Money Market 71,577 1,015 5.61% 40,482 484 4.78%
Certificate of Deposits (including IRA) 1,218,136 18,301 5.94% 1,082,645 14,556 5.38%
Time Deposits with Banks (IBF) and Other 95,344 1,361 5.65% 102,145 1,145 4.48%
---------- ------- ----- ---------- ------- -----
Total Deposits 1,452,298 21,490 5.85% 1,292,805 16,846 5.21%
Trust preferred securities 12,650 308 9.74% 12,650 313 9.90%
Federal Funds Purchased 0 0 0.00% 0 0 0.00%
Other Borrowings 0 0 0.00% 3,101 39 5.03%
---------- ------- ----- ---------- ------- -----
Total interest bearing liabilities 1,464,948 21,798 5.89% 1,308,556 17,198 5.26%
---------- ------- ----- ---------- ------- -----
Non interest bearing liabilities
Demand Deposits 74,893 72,389
Other Liabilities 59,691 57,126
---------- ----------
Total non interest bearing liabilities 134,584 129,515
Stockholders' equity 148,083 133,061
---------- ----------
Total Liabilities and Stockholders' Equity $1,747,615 $1,571,132
========== ==========
Net Interest income/net interest spread $15,808 3.06% $14,289 3.23%
======= ===== ======= =====
Margin
Interest income/interest earning assets 9.07% 8.61%
Interest expense/interest earning assets 5.26% 4.70%
----- -----
Net interest margin 3.81% 3.91%
</TABLE>
25
<PAGE> 27
NON-INTEREST INCOME
Non-interest income decreased by six percent, $4.8 million for the three months
ended June 30, 2000 compared to $5.1 million for the same period in 1999. In
addition, the Company realized a gain on the sale of foreign debt securities of
$1.2 million during the three month period which offset decreases in trade
finance fees and structuring and syndication fees.
The following table sets forth details regarding the components of non-interest
income for the periods indicated.
NON-INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
----------------------------------------------
1999 to 2000
1999 Percent Change 2000
---- -------------- ----
<S> <C> <C> <C>
Trade finance fees and commissions $3,442 -35.5% $2,219
Structuring and syndication fees 1,220 -42.7% 699
Customer service fees 356 26.1% 449
Gain (loss) on sale of assets 27 4874.1% 1,343
Other 56 50.0% 84
------ ------ ------
Total non-interest income $5,101 -6.0% $4,794
====== ====== ======
</TABLE>
OPERATING EXPENSES
Operating expenses increased to $8.6 million for the quarter ended June 30, 2000
from $7.5 million for the same period in 1999 an increase of 15.0 percent. The
increase was primarily in employee compensation and benefits attributable to an
increase in the domestic commercial lending department that was added in the
second quarter to expand the Company's domestic loan activities.
OPERATING EXPENSES
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
----------------------------------------------
1999 to 2000
1999 Percent Change 2000
---- -------------- ----
<S> <C> <C> <C>
Employee compensation and benefits $ 3,167 19.5% $ 3,783
Occupancy and equipment 1,037 11.3% 1,154
Other operating expenses 3,257 11.8% 3,641
------- ---- -------
Total operating expenses $ 7,461 15.0% $ 8,578
======= ==== =======
</TABLE>
26
<PAGE> 28
PART II
OTHER INFORMATION
ITEM 1. 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 Hamilton Bank in the United States Bankruptcy Court for
the Southern District of Florida objecting to Hamilton Bank's proof of claim in
the Chapter 11 proceeding and affirmatively seeking damages against Hamilton
Bank in excess 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 that were
filed by the Trustee against other defendants that were involved with Model
Imperial seeking essentially the same amount of damages as in the action against
Hamilton Bank. The Company believes the claims are without merit and is
vigorously defending the action. A trial of various bankruptcy preference claims
in excess of $12,000,000 was held in November, 1999. The Judge rendered a
decision on May 16, 2000 holding Hamilton Bank's proof of claim was subordinate
to DSI's and granting monetary bankruptcy preference damages against Hamilton
Bank in the amount of $2,448,148. Both Hamilton Bank and DSI have appealed this
decision.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2000 Hamilton Bancorp Inc.
/s/ J. Carlos Bernace
-------------------------------
J. Carlos Bernace,
Executive Vice President
/s/ EVA LYNN HERNANDEZ
-------------------------------
Eva Lynn Hernandez
Vice President - Finance,
Controller and Chief
Accounting Officer
28
