|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Because AmericasBank Corp. has no material operations and conducts no business on its own other than owning its subsidiary, AmericasBank, this discussion
primarily concerns the business of AmericasBank. However, for ease of reading and because our financial statements are presented on a consolidated basis, unless the context requires otherwise, references to “we” or “our” refers
to both AmericasBank Corp. and AmericasBank.
General
AmericasBank Corp. was incorporated as a Maryland corporation on June 4, 1996, to become a one-bank holding company by acquiring all of the capital stock of AmericasBank, a federal stock savings bank, upon its
formation. AmericasBank commenced operations on December 1, 1997. On March 20, 1999, AmericasBank converted from a federal stock savings bank to a Maryland chartered trust company exercising the powers of a commercial bank. The Company has
no significant assets, other than all of the outstanding shares of AmericasBank, and no significant liabilities. AmericasBank Corp. neither owns nor leases any property, but instead uses the premises and equipment of AmericasBank.
AmericasBank is a community-oriented financial institution dedicated to serving the financial service needs of consumers and businesses within its market
areas. AmericasBank is subject to extensive regulation, examination and supervision by the Maryland Commissioner of Financial Regulation and by the Board of Governors of the Federal Reserve System, its primary federal regulator. AmericasBank is a
member of the Federal Home Loan Bank of Atlanta.
Strategy
Our long-term strategy is to become a family of high-performing community banking centers, each organized to look, act, and feel like an independent local bank with its own separate identity. Each of the community
banking centers in this family will operate as a division of AmericasBank, and all of the centers will share centralized services including operating systems and processing, funds transfer, loan administration and credit policy oversight, compliance
and risk management, and human resources administration. Each banking center will be staffed by a president and team of business development officers, including a residential and commercial mortgage lending group.
We believe that small, independently-operated community banking centers like ours can be highly successful by providing personal service and common sense
solutions more effectively than big banks. Our high-access service model will be personified by our individual bank presidents, each of whom will be a respected and long-standing member of the community in which his or her banking center operates.
Customers will have direct access to the president of the banking centers and the other decision makers on the banking center’s team. A marketing campaign will inform the local community of the benefits of banking locally, stressing the
advantages of dealing directly with our president and other top management staff—a team of capable, professional, and seasoned bankers who have the authority to bring the power of their institution to bear on the customer’s unique needs.
Our strategy is more business-oriented than retail-oriented, with the exception of our residential mortgage business. We will focus on
promoting business entrepreneurship and home ownership by delivering value-added products and services to selected customers in the communities that we serve. Specifically, we will seek to obtain low-cost core deposits from small businesses in our
market areas, and then invest those funds primarily into in-market residential and commercial real estate loans and commercial loans as we identify opportunities via our network of mortgage originators and community bankers. Obtaining low-cost core
deposits in lieu of depending on high rate certificates of deposit will reduce our overall cost of funds and ultimately improve our net interest margin.
To succeed with our strategy, we must effectively differentiate ourselves from our competitors, including the larger financial service companies operating in our markets. We believe we can do this by being more
creative, flexible and responsive to the needs of our customers through our intimate familiarity with our market and the particular circumstances of our customers. We have observed that by consistently providing customer service beyond what is
expected, we attract the specific customers we seek and they, in turn, become our best advocates and referral sources. Since 2004, we have realigned and expanded bank and loan operations with experienced staff and also invested in new banking
products.
8
We are using the $11 million in capital that we raised in our 2006 offering to execute this expansion
strategy, which allows us to effectively leverage our investment in bank and loan operations. We believe that independent banking centers are an efficient way to enter a market and drive the operation to profitability relatively quickly. In addition
to the banking centers we have already organized in the Towson and Annapolis markets, we are seeking to identify and enter as many as three additional markets in Central Maryland by 2012. County seats of government are centers of influence and
affluence and will be the prime targets for our new banking centers as we expand.
We anticipate that, over the short term, net income will
be reduced as we incur capital expenditures and non-interest expense, including marketing expense, in opening and operating new banking centers—until the new banking centers become profitable. Further, because we will likely enter new markets
by first building a mortgage lending presence, we anticipate that in each new market we will solicit higher cost deposits to fund loan growth. We also anticipate that our dependence on high-cost deposits will diminish as we increase core deposit
growth in the new market.
Summary of Recent Performance
We reported net income of $23,252, or $0.01 per basic and diluted common share, for the three months ended September 30, 2007, an increase of $383,047 from our net loss of $359,795, or $(0.14) per basic and
diluted common share, for the three months ended September 30, 2006. Our net income for the nine months ended September 30, 2007, was $265,659 or $0.10 per basic and diluted common share, an increase of $830,177 from our net loss of
$564,518 or $(0.25) per basic and diluted common share for the nine months ended September 30, 2006.
During the three months ended
September 30, 2007, we reported 63.7% growth in average loans and 60.1% growth in total interest revenue compared to the three months ended September 30, 2006. This resulted in $454,663 or 49.2% growth in net interest income between the
comparative quarters, and a slight improvement in the net interest margin to 4.19% for the three months ended September 30, 2007, from 4.12% for the three months ended September 30, 2006.
The provision for loan and lease losses was $126,500 for the three months ended September 30, 2007, compared to $470,000 for the three months ended
September 30, 2006. The provision for the three months ended September 30, 2007, was attributable to our risk assessment of the loan portfolio at September 30, 2007, and to the $14,362,992 in loan growth in the third quarter of 2007.
For the three months ended September 30, 2006, the provision for loan and lease losses included $123,000 to provide for the $15,808,057 in gross loan growth during the third quarter of 2006, and $112,000 to increase the allowance percentage on
residential investment properties to reflect the softness in the local real estate market. The provision for the three months ended September 30, 2006, also included $167,000 provided for a $587,761 land development loan that was nonaccrual,
and a special provision of $68,000 for the downgrade in the risk rating on several loans in the portfolio.
Mortgage loans originated for
sale in the secondary market fell below our levels from a year ago in both the three and nine month periods ended September 30, 2007. Mortgage banking gains and fees were $76,177 and $254,606 for the three and nine months ended
September 30, 2007, compared to $98,262 and $268,533 for the three and nine months ended September 30, 2006. We operate under a business model whereby our mortgage loan officers are expected to originate loans for sale in the secondary
market and refer loan business to the Bank for our loan portfolio. This sales group has maintained a steady referral of loan business to the Bank and their efforts have contributed to the growth in loans. These loans, while principally secured by
real estate, tend to be for commercial and investment purposes such as builder construction, owner occupied businesses, and investors who are rehabbing either one or several 1 to 4 family residential properties. It has been and will continue to be
our strategy to leverage our mortgage loan originators as a source for building our portfolio loans. We believe that our strategy of building a loan portfolio based on real estate based products will allow us to continue to maintain good asset
quality and is consistent with our risk management policies.
Noninterest expenses increased $395,149, or 42.1%, to $1,333,411 for the
three months ended September 30, 2007, from $938,262 for the three months ended September 30, 2006. We experienced an increase in all major expense categories in the third quarter of 2007 compared to 2006, which is mostly attributable to
the costs associated with our growth and expansion activities in the Towson and Annapolis markets. In addition to the larger expense base arising from our expansion, we expect further increases in noninterest expenses for the remainder of 2007,
mainly associated with branding and media campaigns for both markets.
Total assets increased by $28,965,386, or 26.8%, to $137,123,484 at
September 30, 2007, from $108,158,098 at December 31, 2006. Average interest earning assets for the three months ended September 30, 2007, were $130,512,343, an increase of $41,460,726, or 46.6%, from the $89,051,617 in average
interest earning assets during the third quarter of 2006.
9
Total deposits at September 30, 2007, were $119,884,757, an increase of 30.9% from $91,584,537 at
December 31, 2006. The increase in deposits is primarily the result of growth in money market accounts and premium rate certificates of deposit obtained through an Internet-based service and retail broker channels. Noninterest bearing deposits
were $7,582,609 at September 30, 2007, compared to $9,074,405 at December 31, 2006, reflecting a decrease in deposits from title companies. Daily deposit balances from title companies can increase and decrease significantly throughout the
month due to the nature of their business and the variability of the real estate market.
Results of Operations
Net Interest Income
Net
interest income is the difference between interest revenue on assets and the cost of funds supporting those assets. Earning assets are comprised primarily of loans, investments and federal funds sold; interest-bearing deposits and short-term
borrowings make up the cost of funds. Noninterest bearing deposits and capital are also funding sources. Changes in the volume and mix of earning assets and funding sources along with changes in associated interest rates determine changes in net
interest income.
Net interest income for the three and nine months ended September 30, 2007, increased 49.2% and 60.2%, respectively,
to $1,379,537 from $924,874 for the three months ended September 30, 2006, and to $3,749,553 from $2,340,282 for the nine months ended September 30, 2006.
Total interest revenue increased for the three months ended September 30, 2007, to $2,784,139, from $1,738,658 for the three months ended September 30, 2006, and to $7,433,467 for the nine months ended
September 30, 2007, from $4,351,530 for the nine months ended September 30, 2006. The increases are primarily attributable to increases in interest revenue from loans and leases. Interest revenue from loans and leases increased for the
three and nine months ended September 30, 2007, by $1,087,626, or 74.0% and $3,162,681, or 87.2%, respectively. These increases were partially offset by decreases in interest revenue from federal funds sold and the Federal Home Loan Bank
deposits of $32,281, or 15.3% and $93,401, or 15.6% for the three and nine months ended September 30, 2007, as we deployed excess liquidity into loans.
Increases in average balances and yields on earning assets were the primary factors contributing to the significant increases in interest revenue between the comparable periods. Average loans increased by $44,210,935,
or 63.7% for the three months ended September 30, 2007, to $113,607,106 from $69,396,171 for the three months ended September 30, 2006. The yield on loans increased to 8.93% for the three months ended September 30, 2007, from 8.41%
for the three months ended September 30, 2006. Average loans increased by $42,862,938, or 72.0% for the nine months ended September 30, 2007, to $102,367,046 from $59,504,108 for the nine months ended September 30, 2006. The yield on
loans increased to 8.87% for the nine months ended September 30, 2007, from 8.15% for the nine months ended September 30, 2006.
Average federal funds sold and the Federal Home Loan Bank deposit decreased by $2,290,612, or 14.4% for the three months ended September 30, 2007, to $13,603,501 from $15,894,113 for the three months ended September 30, 2006. The
yield on these funds decreased to 5.19% for the three months ended September 30, 2007, from 5.25% for the three months ended September 30, 2006. Average federal funds sold and the Federal Home Loan Bank deposit decreased by $3,639,885, or
22.1% for the nine months ended September 30, 2007, to $12,836,513 from $16,476,398 for the nine months ended September 30, 2006. The yield on these funds increased to 5.26% for the nine months ended September 30, 2007, from 4.86% for
the nine months ended September 30, 2006.
Interest expense increased by $590,818, or 72.6% for the three months ended
September 30, 2007, to $1,404,602 from $813,784 for the three months ended September 30, 2006, and by $1,672,666, or 83.2% for the nine months ended September 30, 2007, to $3,683,914 from $2,011,248 for the nine months ended
September 30, 2006. The increase in interest expense was due to the growth in average balances of our money market accounts and premium rate certificates of deposit, and an increase in the rates paid on deposits.
Average interest bearing deposits increased by $40,371,370, or 58.6% for the three months ended September 30, 2007, to $109,217,384 from $68,846,014
for the three months ended September 30, 2006. The rate on interest-bearing deposits increased to 5.10% for the three months ended September 30, 2007, from 4.69% for the three months
10
ended September 30, 2006. Average interest bearing deposits increased by $35,598,473, or 58.0% for the nine months ended September 30, 2007, to
$96,971,865 from $61,373,392 for the nine months ended September 30, 2006. The rate on interest-bearing deposits increased to 5.08% for the nine months ended September 30, 2007, from 4.38% for the nine months ended September 30, 2006.
The majority of the increase in average interest-bearing deposits was attributable to our growth in certificates of deposit and money market accounts resulting from our marketing efforts and the use of an Internet-based service and retail broker
channels to offer certificates of deposit.
Average noninterest-bearing deposits increased by $422,392, or 6.7% for the three months ended
September 30, 2007, to $6,729,835 from $6,307,442 for the three months ended September 30, 2006. Average noninterest-bearing deposits increased by $663,597 or 10.7% for the nine months ended September 30, 2007, to $6,878,344 from
$6,214,747 for the nine months ended September 30, 2006. Noninterest-bearing deposits are mainly comprised of deposits from our business customers and title companies. The deposits from our title company customers represent approximately 50% of
our noninterest-bearing deposits at September 30, 2007, and are subject to the variability of the real estate market.
Short-term
borrowings are advances on our secured line of credit from the Federal Home Loan Bank of Atlanta. During the third quarter of 2007 we borrowed funds for the first time against this re-established line of credit. There were no short-term borrowings
outstanding at September 30, 2007 or December 31, 2006. The average borrowings for the three and nine month periods ended September 30, 2007, were $146,337 and $49,315, respectively. The interest rate paid on these borrowings was
5.15% for both the three and nine month periods ended September 30, 2007. We expect to utilize this line of credit on a frequent basis in the future to manage the liquidity of the bank.
The net margin on earning assets increased to 4.19% for the three months ended September 30, 2007, from 4.12% for the three months ended
September 30, 2006. The net margin on earning assets increased to 4.24% for the nine months ended September 30, 2007, from 3.97% for the nine months ended September 30, 2006. The increase in average interest earning loans and our new
capital contributed to the increase in the net margin on earning assets.
The following tables illustrates average balances of total
interest earning assets and total interest bearing liabilities for the periods indicated, showing the average distribution of assets, liabilities, stockholders’ equity and related revenue, expense and corresponding weighted average yields and
rates. The average balances used in these tables and other statistical data were calculated using average daily balances.
11
Average Balances, Interest, and Yields/Rates
|
|
|
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|
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|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Average
balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Average
balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Sold and FHLB deposit
|
|
|
13,603,501
|
|
|
|
178,055
|
|
5.19
|
%
|
|
$
|
15,894,113
|
|
|
$
|
210,336
|
|
5.25
|
%
|
|
FHLB and FRB stock
|
|
|
661,702
|
|
|
|
9,651
|
|
5.79
|
%
|
|
|
609,249
|
|
|
|
9,257
|
|
6.03
|
%
|
|
|
|
|
|
|
|
|
|
Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and equity securities
|
|
|
160,010
|
|
|
|
1,294
|
|
3.21
|
%
|
|
|
30,000
|
|
|
|
198
|
|
2.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
160,010
|
|
|
|
1,294
|
|
3.21
|
%
|
|
|
30,000
|
|
|
|
198
|
|
2.62
|
%
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
2,480,024
|
|
|
|
37,328
|
|
5.97
|
%
|
|
|
3,122,084
|
|
|
|
48,682
|
|
6.19
|
%
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
28,752,886
|
|
|
|
626,679
|
|
8.65
|
%
|
|
|
32,345,968
|
|
|
|
672,414
|
|
8.25
|
%
|
|
Construction and land development
|
|
|
53,721,366
|
|
|
|
1,256,801
|
|
9.28
|
%
|
|
|
13,268,744
|
|
|
|
297,021
|
|
8.88
|
%
|
|
Commercial, including real estate
|
|
|
19,071,475
|
|
|
|
415,473
|
|
8.64
|
%
|
|
|
13,017,648
|
|
|
|
271,874
|
|
8.29
|
%
|
|
Commercial finance leases
|
|
|
668,987
|
|
|
|
13,003
|
|
7.71
|
%
|
|
|
1,449,826
|
|
|
|
25,956
|
|
7.10
|
%
|
|
Home equity
|
|
|
11,216,698
|
|
|
|
242,489
|
|
8.58
|
%
|
|
|
8,919,741
|
|
|
|
195,198
|
|
8.68
|
%
|
|
Installment
|
|
|
175,694
|
|
|
|
3,366
|
|
7.60
|
%
|
|
|
394,244
|
|
|
|
7,722
|
|
7.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
113,607,106
|
|
|
|
2,557,811
|
|
8.93
|
%
|
|
|
69,396,171
|
|
|
|
1,470,185
|
|
8.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
130,512,343
|
|
|
|
2,784,139
|
|
8.46
|
%
|
|
|
89,051,617
|
|
|
|
1,738,658
|
|
7.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(1,230,035
|
)
|
|
|
|
|
|
|
|
|
(479,382
|
)
|
|
|
|
|
|
|
|
Noninterest-bearing cash
|
|
|
1,710,159
|
|
|
|
|
|
|
|
|
|
1,502,513
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
1,423,352
|
|
|
|
|
|
|
|
|
|
1,019,750
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
1,108,266
|
|
|
|
|
|
|
|
|
|
725,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
133,524,085
|
|
|
|
|
|
|
|
|
|
91,820,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
4,566,188
|
|
|
|
33,904
|
|
2.95
|
%
|
|
|
4,982,143
|
|
|
|
43,006
|
|
3.42
|
%
|
|
NOW money market and escrow
|
|
|
20,462,576
|
|
|
|
265,434
|
|
5.15
|
%
|
|
|
15,746,309
|
|
|
|
202,501
|
|
5.10
|
%
|
|
Certificates of deposit
|
|
|
84,188,620
|
|
|
|
1,103,365
|
|
5.20
|
%
|
|
|
48,117,562
|
|
|
|
568,277
|
|
4.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
109,217,384
|
|
|
|
1,402,703
|
|
5.10
|
%
|
|
|
68,846,014
|
|
|
|
813,784
|
|
4.69
|
%
|
|
Noninterest-bearing deposits
|
|
|
6,729,835
|
|
|
|
—
|
|
|
|
|
|
6,307,442
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,947,219
|
|
|
|
1,402,703
|
|
4.80
|
%
|
|
|
75,153,456
|
|
|
|
813,784
|
|
4.30
|
%
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
146,337
|
|
|
|
1,899
|
|
5.15
|
%
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,093,556
|
|
|
|
1,404,602
|
|
4.80
|
%
|
|
|
75,153,456
|
|
|
|
813,784
|
|
4.30
|
%
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
819,864
|
|
|
|
|
|
|
|
|
|
304,623
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
16,610,665
|
|
|
|
|
|
|
|
|
|
16,362,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
133,524,085
|
|
|
|
|
|
|
|
|
$
|
91,820,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
3.45
|
%
|
|
Net interest income
|
|
|
|
|
|
$
|
1,379,537
|
|
|
|
|
|
|
|
|
$
|
924,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin on earning assets
|
|
|
|
|
|
|
|
|
4.19
|
%
|
|
|
|
|
|
|
|
|
4.12
|
%
|
12
Average Balances, Interest, and Yields/Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Average
balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Average
balance
|
|
|
Interest
|
|
Yield/
Rate
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Sold and FHLB deposit
|
|
$
|
12,836,513
|
|
|
$
|
505,164
|
|
5.26
|
%
|
|
$
|
16,476,398
|
|
|
$
|
598,565
|
|
4.86
|
%
|
|
FHLB and FRB stock
|
|
|
643,687
|
|
|
|
28,602
|
|
5.94
|
%
|
|
|
414,214
|
|
|
|
17,618
|
|
5.69
|
%
|
|
|
|
|
|
|
|
|
|
Investment Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and equity securities
|
|
|
73,813
|
|
|
|
1,738
|
|
3.15
|
%
|
|
|
30,000
|
|
|
|
698
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
|
73,813
|
|
|
|
1,738
|
|
3.15
|
%
|
|
|
30,000
|
|
|
|
698
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
2,410,913
|
|
|
|
109,340
|
|
6.06
|
%
|
|
|
2,374,646
|
|
|
|
108,707
|
|
6.12
|
%
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
|
29,336,160
|
|
|
|
1,896,239
|
|
8.64
|
%
|
|
|
28,833,846
|
|
|
|
1,733,106
|
|
8.04
|
%
|
|
Construction and land development
|
|
|
43,412,639
|
|
|
|
2,975,758
|
|
9.16
|
%
|
|
|
9,991,517
|
|
|
|
631,638
|
|
8.45
|
%
|
|
Commercial, including real estate
|
|
|
17,653,696
|
|
|
|
1,138,135
|
|
8.62
|
%
|
|
|
10,753,348
|
|
|
|
660,652
|
|
8.21
|
%
|
|
Commercial finance leases
|
|
|
718,929
|
|
|
|
40,152
|
|
7.47
|
%
|
|
|
1,693,507
|
|
|
|
89,453
|
|
7.06
|
%
|
|
Home equity
|
|
|
11,028,617
|
|
|
|
726,040
|
|
8.80
|
%
|
|
|
7,863,155
|
|
|
|
490,895
|
|
8.35
|
%
|
|
Installment
|
|
|
217,005
|
|
|
|
12,299
|
|
7.58
|
%
|
|
|
368,735
|
|
|
|
20,198
|
|
7.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
102,367,046
|
|
|
|
6,788,623
|
|
8.87
|
%
|
|
|
59,504,108
|
|
|
|
3,625,942
|
|
8.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
118,331,972
|
|
|
|
7,433,467
|
|
8.40
|
%
|
|
|
78,799,366
|
|
|
|
4,351,530
|
|
7.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(1,183,105
|
)
|
|
|
|
|
|
|
|
|
(427,774
|
)
|
|
|
|
|
|
|
|
Noninterest-bearing cash
|
|
|
1,770,766
|
|
|
|
|
|
|
|
|
|
1,517,505
|
|
|
|
|
|
|
|
|
Premises and equipment
|
|
|
1,283,423
|
|
|
|
|
|
|
|
|
|
996,179
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
939,515
|
|
|
|
|
|
|
|
|
|
662,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
121,142,571
|
|
|
|
|
|
|
|
|
|
81,547,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
4,607,966
|
|
|
|
107,770
|
|
3.13
|
%
|
|
|
4,860,792
|
|
|
|
116,736
|
|
3.21
|
%
|
|
NOW money market and escrow
|
|
|
18,833,055
|
|
|
|
738,055
|
|
5.24
|
%
|
|
|
14,635,786
|
|
|
|
521,493
|
|
4.76
|
%
|
|
Certificates of deposit
|
|
|
73,530,844
|
|
|
|
2,836,190
|
|
5.16
|
%
|
|
|
41,876,814
|
|
|
|
1,373,019
|
|
4.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
96,971,865
|
|
|
|
3,682,015
|
|
5.08
|
%
|
|
|
61,373,392
|
|
|
|
2,011,248
|
|
4.38
|
%
|
|
Noninterest-bearing deposits
|
|
|
6,878,344
|
|
|
|
—
|
|
|
|
|
|
6,214,747
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,850,209
|
|
|
|
3,682,015
|
|
4.74
|
%
|
|
|
67,588,139
|
|
|
|
2,011,248
|
|
3.98
|
%
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
49,315
|
|
|
|
1,899
|
|
5.15
|
%
|
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,899,524
|
|
|
|
3,683,914
|
|
4.74
|
%
|
|
|
67,588,139
|
|
|
|
2,011,248
|
|
3.98
|
%
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
668,188
|
|
|
|
|
|
|
|
|
|
271,791
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
16,574,859
|
|
|
|
|
|
|
|
|
|
13,688,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
121,142,571
|
|
|
|
|
|
|
|
|
$
|
81,547,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
3.40
|
%
|
|
Net interest income
|
|
|
|
|
|
$
|
3,749,553
|
|
|
|
|
|
|
|
|
$
|
2,340,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin on earning assets
|
|
|
|
|
|
|
|
|
4.24
|
%
|
|
|
|
|
|
|
|
|
3.97
|
%
|
13
Provision for Loan and Lease Losses and Analysis of Allowance for Loan and Lease Losses
Lending involves a risk that our loans and leases may not be repaid in full and a credit loss will result. Credit losses occur in varying
amounts according to, among other factors, the type of loans being made, the credit-worthiness of the borrowers over the term of the loans, the quality of the collateral for the loan, if any, as well as general economic conditions. We maintain a
reserve account for credit losses called the allowance for loan and lease losses, and charge all probable credit losses against this account in accordance with regulatory guidance, industry standards, and generally accepted accounting principles. We
charge a provision for loan and lease losses to earnings to maintain our allowance for loan and lease losses at a level that we consider to represent our best estimate of the losses known and inherent in the portfolio that are both probable and
reasonable to estimate, based on, among other factors, prior loss experience, volume and type of lending conducted, industry standards, economic conditions (particularly as such conditions relate to AmericasBank’s market area), regulatory
guidance, the financial condition of the borrower, historical payment performance and the collateral securing the loans and leases. Recoveries on loans previously charged off are added back to the allowance.
The provision for loan and lease losses was $126,500 and $343,915 for the three and nine months ended September 30, 2007, compared to $470,000 and
$559,000 for the three and nine months ended September 30, 2006, respectively. The provision for each period reflects our risk assessment of the portfolio and the growth in loan and lease balances outstanding. For the three months ended
September 30, 2006, the provision for loan and lease losses included $123,000 to provide for the $15,808,057 in gross loan growth during the third quarter of 2006, and $112,000 to increase the allowance percentage on residential investment
properties to reflect the softness in the local real estate market. The provision for the three months ended September 30, 2006, also included $167,000 provided for a $587,761 land development loan that was nonaccrual, and a special provision
of $68,000 for the downgrade in the risk rating on several loans in the portfolio.
During the first nine months of 2007, we had $167,973
in loans charged off and $18,550 in recoveries compared to $10,262 in loans charged off and $12 in recoveries for the first nine months of 2006.
We have a methodology for evaluating the adequacy of the allowance for loan and lease losses that distinguishes between credits evaluated as a group by either loan or risk rating category and those evaluated individually. We have
predetermined allowance percentages based on credit types and for each risk rating category. All loans and leases are assigned a risk rating when they are made. This risk rating is reassessed by management periodically using the various evaluation
factors mentioned above. Loans and leases that exhibit an acceptable level of risk per our internal risk grading system are grouped by category and assigned a standard reserve percentage when assessing the adequacy of the allowance for loan and
lease losses. Loans and leases that are adversely risk-rated, or exhibit characteristics that suggest we have a heightened risk of default, are evaluated separately from non-adversely risk rated credits. Each adversely risk rated credit is assigned
a standard reserve based on its risk rating or a special reserve based on an assessment of the specific risk factors related to that credit, which may be greater or lesser than the standard reserve for that risk rating.
The predetermined percentages that we use are based on management’s judgment as to appropriate reserve percentages for various categories of loans,
and we adjust those values based on the following: historical losses in each category, historical and current delinquency in each category, underwriting standards in each category, comparison of our losses and delinquencies to peer group performance
and an assessment of the likely impact of economic and other external conditions on the performance of each category.
An evaluation of the
adequacy of the allowance for loan and lease losses is performed and reported to the Board of Directors on a quarterly basis by our senior lending officer. Our senior lending officer will recommend an increase or decrease in the provision and the
board will approve or disapprove the recommendation based on a discussion of the risk factors. We believe that we use the most reliable information available to us to make a determination with respect to the allowance for loan and lease losses,
recognizing that the determination is inherently subjective and that future adjustments may be necessary depending upon, among other factors, a change in economic conditions of specific borrowers or generally in the economy, and new information that
becomes available to us. However, there are no assurances that the allowance for loan and lease losses will be sufficient to absorb losses on nonperforming assets, or that the allowance will be sufficient to cover losses on nonperforming assets in
the future.
The allowance for loan and lease losses was $1,220,313 or 1.00% of loans at September 30, 2007, compared to $1,025,821 or
1.20% of loans at December 31, 2006. The decrease in the allowance for loan and lease losses as a percent of loans and leases was the result of our risk assessment of the loan and lease portfolios, management’s judgment
14
as to appropriate reserve percentages for various categories of loans, and the growth in loans outstanding. Also, the allowance declined from the loan charge
off associated with the foreclosure of a land development loan in the second quarter of 2007. Specific reserves allocated to this loan were depleted upon foreclosure and the subsequent reclassification of the debt obligation from loans to foreclosed
real estate. AmericasBank has no exposure to foreign countries or foreign borrowers. Management believes that the current allowance for loan and lease losses is adequate.
The changes in the allowance for loan and lease losses are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Year
Ended
December 31,
2006
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Balance, beginning of year
|
|
$
|
1,025,821
|
|
|
$
|
366,910
|
|
|
$
|
366,910
|
|
|
Provision charged to operations
|
|
|
343,915
|
|
|
|
559,000
|
|
|
|
656,500
|
|
|
Recoveries
|
|
|
18,550
|
|
|
|
12
|
|
|
|
9,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,388,286
|
|
|
|
925,922
|
|
|
|
1,033,051
|
|
|
Loans charged off
|
|
|
167,973
|
|
|
|
10,262
|
|
|
|
7,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,220,313
|
|
|
$
|
915,660
|
|
|
$
|
1,025,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses to total loans
|
|
|
1.00
|
%
|
|
|
1.15
|
%
|
|
|
1.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more and still accruing interest
|
|
$
|
37,950
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Revenue
Noninterest revenue consisted primarily of mortgage banking gains and fees from the sale of mortgage loans, and service charges on deposit accounts, which
includes debit card fees and ATM fees. Noninterest revenues decreased $19,967 and $6,049 for the three and nine months ended September 30, 2007, to $103,626 and $334,613, from $123,593 and $340,662 for the three and nine months ended
September 30, 2006, respectively. Revenue from mortgage banking gains and fees declined, reflecting the slowdown in the real estate market. Mortgage banking gains and fees decreased by $22,085, or 22.5%, to $76,177 for the three months ended
September 30, 2007, from $98,262 for the three months ended September 30, 2006, and by $13,927, or 5.2% to $254,606 for the nine months ended September 30, 2007, from $268,533 for the nine months ended September 30, 2006.
Service charges on deposit accounts and other fees increased to $27,449 and $80,007 for the three and nine months ended September 30,
2007, from $25,331 and $72,129 for the three and nine months ended September 30, 2006. The increase was primarily from fees on business accounts and ATM service charges.
Noninterest Expenses
Noninterest expenses increased $395,149, or 42.1% for the three months ended September 30, 2007, to $1,333,411 from $938,262 for the three months ended September 30, 2006. Noninterest expenses increased $788,130, or 29.3% for the
nine months ended September 30, 2007, to $3,474,592 from $2,686,462 for the nine months ended September 30, 2006. As we will discuss below, most of the increase in noninterest expense is associated with our expansion strategy. While the
growth in our earning asset base was able to support the 42.1% and 29.3% increases for the three and nine months of 2007, future increases to expenses associated with our expansion efforts will continue to place pressure on earnings.
Salaries increased 70.6% and 42.5% for the three and nine months ended September 30, 2007, to $675,822 and $1,707,282 from $396,049 and $1,197,914
for the three and nine months ended September 30, 2006, respectively. The increase in salaries is mostly attributed to expansion efforts. We had forty-seven full-time equivalent employees at September 30, 2007, compared to thirty-two
full-time equivalent employees at September 30, 2006. For our Towson banking center, we added a banking center president, a commercial relationship manager, and a business and community development officer. These three veteran bankers are
charged with transforming our Towson location into the banking center model described above under “Strategy.” In Annapolis, Maryland, we added a banking center president, a senior mortgage loan officer, a senior mortgage loan
administrator, a banking center manager, and two customer service representatives. We also added a commercial mortgage lending officer and administrative staff in Towson to support
15
loan growth. In all, we have added approximately $800,000 in annual salaries related to our expansion. The expense associated with these new hires mostly
began in the second and third quarters of 2007, accounting for the 70.6% and 42.5% increase in salaries noted above. The increase in salaries in the first nine months of 2007 was partially offset by an increase in the amount of salary expense
deferred as a direct cost of loan origination. We deferred $58,942 more in salary costs in the first nine months of 2007, compared to the first nine months of 2006, due to our increased loan origination activity.
Employee benefits increased 25.4% and 19.0% for the three and nine months ended September 30, 2007, to $151,458 and $431,754 from $120,784 and
$362,708 for the three and nine months ended September 30, 2006. The increase in employee benefits was related to increases in payroll taxes, 401(k) benefits, and employee training. Our service payments to Administaff also increased due to the
increase in the number of employees. For competitive reasons, we expanded our employee benefit package and human resource function in 2006 by engaging the services of Administaff, a professional employer organization. The increase in employee
benefits in the first nine months of 2007 was partially offset by an increase in the amount of benefit expense deferred as a direct cost of loan origination.
Occupancy expense increased 66.1% and 59.9% for the three and nine months ended September 30, 2007, to $89,222 and $240,761, from $53,725 and $150,559 for the three and nine months ended September 30, 2006.
The increase in the three month and nine periods is primarily from additional rent and depreciation of leasehold improvements from the expansion of our mortgage business in Frederick, Maryland, the relocation of our Towson mortgage operation group
from our headquarters building to leased space, and additional rent and depreciation of leasehold improvements from the opening of the Annapolis banking center.
Furniture and equipment expense increased 53.6% and 44.1% for the three and nine months ended September 30, 2007, to $42,985 and $124,112, from $27,983 and $86,131 for the three and nine months ended
September 30, 2006. The increase was mostly in depreciation expense arising from an increase in furniture and equipment purchased to support our expansion and business unit relocation activities.
Other expenses increased 10.1% and 9.2% for the three and nine months ended September 30, 2007, to $373,924 and $970,683, from $339,721 and $889,150
for the three and nine months ended September 30, 2006. The increase in other expenses is related to increases in our expansion activities, an increase in deposit premiums to the FDIC, loan collection expenses, and costs associated with being a
listed public company.
Analysis of Financial Condition
Investment Securities
AmericasBank’s investment portfolio consists of U.S. government
and agency securities and certain equity securities. The portfolio provides a source of liquidity and a means of diversifying AmericasBank’s earning assets. While we generally intend to hold the investment portfolio assets until maturity, we
classify the entire portfolio as available for sale. We account for securities so classified at fair value and report the unrealized gain and loss as accumulated other comprehensive income under stockholders’ equity on our consolidated balance
sheets. AmericasBank invests in securities for the yield they produce and not to profit from trading the securities. There are no trading securities in the portfolio.
The investment portfolio at September 30, 2007, consists of a U.S. Treasury security with an amortized cost of $148,946 and a estimated fair value of $147,234; a U.S. government agency note with an amortized cost
and estimated fair value of $250,000; and a $30,000 equity security. The securities are classified as available for sale. During the third quarter of 2007 we purchased the U.S. Treasury security and U.S. government agency note to pledge as
collateral for repurchase agreements with our customers.
The investment portfolio at December 31, 2006, consisted of a $30,000 equity
security. The security is classified as available for sale.
Loan Portfolio
Loans and leases, net of allowance, unearned fees and origination costs increased $35,980,972 or 42.5% to $120,567,905 at September 30, 2007, from
$84,586,933 at December 31, 2006.
16
Residential real estate loans decreased by $7,844,780, or 21.5%, construction and land development loans
increased by $37,436,528, or 171.9%, commercial loans including commercial real estate loans increased by $6,046,278, or 38.2%, commercial finance leases decreased by $555,712, or 50.1%, home equity loans increased by $1,281,224, or 12.3%, and
installment loans decreased by $123,709, or 49.6% from their respective balances at December 31, 2006. Going forward, we expect to continue to see wide changes in the percentage of loans in our various loan categories as we experience scheduled
payoffs and as we grow our loan portfolio. Also, in the first quarter of 2007 we reevaluated and expanded our internal classification of loans. This improvement did result in some loan shifting between previously reported loan categories. This shift
occurred primarily between residential real estate loans and construction and land development accounting for a portion of the unusually large variance between September 30, 2007, and December 31, 2006. We believe this change was necessary
to allow for more precise reporting of loans in future periods as we expand and grow our loan portfolio. An estimate of the impact of this action is described in note 2 to the loan portfolio table below.
Loans secured by real estate comprise the majority of the loan portfolio. AmericasBank’s loan customers are generally located in the greater
Baltimore metropolitan area.
The following table summarizes the composition of the loan portfolio by dollar amount and percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Portfolio
|
|
|
|
|
September 30,
2007
|
|
|
%
|
|
|
December 31,
2006
|
|
|
%
|
|
|
Residential real estate (1) (2)
|
|
$
|
28,561,944
|
|
|
23.41
|
%
|
|
$
|
36,406,724
|
|
|
42.45
|
%
|
|
Construction, land development and land (1) (2)
|
|
|
59,217,304
|
|
|
48.54
|
%
|
|
|
21,780,776
|
|
|
25.40
|
%
|
|
Commercial, including real estate (1) (2)
|
|
|
21,877,460
|
|
|
17.93
|
%
|
|
|
15,831,182
|
|
|
18.46
|
%
|
|
Commercial finance leases
|
|
|
554,013
|
|
|
0.45
|
%
|
|
|
1,109,725
|
|
|
1.29
|
%
|
|
Home equity
|
|
|
11,669,670
|
|
|
9.57
|
%
|
|
|
10,388,446
|
|
|
12.11
|
%
|
|
Installment
|
|
|
125,886
|
|
|
0.10
|
%
|
|
|
249,595
|
|
|
0.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,006,277
|
|
|
100.00
|
%
|
|
|
85,766,448
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan origination fees, net of cost
|
|
|
(218,059
|
)
|
|
|
|
|
|
(153,694
|
)
|
|
|
|
|
Allowance for loan and lease losses
|
|
|
(1,220,313
|
)
|
|
|
|
|
|
(1,025,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,567,905
|
|
|
|
|
|
$
|
84,586,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Our loan portfolio includes owner occupied residential mortgages and one-to-four family and multi-family mortgages to investors. At September 30, 2007, $11,223,244 of
residential real estate loans, $36,233,253 of construction and land development loans, and $5,391,133 of commercial loans, including real estate loans, were to investors. At December 31, 2006, $23,475,679 of residential real estate loans and
$6,244,244 of commercial loans, including real estate loans, were to investors.
|
|
(2)
|
The variance in these loan categories between September 30, 2007, and December 31, 2006, was also effected by the re-evaluation and expansion our internal classifications
that we implemented in the first quarter of 2007. As a result of this improvement, approximately $10 million in Residential real estate loans and $6 million in Commercial, including real estate loans were reclassified into the Construction and land
development loan category.
|
We perform monthly reviews of all delinquent loans and leases and relationship officers are
charged with working with customers to resolve potential credit issues and payment delinquency in a timely manner. We generally classify loans and leases as nonaccrual when collection of full principal and interest under the original terms of the
credit is not expected or payment of principal or interest has become 90 days past due. Classifying a credit as nonaccrual results in us no longer accruing interest on such loan or lease and reversing any interest previously accrued but not
collected. We will generally restore a nonaccrual loan or lease to accrual status when delinquent principal and interest payments are brought current and we expect to collect future monthly principal and interest payments in a timely manner and in
accordance with the original repayment schedule. Generally, we credit all interest payments received on nonaccruing credits to the principal balance of the loan or lease to reduce our credit exposure. If we have collateral that mitigates our credit
exposure, we may recognize interest as income when received.
17
Information about nonaccrual loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
2006
|
|
|
|
2007
|
|
2006
|
|
|
Nonaccrual loans
|
|
$
|
230,000
|
|
$
|
622,761
|
|
$
|
624,127
|
|
Unrecorded interest on nonaccrual loans
|
|
|
25,509
|
|
|
93,091
|
|
|
107,569
|
|
Specific reserve for nonaccrual loans included in the allowance for loan and lease losses
|
|
|
2,300
|
|
|
195,924
|
|
|
198,106
|
The reduction in nonaccrual loans at September 30, 2007, compared to the end of 2006, was
from a foreclosure action taken on one loan in which we held an approximate 10% participation. Our portion of the loan balance was $589,127 at December 31, 2006. This former non-performing loan was to a land developer for the purchase and
development of raw land that was under contract for sale as developed lots to a national homebuilder. The bank participant group purchased the property at the foreclosure auction during the second quarter of 2007. We reduced the carrying value of
this nonperforming loan from $589,127 to $440,000, and reclassified the asset to foreclosed real estate at June 30, 2007.
We apply
the provisions of Statement of Financial Accounting Standards No. 114 (“SFAS No. 114”),
Accounting by Creditors for Impairment of a Loan,
as amended by Statement of Financial Accounting Standards No. 118 (“SFAS
No. 118”),
Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure.
SFAS No. 114 and SFAS No. 118 require that impaired loans, which consist of all modified loans and other loans for which
collection of all contractual principal and interest is not probable, be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the
fair value of the collateral if the loan is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, an impairment is recognized through a valuation allowance and corresponding provision for loan
and lease losses. We write off impaired loans when collection of the loan is doubtful. We generally classify nonaccrual loans and leases as impaired. As of September 30, 2007, and December 31, 2006, no credit had been identified as
impaired other than the nonaccrual loans and leases described above.
We classify any property acquired as a result of foreclosure on a
mortgage loan as foreclosed real estate and record it at the lower of the unpaid principal balance or fair value at the date of acquisition and subsequently carry the property at the lower of cost or net realizable value. We charge any required
write-down of the loan to its net realizable value against the allowance for loan and lease losses at the time of foreclosure. We charge to expense any subsequent adjustments to net realizable value. Upon foreclosure, we generally require an
appraisal of the property and, thereafter, appraisals of the property on at least an annual basis and external inspections on at least a quarterly basis. As of September 30, 2007, we had $440,000 in foreclosed real estate, and as of
December 31, 2006, we had no foreclosed real estate.
Deposits
We seek deposits within our market area by paying competitive interest rates and offering high quality customer service. In conjunction with our growth
strategy, we offer premium rate certificates of deposit to support loan growth.
Total deposits increased by $28,300,220, or 30.9% to
$119,884,757 at September 30, 2007, from $91,584,537 at December 31, 2006. Interest-bearing deposits increased $29,792,016, or 36.1% to $112,302,148 at September 30, 2007, from $82,510,132 at December 31, 2006. Noninterest
bearing deposits decreased $1,491,796, or 16.4% to $7,582,609 at September 30, 2007, from $9,074,405 at December 31, 2006.
A
majority of the increase in our interest bearing deposits at September 30, 2007, was due to growth in money market accounts and premium rate certificates of deposits that were issued with maturities of one year or less. While the interest rates
for certificates of deposit offered through retail broker channels and the Internet-based services are higher than what we would typically pay within our market, we view these sources as efficient processes to raise deposits expeditiously and for
specific terms. The decrease in noninterest bearing deposits was primarily from a decrease in activity in our accounts held by title companies, which is consistent with the slowdown in the real estate market.
18
Liquidity
Our overall asset/liability strategy takes into account our need to maintain adequate liquidity to fund asset growth and deposit runoff. We monitor our federal funds sold position on a daily basis in that this is our
primary source of liquidity. From time to time we may sell or participate out loans to create additional liquidity as required. Additional liquidity is also available from our loans held for sale, which amounted to $1,548,633 at September 30,
2007.
The Federal Home Loan Bank of Atlanta initiated a credit review of AmericasBank and in January 2007, we were informed that credit
availability was re-established for AmericasBank at 10% of total assets. On October 25, 2007, we were notified that our credit availability was increased to 20% of total assets. All advances and other credit products requested under the credit
availability must be fully secured with eligible collateral. We also have a $1.0 million secured line of credit from a correspondent financial institution secured by eligible investment securities. There were no outstanding balances on these lines
at September 30, 2007, or December 31, 2006.
Our immediate sources of liquidity are cash and due from banks and short term
investments. As of September 30, 2007, we had $2,962,899 in cash and due from banks, and $7,694,352 in federal funds sold and Federal Home Loan Bank deposit. Management has made a decision to maintain liquidity instead of investing in
investment securities in order to ensure that funds are readily available to fund the growth of the loan portfolio. Deposits from title companies represent a deposit that is subject to more volatility, thereby increasing our need to have funds
available. We also need to maintain adequate liquidity for maturing premium rate certificates of deposit offered through the Internet and retail broker channels.
We have sufficient liquidity to meet our loan commitments as well as fluctuations in deposits. We are not aware of any demands, trends, commitments, or events that would result in our inability to meet anticipated or
unexpected liquidity needs.
Capital
Our stockholders’ equity was $16,394,053 at September 30, 2007, an increase of $401,657 from the $15,992,396 reported at December 31, 2006.
Under the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), regulatory capital guidelines apply on a
consolidated basis to bank holding companies with consolidated assets below $500 million or more only where the holding company (i) is engaged in significant nonbanking activities, (ii) conducts significant off-balance sheet activities, or
(iii) has a material amount of debt or equity securities outstanding that are registered with the Securities and Exchange Commission. The Federal Reserve also may apply consolidated regulatory capital requirements at its discretion to any bank
holding company, regardless of asset size, if it deems such action warranted for supervisory purposes. The Company has less than $500 million of assets and none of the above listed factors exist, and the Company has not otherwise been notified by
the Federal Reserve that consolidated regulatory capital requirements apply to the Company.
The Bank, however, is subject to regulatory
capital requirements. The following summarizes the Bank’s regulatory capital position at September 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AmericasBank
($ in
thousands)
|
|
Actual
|
|
|
Minimum
capital adequacy
|
|
|
To be well
capitalized
|
|
|
September 30, 2007
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
Amount
|
|
Ratio
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
16,758
|
|
13.50
|
%
|
|
$
|
9,932
|
|
8.00
|
%
|
|
$
|
12,415
|
|
10.00
|
%
|
|
Tier 1 capital (to risk-weighted assets)
|
|
$
|
15,502
|
|
12.49
|
%
|
|
$
|
4,966
|
|
4.00
|
%
|
|
$
|
7,449
|
|
6.00
|
%
|
|
Tier 1 capital (to average assets)
|
|
$
|
15,502
|
|
11.63
|
%
|
|
$
|
5,332
|
|
4.00
|
%
|
|
$
|
6,665
|
|
5.00
|
%
|
Application of Critical Accounting Policies
General
Our financial statements are
prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the industry in which we operate. Application of these principles
19
requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These
estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments.
Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions,
and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve
to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used
to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available.
The most significant accounting policies followed by AmericasBank are presented in Note 1 to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement
notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial
statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan and lease losses as the accounting area that requires the most subjective or complex
judgments, and as such could be most subject to revision as new information becomes available.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses represents management’s best estimate of losses known and inherent in the loan and lease
portfolio that are both probable and reasonable to estimate, based on, among other factors, prior loss experience, volume and type of lending conducted, industry standards, economic conditions (particularly as such conditions relate to
AmericasBank’s market area), regulatory guidance, the financial condition of the borrower, historical payment performance and the collateral securing the loans and leases. Determining the amount of the allowance for loan and lease losses is
considered a critical accounting estimate because it requires significant estimates, assumptions and judgment. The loan and lease portfolio also represents the largest asset type on the balance sheet.
We have developed a methodology for evaluating the adequacy of the allowance for loan and lease losses that distinguishes between credits evaluated as a
group by either loan or risk rating category and those evaluated individually. We have predetermined allowance percentages based on credit types and for each risk rating category. All loans and leases are assigned a risk rating when they are made.
This risk rating is reassessed by management periodically using the various evaluation factors mentioned above. Loans and leases that exhibit an acceptable level of risk per our internal risk grading system are grouped by category and assigned a
standard reserve percentage when assessing the adequacy of the allowance for loan and lease losses. Loans and leases that are adversely risk-rated, or exhibit characteristics that suggest we have a heightened risk of collection, are evaluated
separately from non-adversely risk rated credits. Each adversely risk rated credit is assigned a standard reserve based on its risk rating or a special reserve based on an assessment of the specific risk factors related to that credit, which may be
greater or lesser than the standard reserve for that risk rating.
Management has significant discretion in making the judgments inherent
in the determination of the provision and allowance for loan and lease losses, including in connection with the valuation of collateral and the financial condition of the borrower, and in establishing allowance percentages and risk ratings. The
establishment of allowance factors is a continuing exercise and allowance factors may change over time, resulting in an increase or decrease in the amount of the provision or allowance based upon the same volume and classification of loans.
Changes in allowance factors or in management’s interpretation of those factors will have a direct impact on the amount of the
provision, and a corresponding effect on income and assets. Also, errors in management’s perception and assessment of the allowance factors could result in the allowance not being adequate to cover losses in the portfolio, and may result in
additional provisions or charge-offs, which would adversely affect income and capital. For additional information regarding the allowance for loan and lease losses, see the “Provision for Loan and Lease Losses and Analysis of Allowance for Loan
and Lease Losses” section of this financial review.
Fair Value Accounting for Stock Options
The Financial Accounting Standards Board encourages use of a fair value based method of accounting for stock options. In prior periods, AmericasBank Corp.
had elected to use the intrinsic value method to account for stock-based
20
employee compensation plans in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
. Under this
method, compensation cost was recognized for awards of shares of common stock to employees only if the quoted market price of the stock at any measurement date is greater than the amount the employee must pay to acquire the stock. As permitted,
AmericasBank Corp. elected to adopt the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation
.
Effective January 1, 2005, AmericasBank Corp. began recognizing expense for stock-based compensation using the fair value based method of accounting described in Statement of Financial Accounting Standards (“SFAS”)
No. 123,
Accounting for Stock-Based Compensation
, as amended. We chose the retroactive restatement method described in SFAS No. 148,
Accounting for Stock-Based Compensation — Transition and Disclosure
, which amended SFAS
No. 123. As a result, financial information for all prior periods presented was restated to reflect the salaries expense that would have been recognized had the recognition provisions of SFAS No. 123 been applied to all awards granted to
employees.
The value of the options is estimated using the Black-Scholes option pricing model with the option life estimated at 5-9 years.
Salaries and other expense (director’s fees) included stock-based compensation of $59,948 and $137,710 for the three and nine months ended September 30, 2007, and $89,696 and $161,575 for the three and nine months ended September 30,
2006. The compensation expense not yet recognized as of September 30, 2007, was approximately $304,573.
Net Deferred Tax Asset
At September 30, 2007, we had a potential net deferred tax asset of approximately $2.4 million. The net deferred tax asset arose
primarily as a result of cumulative net operating losses. We have recorded a 100% valuation allowance against the net deferred tax asset since it has been more likely than not that the deferred tax asset will not be realized. At December 31,
2006, we had net operating loss carryovers of approximately $5.5 million available to offset future taxable income. The carryovers will begin to expire in 2017.
We evaluate the likelihood that the net operating loss carryovers and other components of the deferred tax asset are realizable. Our evaluation is based primarily on the Company’s demonstrated ability to earn
taxable income in the near future. When we determine that the components of the net deferred tax asset are more likely than not to provide future tax benefits, we will eliminate all or a portion of the approximate $2.4 million valuation allowance
and will record a corresponding increase to earnings and stockholders’ equity. The Company will subsequently record income tax expense at the statutory rate, and this expense will have a detrimental effect on reported earnings in future
periods.
Goodwill
Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in transactions accounted for as purchases. SFAS No. 142, Goodwill and Other Intangible Assets, requires that goodwill
no longer be amortized over an estimated useful life, but rather be tested at least annually for impairment. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The implied fair value of
goodwill is the amount determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit to which goodwill has been allocated from the estimated fair value of the reporting unit. If the
recorded value of goodwill exceeds its implied value, an impairment charge is recorded for the excess.
Goodwill of $266,985 was recorded
when we acquired certain assets and assumed certain liabilities of uvm Mortgage Marketing in October 2004. In June 2006, we agreed to separate our business relationship with the head of our Towson mortgage loan production office who was the former
owner of uvm Mortgage Marketing. Among the terms of the separation agreement, the employee surrendered 12,500 shares of AmericasBank Corp common stock. These shares were unvested and expired under the terms of the purchase agreement dated
October 4, 2004. Goodwill and stockholders’ equity were reduced by $64,750 to record the financial result of this transaction.
Goodwill is tested at least annually for impairment.
Off-Balance Sheet Arrangements
AmericasBank is a party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments primarily
include loan commitments, lines of credit, including home-equity lines and
21
commercial lines, and letters of credit. AmericasBank uses these financial instruments to meet the financing needs of its customers. These financial
instruments involve, to varying degrees, elements of credit, interest rate, and liquidity risk. These do not represent unusual risks and management does not anticipate any accounting losses which would have a material effect on AmericasBank Corp.
Outstanding loan commitments and lines and letters of credit at September 30, 2007, and December 31, 2006, are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2007
|
|
December 31,
2006
|
|
Unused lines of credit
|
|
|
|
|
|
|
|
Residential real estate
|
|
$
|
8,553,081
|
|
$
|
15,538,907
|
|
Commercial, including real estate
|
|
|
1,766,437
|
|
|
1,097,157
|
|
Home-equity lines
|
|
|
6,759,129
|
|
|
5,519,348
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,078,647
|
|
$
|
22,155,412
|
|
|
|
|
|
|
|
|
|
Construction and land development loan commitments
|
|
$
|
26,216,495
|
|
$
|
17,800,417
|
|
|
|
|
|
|
|
|
|
Letters of Credit
|
|
$
|
51,970
|
|
$
|
48,970
|
|
|
|
|
|
|
|
|
Loan commitments and held for sale loan commitments are agreements to lend to a customer as long
as there is no violation of any condition established in the contract. AmericasBank generally requires collateral to support financial instruments with credit risk on the same basis as it does for on-balance sheet instruments. The collateral is
based on management’s credit evaluation of the counter party. Loan commitments generally have interest rates at current market amounts, fixed expiration dates or other termination clauses and may require payment of a fee. Loans held for sale
are usually sold to the investor within 30 days. Unused lines of credit represent the amount of credit available to the customer so long as there is no violation of any contractual condition. These lines generally have variable interest rates. Since
many of the commitments are expected to expire without being drawn upon, and since it is unlikely that customers will draw upon their lines of credit in full at any time, the total commitment amount or line of credit amount does not necessarily
represent future cash requirements. The Company is not aware of any loss it would incur by funding its commitments or lines of credit.
Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. AmericasBank’s exposure to credit loss in the event of nonperformance by the customer is the contract amount of the
commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
In general, loan commitments, credit lines and letters of credit are made on the same terms, including with respect to collateral, as outstanding loans. Each customer’s credit-worthiness and the collateral
required are evaluated on a case-by-case basis.
Information Regarding Forward-Looking Statements
In addition to the historical information contained in Part I of this Quarterly Report on Form 10-QSB, the discussion in Part I of this Quarterly Report
on Form 10-QSB contains certain forward-looking statements. The statements presented herein with respect to, among other things, AmericasBank Corp.’s plans, objectives, expectations and intentions, including statements regarding profitability,
liquidity, allowance for loan and lease losses, interest rate sensitivity, market risk and financial and other goals are forward looking. These statements are based on AmericasBank Corp.’s beliefs, assumptions and on information available to
AmericasBank Corp. as of the date of this filing, and involve risks and uncertainties. These risks and uncertainties include, among others, those discussed in this Quarterly Report on Form 10-QSB; the risk that AmericasBank Corp. may continue to
incur losses; possible loss of key personnel; the inability to successfully implement strategic initiatives; risk of changes in interest rates, deposit flows and loan demand; risks associated with AmericasBank’s lending limit; risk of an
industry concentration with respect to deposits; risk of credit losses; risks associated with acting as a correspondent lender; risk associated with a slowdown in the housing market or high interest rates; the allowance for loan and lease losses may
not be sufficient; operational and credit risks of the leasing companies to which AmericasBank has extended credit in connection with the lease portfolio; dependence on third party vendors; risk of possible future regulatory action as a result of
past violations of the Real Estate Settlement Procedures Act; as well as changes in economic, competitive, governmental, regulatory, technological and other factors that may affect AmericasBank Corp. or AmericasBank specifically or the banking
industry generally.
22
For a more complete discussion of some of these risks and uncertainties see the discussion under the
caption “Factors Affecting Future Results” in AmericasBank Corp.’s Annual Report on Form 10-KSB.
AmericasBank Corp.’s
actual results could differ materially from those discussed herein and you should not put undue reliance on any forward-looking statements. All forward-looking statements speak only as of the date of this filing, and AmericasBank Corp. undertakes no
obligation to make any revisions to the forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.