-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S+xyPVJ1rCeJuNXq8Cv1/lUWGN358HTi4S2pAnL36szKP5VzT4BY/JLXUjU2MyXv xZmh5LQs1XBycisPF1UEAg== 0000950144-00-005026.txt : 20000417 0000950144-00-005026.hdr.sgml : 20000417 ACCESSION NUMBER: 0000950144-00-005026 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAMILTON BANCORP INC CENTRAL INDEX KEY: 0000894172 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 650149935 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20960 FILM NUMBER: 601406 BUSINESS ADDRESS: STREET 1: 3750 NW 87TH AVE CITY: MIAMI STATE: FL ZIP: 33178 BUSINESS PHONE: 3057175500 MAIL ADDRESS: STREET 1: 3750 NW 87TH AVE CITY: MIAMI STATE: FL ZIP: 33178 10-K 1 HAMILTON BANCORP INC. 12/31/1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________ Commission file number 0-20960 -------- Hamilton Bancorp Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Florida 65-0149935 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3750 N.W. 87th Avenue, Miami, Florida 33178 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (305) 717-5500 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange On Which Registered ------------------- ----------------------------------------- None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value 9.75% Beneficial Unsecured Securities, Series A (Liquidation Amount $10 per Capital Security) of Hamilton Capital Trust I - -------------------------------------------------------------------------------- (Title of Class) [COVER PAGE 1 OF 2 PAGES] 2 Indicate by check mark X whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this From 10-K. [ ] The aggregate market value of Registrant's Common Stock held by non-affiliates of the Registrant as of March 23, 2000 was $153,682,346 based upon the average of the high and low price of a share of Common Stock as reported by the NASDAQ National Market on such date. As of March 23, 2000, 10,081,147 shares of Registrant's Common Stock were outstanding. ------------------------- DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the following documents (as more specifically identified elsewhere in this Annual Report) are incorporated by reference herein: Part of Form 10-K into which Name of Document the document is incorporated Portions of the Registrant's Proxy Statement for Part III 2000 Annual Meeting of Stockholders [COVER PAGE 2 OF 2 PAGES] 3 FORWARD-LOOKING STATEMENTS Information contained (or incorporated by reference) in this Annual Report may constitute "forward-looking statements." Statements used (or incorporated by reference) in this Annual Report which use words such as "believes," "expects," "may," "will," "should," "projected," "contemplates" or "anticipates" or the negative of such terms or other variations may constitute forward-looking statements. Forward-looking statements are inherently uncertain, and there is no assurance that such forward-looking statements will be accurate. Such forward-looking statements include, without limitation, the Company's expectations and estimates as to domestic and international business and economic conditions and its business operations, including growth in net interest income and net income and allocations of country exposures. Other factors, such as the general state of the United States economy, as well as the economic and political conditions of the countries in which the Company conducts business operations, could also cause actual results to vary materially from the future results covered in such forward-looking statements. PART I ITEM 1. BUSINESS. General Hamilton Bancorp Inc. ("Hamilton Bancorp"), through its subsidiary, Hamilton Bank, N.A. ("Hamilton Bank"), (Hamilton Bancorp and Hamilton Bank are collectively referred to herein as the "Company"), is engaged in providing global trade finance with particular emphasis on trade with and between South America, Central America and the Caribbean (collectively, the "Region") and the United States or otherwise involving the Region. Management believes that trade finance provides the Company with the opportunity for substantial and profitable growth, primarily with moderate credit risk, and that Hamilton Bank is the only domestic financial institution in the State of Florida focusing primarily on financing foreign trade. Through its relationships with approximately 500 correspondent banks and with importers and exporters in the United States and the Region, as well as its location in South Florida, which is becoming a focal point for trade in the Region, the Company has been able to take advantage of substantial growth in this trade. Much of this growth has been associated with the adoption of economic stabilization policies in the major countries of the Region. The Company operates in all major countries throughout the Region and has been particularly active in several smaller markets, such as Guatemala, Ecuador, Panama and Peru. Management believes that these smaller markets are not primary markets for the larger, multinational financial institutions and, therefore, customers in such markets do not receive a similar level of service from such institutions as that provided by the Company. To enhance its position in certain markets, the Company has made minority investments in indigenous financial institutions in Guyana, El Salvador, Peru and Nicaragua. The Company has also strengthened its relationships with correspondent financial institutions in the Region by acting as placement agent, from time to time, for debt instruments or certificates of deposit issued by many of such institutions. The Company seeks to generate income by participating in multiple aspects of trade transactions that generate both fee and interest income. The Company earns fees primarily from opening and confirming letters of credit and discounting acceptances and earns interest on credit extended, primarily in the form of 1 4 commercial loans, for pre- and post-export financing, such as refinancing of letters of credit, and to a lesser extent, from discounted acceptances. As the economy in the Region has grown and stabilized and the Company has begun to service larger customers, the balance of the Company's trade financing activities has shifted somewhat from letters of credit to the discounting of commercial trade paper and the granting of loans, resulting in relatively less fee income but increased interest income. Virtually all of the Company's business is conducted in United States dollars. Management believes that the Company's primary focus on trade finance, its wide correspondent banking network in the Region, broad range of services offered, management experience, reputation and prompt decision-making and processing capabilities provide it with important competitive advantages in the trade finance business. The Company seeks to mitigate its credit risk through its knowledge and analysis of the markets it serves, by obtaining third-party guarantees of both local banks and importers on many transactions, by often obtaining security interests in goods being financed and by the short-term, self-liquidating nature of trade transactions. At December 31, 1999, approximately 56% of the Company's loan portfolio consisted of short-term principally trade related loans maturing within 180 days and approximately 69% maturing within 365 days. Credit is generally extended under specific credit lines for each customer and country. These credit lines are reviewed at least annually. Lending activities are funded primarily through domestic consumer deposits gathered through a network of eight branches in Florida and one branch in San Juan, Puerto Rico as well as deposits received from correspondent banks, corporate customers and private banking customers within the Region. The Company's branches are strategically located in markets where it believes there is both a concentration of retail deposits and foreign trade activity. The Company also participates in various community lending activities, and under several United States and Florida laws and regulations Hamilton Bank is considered a minority bank and is able to participate in certain beneficial minority programs involving both deposits and loans. Developments in Certain Emerging Market Countries The economies of various countries in the Region, including Brazil, Ecuador and Venezuela, have been characterized by frequent and occasionally drastic intervention by the governments and volatile economic cycles. Governments have often changed monetary, credit, tariff and other policies to influence the course of their respective economies. The actions of the Brazilian, Ecuadorian and Venezuelan Governments to control inflation and effect other policies have often involved wage and price controls as well as other interventionist measures, such as Ecuador's freezing of bank accounts early in 1999. Changes in policies in other countries in the Region involving tariffs, exchange controls, regulations and taxation could significantly increase the likelihood of causing restrictions on transfers of Dollars out of such countries, as could inflation, devaluation, social instability and other political, economic or diplomatic developments. Brazilian, Ecuadorian and Venezuelan financial and securities markets, as well as other financial and securities markets in the Region, are, to varying degrees, influenced by economic and market conditions in other emerging market countries and other countries in the Region. Although economic conditions are different in each country, investor reaction to developments in one country can have significant effects on the financial markets and securities of issuers in other countries. These developments have adversely affected the securities and other financial markets in many emerging markets, including Brazil, Ecuador and Venezuela. One result of these difficulties has been the closing of numerous banks in some countries in the Region, especially in Ecuador. To date, however, the Ecuadorian government has guaranteed the obligations of such closed banks in Ecuador. The ensuing increased market volatility in these securities and other 2 5 financial markets has also been attributed, at least in part, to the effect of these and other similar events. There can be no assurance that the various financial and securities markets in the Region, including Brazil, Ecuador and Venezuela, will not continue to be adversely affected by events elsewhere, especially in other emerging markets and in other countries in the Region. The Company will continue to take advantage of the United States and international economic environment by emphasizing the financing of trade from the Region into the United States. As a result of the deterioration of economic conditions in some countries in the Region, trade flows into the Region on a relative basis diminished in 1999 compared to recent years. In light of the United States' strong economy, government budget surplus, relatively low interest rates, strong stock market, high employment levels and strong consumer demand, trade flows from the Region into the United States increased as such countries attempt to capitalize on export opportunities as a way to increase production, stimulate revenues and thereby "export out" of their economic difficulties. The Company in 1999 placed, and expects to continue to place, more emphasis on financing imports of goods into the United States and thereby increase the relative size of its assets employed in the United Sates as compared to its exposure in the Region. In addition, prudent risk management, in particular with regard to emerging market countries, calls for avoidance of high concentrations of risk in these countries in relation to a bank's capital. Currently, United States bank regulatory agencies consider that exposure in these markets should be limited to levels that would not impair the safety and soundness of a banking institution. As a consequence, the Company's exposure in the Region was significantly reduced in 1999 in relation to the Company's capital. Background of the Company Hamilton Bancorp was formed as a bank holding company in 1988 in Miami, Florida, to acquire 99.7% of the issued and outstanding shares of Hamilton Bank. Hamilton Bank was acquired by Hamilton Bancorp to take advantage of perceived opportunities to finance foreign trade between United States corporate customers and companies in the Region, as the area emerged from the Latin American debt crisis of the early 1980's, particularly since most non-Regional financial institutions had limited interest in financing trade with the Region at that time. Members of the Company's management, who had extensive experience in trade finance in the Region, re-established contacts in the Region, primarily with banks. Hamilton Bank initially offered its services confirming letters of credit for banks in the Region. Hamilton Bank then began to market its other trade related services and products to beneficiaries of its letters of credit. As Hamilton Bank's relationships with correspondent banks developed and as it developed corporate clients in the United States, Hamilton Bank's trade finance activity continued to increase. Hamilton Bank's business expanded into its other products and services, which primarily included other types of trade financing instruments. Market for Company Services International trade between the United States and the Region as well as between the State of Florida and the Region has grown significantly during the five year period ended December 31, 1999. Recent treaties and agreements relating to trade are expected to eliminate certain trade barriers and open up certain economic sectors to competition, as well as to liberalize trade between the United States and many countries with respect to a variety of goods and services. A high and increasing percentage of this trade requires financing. The growth and importance of trade in the United States and the Region also increases the number of small and medium-sized firms engaged in trade and in need of trade finance services. Many financial institutions in the United States in general and Florida in particular are not adequately staffed to handle such financing on a large 3 6 scale, or to judge the creditworthiness of companies or banks in the Region and, accordingly, eschew trade financing or limit the scope of their trade financing activity. This has been partially responsible for the expanding market for the Company's trade financing services. Management believes that the Company has carved out a niche for itself as the only Florida financial institution the business of which is focused predominantly on financing foreign trade in the Region. The Company initially focused on providing services and products to smaller banks and corporate customers in the Region and smaller companies in Florida doing business in the Region, as well as financial institutions and customers in smaller countries in the Region where a more limited number of large, multinational banks conduct business. The Company's willingness to provide trade financing in these situations frequently results in it obtaining business from the same customers involving larger countries in the Region, as well. A significant percentage of the Company's trade financing business now involves such larger countries. The Company does not, however, have a significant share of the overall market in larger countries in the Region, such as Brazil and Argentina, where it competes more frequently with larger, multinational financial institutions. The Company also provides products and services for multinational corporations, such as major commodities houses, and purchases participation interests in the trade financing of multinational financial institutions to companies in the Region. The Company's trade financing allows for the movement of commodities such as sugar, grain and steel, and consumer goods such as textiles and appliances, as well as computer hardware, capital equipment and other items. Trade Finance Services and Products The manufacture or production and distribution of any product or good generally results in a number of trade transactions which, together, make up a trade cycle. For example, a seller of shirts purchases buttons and materials, arranges for manufacture and often contracts with a distributor who sells the products to retailers. The Company attempts to become involved in and to finance as many stages of a trade cycle as possible. Since the Company's primary focus is on trade finance, the Company offers a wider array of trade finance products and services than most institutions it competes with, although some of the Company's products and services, such as import and export letters of credit, are offered by almost all financial institutions engaged in trade finance, and most of the Company's products are offered by some financial institutions. The principal trade related products and services which the Company offers include: o COMMERCIAL DOCUMENTARY LETTERS OF CREDIT. Commercial documentary letters of credit are obligations issued by a financial institution in connection with trade transactions where the financial institution's credit is effectively substituted for that of its customer, who is buying goods or services from the beneficiaries of those letters of credit. When the bank issuing a letter of credit is not well known or is an unacceptable risk to the beneficiary, the issuing bank must obtain a guarantee or confirmation of the letter of credit by an acceptable bank in the beneficiary's market. When the Company confirms a letter of credit it assumes the credit risk of the issuing bank and generally takes a security interest in the goods being financed. These obligations, which are governed by their own special set of legal rules, call for payment by the financial institution against presentation of certain documents showing that the purchased goods or services have been provided or are forthcoming. From time to time, a financial institution issues a commercial documentary letter of credit ("back-to-back") against receipt of a letter of credit from another bank in order to finance the purchase of goods. The Company commenced its trade financing activities by confirming letters of credit for correspondent financial institutions in the Region and then began to sell other products and services to the beneficiaries of 4 7 such letters of credit. Commercial letters of credit are contingent liabilities of the Company that are not recorded on the Company's balance sheet and which generate fee income. Upon payment of a letter of credit, the Company may refinance the obligation through a loan which will be reflected on the Company's balance sheet as "Loans-net." o BANKERS' ACCEPTANCES. A bankers' acceptance is a time draft drawn on a bank and accepted by it. Acceptance of the draft obligates the bank to unconditionally pay the face value to whomever presents it at maturity. Drafts accepted by the Company are reflected on the asset side of the Company's balance sheet as "Due from Customers on Bankers' Acceptances" and on the liability side as "Bankers' Acceptances Outstanding." The Company receives a fee upon acceptance of a draft. Discounted bankers' acceptances represent the purchase by a financial institution of a draft at a discount. This assists an exporter in providing terms to an importer under a letter of credit and also provides liquidity to the exporter. Discounted bankers' acceptances are discounts of forward maturity items and are included on the Company's balance sheet under "Loans-net." The Company receives both fee and interest income from discounted bankers' acceptances. o DISCOUNTED TRADE ACCEPTANCES. Discounted trade acceptances represent an obligation of an importer to pay money on a certain date in the future, which obligation has been accepted by the importer as payable to the exporter, then sold by the exporter at a discount to a financial institution. If with recourse, the financial institution as holder of this instrument has recourse at maturity of the acceptance to the exporter as well as the accepting importer. If without recourse, the financial institution holding the acceptance has no recourse to the exporter, but only to the accepting importer. Discounted trade acceptances are discounts of forward maturity items and are included on the Company's balance sheet under "Loans-net." The Company receives primarily interest income from discounted trade acceptances. o PRE-EXPORT FINANCING. Pre-export financing is provided by a financial institution, either directly or indirectly through a second bank, to an exporter who has a definitive international contract for the sale of certain goods or services. Such financing funds the exporter's manufacture, assembly and sale of these goods or services to the purchaser abroad. Pre-export financing is reflected on the balance sheet as "Loans-net". The Company receives primarily interest income from pre-export financing. o WAREHOUSE RECEIPT FINANCING. Warehouse receipt financing provides temporary financing, usually at a significant loan to collateral discount, for goods temporarily held in an independent warehouse pending their sale and/or delivery in a trade transaction. The goods are evidenced by a receipt issued by the independent warehouse where the goods are stored. Possession of that receipt gives the financial institution a perfected security interest in those goods to collateralize the credit that it is providing. Warehouse receipt financing is reflected on the balance sheet as "Loans-net". The Company receives primarily interest income from warehouse receipt financing. o DOCUMENTARY COLLECTIONS. For a fee, a United States financial institution will assist financial institutions to collect at maturity various drafts, acceptances or other obligations which have come due and which are owed by parties abroad or in the United States. Documentary collections are not reflected on the balance sheet and are not contingent obligations of the Company. The Company receives fee income from documentary collections. 5 8 o FOREIGN EXCHANGE TRANSACTIONS. Foreign exchange services consist of the purchase of foreign currency on behalf of a customer. This service includes both spot and forward transactions. Such transactions may be conducted in both hard and soft currencies (i.e., those which are widely accepted internationally and those that are not). The Company conducts such transactions in both types of currencies. Foreign exchange transactions are not reflected on the balance sheet and represent contingent liabilities of the Company. The Company receives fee income from foreign exchange transactions. o STANDBY LETTERS OF CREDIT. Standby letters of credit effectively represent a guarantee of payment to a third party by a financial institution, usually not in connection with an individual trade transaction. The Company does not favor standby letters of credit. They are only issued by the Company in situations where the Company believes it is adequately and properly secured or that the customer is in very strong financial condition. Standby letters of credit are not reflected on the balance sheet and represent contingent liabilities of the Company. The Company receives fee income from standby letters of credit. o INTERNATIONAL CASH MANAGEMENT. The Company assists corporations and banks in the Region with the clearing of checks drawn on United States financial institutions. As a United States financial institution and a member of the Federal Reserve System, Hamilton Bank is able to provide quick and efficient clearing of these items. The provision of these services often leads to the Company providing other products and services to corporations and banks. Most of the Company's customers are serviced through its International Banking and Domestic Corporate Trade Departments. The International Banking Department services the Company's international corporate and correspondent banking customers. The Domestic Corporate Trade Department services United States-based relationships, primarily with domestic corporate clients. Each corporate customer's account is coordinated by a specific officer at the Company. Each such customer will also generally do business with the Company officers responsible for the countries involved in a particular transaction. Company officers meet in person with key officials from each of the correspondent banks and corporate customers each year. In addition, the Company communicates with its correspondent banks and corporate customers in a variety of other ways. Competition International trade financing is a highly competitive industry that is dominated by large, multinational financial institutions such as Citibank, N.A., ABN-AMRO Bank and Barclays Bank PLC, among others. With respect to trade finance in or relating to larger countries in the Region, primarily in South America, these larger institutions are the Company's primary competition. The Company has less competition from these multinational financial institutions providing trade finance services with or in smaller countries in the Region, primarily in Central America and the Caribbean, because the volume of trade financing in such smaller countries has not been as attractive to these larger institutions. With respect to Central American and Caribbean countries, as well as United States domestic customers, the Company also competes with regional United States and smaller local financial institutions engaged in trade finance. Many of the Company's competitors, particularly multinational financial institutions, have substantially greater financial and other resources than the Company. In general, the Company competes on the basis of the range of services offered, convenience and speed of service, correspondent banking relationships and on the basis of the rates of fees 6 9 and commissions charged. Management believes that none of the Company's significant United States competitors have the focus on trade finance and offer the range of services that the Company offers. Management further believes that the Company's strong trade culture, range of services offered, liquid portfolio, management experience, reputation and prompt decision-making and processing capabilities provide it with a competitive advantage that allows it to compete favorably with its competitors for the trade finance business in the Region. The Company also has adjusted to its competition by often participating in transactions with certain of its competitors, particularly the larger, multinational financial institutions. Although to date the Company has competed successfully, on a limited basis, in those countries in the Region which have high trade volumes, such as Brazil and Argentina, there can be no assurance that the Company will be able to continue competing successfully in those countries with either large, multinational financial institutions or regional United States or local financial institutions. Any significant decrease in the Company's trade volume in such large-volume countries could adversely affect the Company's result of operations. Although the Company faces less competition from multinational financial institutions in those countries in the Region, particularly countries in Central America and the Caribbean, where the trading volume has not been large enough to be meaningful for multinational financial institutions, there can be no assurance that such financial institutions will not seek to finance greater volumes of trade in those countries or that the Company would be able to successfully compete with such financial institutions in the event of increased competition. In addition, there is no assurance that the Company will be able to continue to compete successfully in smaller countries with the regional United States financial institutions and smaller local financial institutions engaged in trade finance in such countries. Continued political stability and improvement in economic conditions in such countries are likely to result in increased competition. Employees At December 31, 1999 the Company had 259 full-time employees. The Company's employees are not represented by a collective bargaining group, and the Company considers its overall relations with its employees to be good. Hamilton Bancorp Regulation GENERAL As a result of its ownership of Hamilton Bank, Hamilton Bancorp is registered as a bank holding company and is regulated and subject to periodic examination by the Board of Governors of the Federal Reserve System ("Federal Reserve") under the United States Bank Holding Company Act. Pursuant to the United States Bank Holding Company Act and the Federal Reserve's regulations, Hamilton Bancorp is limited to the business of owning, managing or controlling banks and engaging in certain other financial related activities, including those activities that the Federal Reserve determines from time to time to be so closely related to the business of banking as to be a proper incident thereto. On November 12, 1999 the Gramm-Leach-Bliley Act ("G-L-B Act") was enacted. The G-L-B Act is a major financial services modernization law that, among other things, facilitates broad new affiliations among securities firms, insurance firms and bank holding companies by repealing the 66-year old provisions of the Glass-Steagall Act. The major provisions of the G-L-B Act became effective March 11, 2000. The 7 10 G-L-B Act permits the formation of financial holding companies ("FHCs") - i.e., bank holding companies with substantially expanded powers - under which affiliations among bank holding companies, securities firms and insurance firms may occur, subject to a blend of umbrella supervision and regulation of the newly formed consolidated entity by the Federal Reserve, oversight of the FHC's bank and thrift subsidiaries by their primary federal and state banking regulators and functional regulation of the FHC's nonbank subsidiaries - such as broker-dealers and insurance affiliates - by their respective specialized regulators. The United States Bank Holding Company Act requires, among other things, the prior approval of the Federal Reserve in any case where a bank holding company proposes to (i) acquire all or substantially all of the assets of a bank, (ii) acquire direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank (unless it already owns a majority of such bank's voting shares), (iii) merge or consolidate with any other bank holding company or (iv) establish, or become, a FHC. Hamilton Bancorp is required by the Federal Reserve to act as a source of financial strength and to take measures to preserve and protect Hamilton Bank. As a result, Hamilton Bancorp may be required to inject capital in Hamilton Bank if Hamilton Bank at any time lacks such capital and requires it. The Federal Reserve may charge a bank holding company such as Hamilton Bancorp with unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. Any loans from Hamilton Bancorp to Hamilton Bank which would count as capital of Hamilton Bank must be on terms subordinate in right of payment to deposits and to most other indebtedness of Hamilton Bank. The Federal Reserve, the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation collectively have extensive enforcement authority over bank holding companies and national banks in the United States. This enforcement authority, initiated generally for violations of law and unsafe or unsound practices, includes, among other things, the ability to assess civil money penalties, to initiate injunctive actions, to issue orders prohibiting or removing a bank holding company's or a bank's officers, directors and employees from participating in the institution and, in rare cases, to terminate deposit insurance. The Federal Reserve's, the OCC's and the Federal Deposit Insurance Corporation's enforcement authority was enhanced substantially by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). FIRREA significantly increased the amount and the grounds for civil money penalties. Also, under FIRREA, should a failure of Hamilton Bank cause a loss to the Federal Deposit Insurance Corporation, any other Federal Deposit Insurance Corporation-insured subsidiaries of Hamilton Bancorp could be required to compensate the Federal Deposit Insurance Corporation for the estimated amount of the loss (Hamilton Bancorp does not currently have any such subsidiaries). Additionally, pursuant to FDICIA, Hamilton Bancorp in the future could have the potential obligation to guarantee the capital restoration plans of any undercapitalized Federal Deposit Insurance Corporation insured depository institution subsidiaries it may control. CAPITAL ADEQUACY The federal bank regulatory authorities have adopted risk-based capital guidelines to which Hamilton Bancorp and Hamilton Bank are each subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profile among banking 8 11 organizations, takes off-balance sheet exposures into explicit account in assessing capital adequacy and minimizes disincentives to holding liquid, low-risk assets. These risk-based capital ratios are determined by allocating assets and specified off-balance sheet financial instruments into four weighting categories, with higher levels of capital being required for the categories perceived as representing greater risk. Under these guidelines a banking organization's capital is divided into two tiers. The first tier (Tier 1) includes common equity, perpetual preferred stock (excluding auction rate issues) and minority interests that are held by others in a consolidated subsidiary, less goodwill and any disallowed intangibles. Supplementary (Tier 2) capital includes, among other items, cumulative and limited-life preferred stock, mandatory convertible securities, subordinated debt and the allowance for loan and lease losses, subject to certain limitations and less required deductions as provided by regulation. Banking organizations are required to maintain a risk-based capital ratio of total capital (Tier 1 plus Tier 2) to risk-weighted assets of 8% of which at least 4% must be Tier 1 capital. The federal bank regulatory authorities may, however, set higher capital requirements when a banking organization's particular circumstances warrant. As a practical matter, banking organizations are expected to maintain capital ratios well above the regulatory minimums. The risk-based capital ratios of Hamilton Bancorp and Hamilton Bank as of December 31, 1998 and 1999 are discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Capital Resources." In addition, the federal bank regulatory authorities have established guidelines for a minimum leverage ratio (Tier 1 capital to average total assets). These guidelines provide for a minimum leverage ratio of 3% for banking organizations that meet certain specified criteria, including excellent asset quality, high liquidity, low interest rate exposure and the highest regulatory rating. Banking organizations not meeting these criteria or which are experiencing or anticipating significant growth are required to maintain a leverage ratio which exceeds the 3% minimum by at least 100 to 200 basis points. The leverage ratios of Hamilton Bancorp and Hamilton Bank as of December 31, 1998 and 1999 are discussed under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources." Failure to meet applicable capital guidelines could subject a bank or bank holding company to a variety of "prompt corrective action" enforcement remedies available to the federal bank regulatory authorities, including limitation on the ability to pay dividends, the issuance of a capital directive to increase capital and, in the case of a bank, the issuance of a cease and desist order, the imposition of civil money penalties, the termination of deposit insurance by the Federal Deposit Insurance Corporation or (in severe cases) the appointment of a conservator or receiver. While Hamilton Bancorp is well capitalized for the purposes of the "prompt corrective action" provisions of FDICIA, to date it has not paid any dividends and does not anticipate doing so. Nevertheless, due to economic difficulties being experienced by various countries in the Region, the Federal Reserve has requested that Hamilton Bancorp not pay any dividends or incur any debt (excluding existing "trust preferred" securities) without the consent of the Federal Reserve. INTERSTATE BANKING As of September 29, 1995, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 permitted adequately capitalized and managed bank holding companies to acquire control of banks in any 9 12 state. Although individual states could authorize interstate branches earlier, beginning on June 1, 1997, the Interstate Banking Act allows banks to branch across state lines, unless a state elects to opt-out entirely. Florida did not so opt-out and allows out-of-state banks to enter Florida by merger with an existing Florida-based bank and to branch throughout the state. This has further increased competition for Hamilton Bank by allowing large banks from other parts of the United States to operate directly in Florida. Regulation of Hamilton Bank GENERAL Hamilton Bank, as a Federal Deposit Insurance Corporation-insured national bank, is subject to regulation primarily by the OCC and secondarily by the Federal Deposit Insurance Corporation. Also, as a national bank Hamilton Bank is a member of the Federal Reserve System and its operations are therefore also subject to certain Federal Reserve regulations. Various other federal and state consumer laws and regulations also affect the operations of Hamilton Bank. As a national bank, Hamilton Bank may be able to engage in certain activities approved by the OCC which the Federal Reserve would not necessarily approve for Hamilton Bancorp or its non-national bank "operating subsidiaries". The OCC has been particularly aggressive in recent years in allowing national banks to undertake an ever-increasing range of securities and insurance activities through their operating subsidiaries. Along these lines, national banks, among other things, are permitted on a case-by-case basis to operate subsidiaries that may engage in activities some of which are not permissible for the bank itself. Although the applicable OCC regulations do not authorize any new activities per se, national banks have used them to expand further into the businesses of insurance and securities underwriting. The applicable OCC regulations contain "fire walls" intended to protect a national bank from the risks taken by its subsidiary, including a 10% cap on the amount of bank capital that may be invested in the new subsidiary, as well as requirements that extensions of credit to the operating subsidiary be fully-collateralized and that transactions between the bank and the subsidiary be conducted at arm's-length. Also, other safeguards are that the parent national bank's exposure to any losses the subsidiary may incur be limited to the bank's equity investment in the subsidiary, and that the parent national bank be well-capitalized both before and after the investment is made. Effective March 11, 2000, the G-L-B Act authorizes the formation of "financial subsidiaries" of national banks and allows them to engage in the same types of activities permissible for nonbank subsidiaries of FHCs (including securities underwriting and dealing), with the exception of insurance underwriting, real estate investment and real estate development. Hamilton Bank does not own or control an operating subsidiary or a financial subsidiary. As a national bank, Hamilton Bank may not ordinarily lend more than 15% of its capital unsecured 10 13 to any one borrower, and may lend up to an additional 10% of its capital to that same borrower on a fully secured basis involving readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, equal at least to the amount borrowed. In addition, there are various other circumstances in which Hamilton Bank may lend in excess of such limits, including authority to lend up to 35% of capital and surplus when the loan is secured by documents of title to readily marketable staples and certain other exceptions relevant to international trade finance. Federal law also imposes additional restrictions on Hamilton Bank with respect to loans and extensions of credit to certain related parties and purchases from and other transactions with Hamilton Bancorp's principal shareholders, officers, directors and affiliates. Such loans and extensions of credit (i) must be made on substantially the same terms (including interest rates and collateral) as, and follow credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with members of the general public or otherwise available to any employee of Hamilton Bank and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. In addition, extensions of credit to each such person beyond certain limits set by applicable law must be approved by Hamilton Bank's Board of Directors, with the individual who is applying for the credit abstaining from participation in the decision. Hamilton Bank also is subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary penalties against Hamilton Bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of Hamilton Bank or the imposition by the Federal Reserve of a cease and desist order. As part of its examination process, the OCC has directed Hamilton Bank, among other things, to take substantial transfer risk reserves related to Hamilton Bank's exposure in Ecuador and "mark to market" certain assets based upon the OCC's interpretation of regulatory accounting rules. While Hamilton Bank has taken the actions directed by the OCC, it disagrees with the OCC's interpretations of the regulatory accounting rules and is appealing such directions within the OCC. See "Management's Discussion and Anaylsis of Financial Condition and Results of Operations - Capital Resources and Interest Earning Deposits with Other Banks and Securities." In this connection, the OCC has initiated formal administrative action under Section 8 of the Federal Deposit Insurance Act which Hamilton Bank has not agreed to and which Hamilton Bank is appealing and disputing in appropriate administrative actions within the OCC. As a result of these proceedings and directions, however, Hamilton 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 approval of the OCC. Hamilton Bank does not anticipate that either of such restrictions will have any material adverse effect on its business or operations. The transfer risk reserves taken by Hamilton Bank at the direction of the OCC are for regulatory accounting purposes only, and do not materially adversely affect its financial statements included in this Form 10-K and prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). Hamilton Bank is satisfied that the reserves it took in the third quarter of 1999 relating to its Ecuador and other Latin American exposures are adequate and in accordance with GAAP. DIVIDENDS Hamilton Bank is subject to legal limitations on the frequency and amount of cash dividends that can be paid to Hamilton Bancorp. The OCC, in general, also has the ability to prohibit cash dividends by Hamilton Bank which would otherwise be permitted under applicable regulations if the OCC determines that such distribution would constitute an unsafe or unsound practice. For Hamilton Bank, the approval of the OCC is required for the payment of cash dividends in any calendar year if the total of all cash dividends declared by Hamilton Bank in that year exceeds the current year's net income combined with the retained net income of the two preceding years. "Retained net income" means the net income of a specified period less any common or preferred stock cash dividends declared for that period. Moreover, no cash dividends may be paid by a national bank in excess of its undivided profits account. In addition, the Federal Reserve and the Federal Deposit Insurance Corporation have issued policy statements which provide that, as a general matter, insured banks and bank holding companies may pay cash dividends only out of current operating earnings. In accordance with the above regulatory restrictions, Hamilton Bank currently has the ability to pay cash dividends, and on December 31, 1999 an aggregate of $48.5 million was available for the payment of dividends to Hamilton Bancorp without prior regulatory approval. There are also statutory limits on other transfer of funds to Hamilton Bancorp and any other future 11 14 non-banking subsidiaries of Hamilton Bancorp by Hamilton Bank, whether in the form of loans or other extensions of credit, investments or asset purchases. Such transfers by Hamilton Bank generally are limited in amount to 10% of Hamilton Bank's capital and surplus, to Hamilton Bancorp or any such future Hamilton Bancorp subsidiary, or 20% in the aggregate to Hamilton Bancorp and all such subsidiaries. Furthermore, such loans and extensions of credit are required to be fully collateralized in specified amounts depending on the nature of the collateral involved. FDICIA FDICIA was enacted on December 19, 1991. It substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made significant revisions to other federal banking statutes. FDICIA provided for, among other things, (i) a recapitalization of the Bank Insurance Fund of the Federal Deposit Insurance Corporation (the "BIF") by increasing the Federal Deposit Insurance Corporation's borrowing authority and providing for adjustments in its assessments rates; (ii) annual on-site examinations of federally-insured depository institutions by banking regulators; (iii) publicly available annual financial condition and management reports for financial institutions, including audits by independent accountants; (iv) the establishment of uniform accounting standards by federal banking agencies; (v) the establishment of a "prompt corrective action" system of regulatory supervision and intervention, based on capitalization levels, with more scrutiny and restrictions placed on depository institutions with lower levels of capital; (vi) additional grounds for the appointment of a conservator or receiver; (vii) a requirement that the Federal Deposit Insurance Corporation use the least-cost method of resolving cases of troubled institutions in order to keep the costs to insurance funds at a minimum; (viii) more comprehensive regulation and examination of foreign banks; (ix) consumer protection provisions, including a Truth-in-Savings Act; (x) a requirement that the Federal Deposit Insurance Corporation establish a risk-based deposit insurance assessment system; (xi) restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed minimum capital requirements; and (xii) certain additional limits on deposit insurance coverage. A central feature of FDICIA is the requirement that the federal banking agencies take "prompt corrective action" with respect to depository institutions that do not meet minimum capital requirements. Pursuant to FDICIA, the federal bank regulatory authorities have adopted regulations setting forth a five- tiered system for measuring the capital adequacy of the depository institutions they supervise. Under these regulations, a depository institution is classified in one of the following capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically under-capitalized." Based on the current regulatory capital position of Hamilton Bank, Hamilton Bancorp believes that Hamilton Bank's capital position exceeds the highest classification of "well capitalized." FDICIA generally prohibits Hamilton Bank from making any capital distribution (including payment of a cash dividend) or paying any management fees to Hamilton Bancorp if Hamilton Bank would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans acceptable to the federal banking agencies. If a depository institution fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized." Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, and requirements to reduce total assets and to stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator, generally within 90 12 15 days of the date such institution is determined to be critically undercapitalized. FDICIA also provided for increased funding of the Federal Deposit Insurance Corporation insurance funds. Under the Federal Deposit Insurance Corporation's risk-based insurance premium assessment system, each bank whose deposits are insured by the BIF is assigned one of the nine risk classifications based upon certain capital and supervisory measures and, depending upon its classification, is assessed premiums. On November 14, 1995, the Federal Deposit Insurance Corporation board of directors voted to lower the BIF premium range to zero from .27% effective January 1996. The rate schedule is subject to future adjustments by the Federal Deposit Insurance Corporation. In addition, the Federal Deposit Insurance Corporation has authority to impose special assessments from time to time. As a result of the enactment of the Federal Deposit Insurance Funds Act of 1996 on September 30, 1996, commercial banks are now required to pay part of the interest on the Financing Corporation's bonds issued to deal with the savings and loan crisis of the late 1980's. As a result, commercial bank deposits are now also subject to assessment by the Financing Corporation upon the approval by the Federal Deposit Insurance Corporation of such assessment. Beginning in 1997 and until the earlier of December 31, 1999 or the date on which the last saving association ceases to exist, the assessment rate the Financing Corporation imposes on a commercial bank must be at a rate equal to one-fifth the assessment rate applicable to deposits assessable by the Savings Association Insurance Fund. RESERVE REQUIREMENTS Hamilton Bank is required to maintain reserves against its transaction account. The reserves must be maintained in an interest-free account at the Federal Reserve Bank of Atlanta. Reserve requirements and the amount of required reserves is subject to adjustment by the Federal Reserve from time to time. The current rate for reserves is 3% of a depository institution's transaction accounts (less certain permissible deductions) up to $52 million, plus 10% of the amount over $52 million. ITEM 2. PROPERTIES. The Company's operations are currently managed from their corporate headquarters located in Miami, Florida, where a branch office is also located. Hamilton Bank's other branch offices are located in Tampa, Winter Haven, Sarasota, West Palm Beach, Weston and Miami, Florida, and in San Juan, Puerto Rico. Three of the facilities are owned by the Company and six are leased (including the Company's headquarters). The table below summarizes the Company's owned and leased facilities.
Approximate Leased or Location Type of Facility Square Feet Owned - -------- ---------------- ----------- --------- Miami, Florida Corporate 75,500 Leased headquarters and branch Miami, Florida Branch 3,000 Leased
13 16
Approximate Leased or Location Type of Facility Square Feet Owned - -------- ---------------- ----------- --------- Miami, Florida Branch 3,000 Owned San Juan, Puerto Rico Branch 3,500 Leased Sarasota, Florida Branch 2,000 Owned Tampa, Florida Branch 3,000 Leased West Palm Beach, Florida Branch 5,000 Leased Weston, Florida Branch 3,500 Leased Winter Haven, Florida Branch 4,500 Owned
ITEM 3. LEGAL PROCEEDINGS. On January 13, 1998 Development Specialists, Inc., the Liquidating Trustee of the Model Imperial Liquidating Trust established under the Plan of Reorganization in the Model Imperial, Inc. Chapter 11 Bankruptcy proceeding, filed an action against 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 issues was held in November, 1999, and the parties are awaiting the judge's ruling. As indicated in "Item 1 -- Regulation of Hamilton Bank -- General," Hamilton Bank is engaged in administrative proceedings within the OCC. Neither Hamilton Bancorp nor Hamilton Bank is involved in any other legal proceedings except for routine litigation incidental to the business of banking, none of which is expected to have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) The Company's Common Stock is traded on the NASDAQ National Market (Symbol HABK). The following table sets forth the high and low sales prices of a share of Common Stock as reported by the NASDAQ National Market for the last two calendar years. 14 17 Quarter High Low ------- ---- --- Fourth Quarter 1999 $21.75 $17.814 Third Quarter 1999 27.25 21.25 Second Quarter 1999 26.25 20.00 First Quarter 1999 29.00 22.375 Fourth Quarter 1998 29.668 23.00 Third Quarter 1998 40.75 21.00 Second Quarter 1998 36.25 31.656 First Quarter 1998 37.00 27.75 As of March 23, 2000 there were approximately 50 holders of record of the Company's Common Stock and the closing price of Common Stock as reported by the NASDAQ National Market for such date was $16.50. The Company has not paid any cash dividends to date on its Common Stock and does not intend to pay any such cash dividends in the foreseeable future. As stated in Part I above, due to economic difficulties being experienced by various countries in the Region, the Federal Reserve has requested that Hamilton Bancorp not pay any dividends without the consent of the Federal Reserve. 15 18 ITEM 6. SELECTED FINANCIAL DATA. TABLE ONE. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA. (Dollars in thousands except per share amounts) The selected consolidated financial data for the five years ended December 31, 1999 have been derived from the Company's audited financial statements. The data set forth below should be read in conjunction with the consolidated financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere herein.
1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ INCOME STATEMENT DATA: Net interest income $ 60,357 $ 53,981 $ 38,962 $ 27,250 $ 23,885 Provision for credit losses 20,300 9,621 6,980 3,040 2,450 ------------ ------------ ------------ ------------ ------------ Net interest income after provision for credit losses 40,057 44,360 31,982 24,210 21,435 Trade finance fees and commissions 12,035 13,101 12,768 9,325 9,035 Structuring and syndication fees 6,266 3,352 2,535 138 419 Customer services fees 1,528 1,149 934 1,379 995 Net gain (loss) on sale of assets available for sale 562 (220) 108 -- 3 Other income 299 171 97 143 237 ------------ ------------ ------------ ------------ ------------ Other non-interest income 20,690 17,553 16,442 10,985 10,689 ------------ ------------ ------------ ------------ ------------ Operating expenses 32,104 28,093 23,423 19,630 18,949 ------------ ------------ ------------ ------------ ------------ Income before provision for income taxes 28,643 33,820 25,001 15,565 13,175 ------------ ------------ ------------ ------------ ------------ Provision for income taxes 10,283 12,021 9,098 5,855 5,172 ------------ ------------ ------------ ------------ ------------ Net income $ 18,360 $ 21,799 $ 15,903 $ 9,710 $ 8,003 ============ ============ ============ ============ ============ PER COMMON SHARE DATA: Net income per common share (1) $ 1.79 $ 2.12 $ 1.73 $ 1.79 $ 1.47 Book value per common share $ 13.28 $ 12.29 $ 10.00 $ 8.07 $ 6.41 Average weighted shares (1) 10,275,223 10,304,180 9,173,680 5,430,030 5,430,030 AVERAGE BALANCE SHEET DATA: Total assets $ 1,645,889 $ 1,508,052 $ 1,007,846 $ 687,990 $ 534,726 Total loans 1,194,667 1,168,451 737,921 485,758 370,568 Total deposits 1,435,272 1,301,444 842,117 574,388 444,332 Stockholder's equity 135,187 108,943 79,311 39,969 32,358 PERFORMANCE RATIOS: Net interest spread 3.28% 3.28% 3.56% 3.89% 4.20% Net interest margin 3.89% 3.89% 4.31% 4.56% 4.94% Return on average equity 13.58% 20.01% 20.05% 24.29% 24.73% Return on average assets 1.12% 1.45% 1.58% 1.41% 1.50% Efficiency ratio (2) 39.61% 39.27% 42.28% 51.31% 54.68% ASSET QUALITY RATIOS: Allowance for credit losses as a percentage of total loans 1.92% 1.08% 1.07% 1.07% 1.05% Non-performing assets as a percentage of total loans 1.49% 0.73% 0.65% 0.91% 1.07% Allowance for credit losses as a percentage of non-performing assets 115.27% 149.01% 166.03% 117.97% 98.56% Net loan charge-offs as a percentage of average outstanding loans 0.98% 0.61% 0.32% 0.36% 0.58% CAPITAL RATIOS: Leverage capital ratio 7.50% 7.98% 7.88% 5.80% 5.68% Tier 1 capital 11.16% 12.03% 12.43% 10.20% 9.98% Total capital 12.46% 13.19% 13.78% 11.50% 10.92% Average equity to average assets 8.21% 7.22% 7.87% 5.81% 6.05%
(1) Represents diluted earnings per share and average weighted shares outstanding, respectively. (2) Amount reflects operating expenses as a percentage of net interest income plus non-interest income. 16 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Hamilton Bancorp Inc. ("Bancorp") is a bank holding company which conducts operations principally through its 99.8 percent owned subsidiary Hamilton Bank, N.A. (the "Bank") collectively (the "Company"). The Bank is a national bank which specializes in financing trade flows between domestic and international companies on a global basis. The Bank has a network of nine FDIC-insured branches, eight in Florida, with locations in Miami, Sarasota, Tampa, West Palm Beach, Winter Haven and Weston, and one in San Juan, Puerto Rico. The Company completed its initial public offering of 2,400,000 shares of common stock on March 26, 1997. Following the public offering, on April 9, 1997 the Company issued 360,000 additional shares of common stock upon the exercise of the over-allotment option granted to Oppenheimer and Company, Inc. and NatWest Securities Ltd. On December 28, 1998, a trust formed by the Company issued $11.0 million of 9.75 percent Beneficial Unsecured Securities, Series A (the "Preferred Securities"). On January 14, 1999, the Trust issued an additional $1.7 million of Preferred Securities upon the exercise of an over-allotment by the underwriters. These securities are considered to be Tier 1 capital for regulatory purposes. KEY PERFORMANCE HIGHLIGHTS FOR 1999 The Company continued to experience significant growth in its core business as both the net interest income and non interest income increased. The Company is well positioned to benefit should the economies in Latin America recover in the next year and beyond. During 1999, however, the Company's earnings declined $3.4 million or 15.8 percent, to $18.4 million from $21.8 million, relative to the prior year, primarily due to an increase in provisions for credit losses of $15 million taken in the third quarter as a result of events in Ecuador and conditions in Latin America. Net income per share (basic) was $1.82 from $2.18 and (diluted) was $1.79 from $2.12 for the years ended December 31, 1999 and 1998, respectively. RESULTS OF OPERATIONS 1999 COMPARED TO 1998 NET INTEREST INCOME An analysis of the Company's net interest income and average balance sheet for the last five years is presented in TABLE ONE and TABLE TWO. Net interest income is the difference between interest and fees earned on loans and investments and interest paid on deposits and other sources of funds, and it constitutes the Company's principal source of income. Net interest income increased to $60.4 million for the year ended December 31, 1999 from $54.0 million for the same period in 1998, a 12 percent increase. The increase was due largely to the growth in average earning assets while maintaining the same net interest margin. Average earning assets increased to $1,550.8 million for the year ended December 31, 1999 from $1,389.0 million for the same period in 1998, a 12 percent increase, while yields earned on average assets decreased by 31 basis points compared to the same period. Average loans and acceptances discounted increased to $1,194.7 million for the year ended December 31, 1999 from $1,168.5 million for the same period in 1998, a 2 percent increase, while average interest-earning deposits due from other banks increased to $175.9 million for the year ended December 31, 1999 from $122.3 million for the same period in 1998, a 44 percent increase. Net interest margin remained at 3.89 percent for the years ended December 31, 1999 and 1998, representing the first time in seven years that the net interest margin has not decreased. Interest income increased to $134.0 million for the year ended December 31, 1999 from $124.3 million for the same period in 1998, an 8 percent increase, reflecting largely an increase in loans in the United States. Interest expense increased to $73.6 million for the year ended December 31, 1999 from $70.3 million for the same period in 1998, a 5 percent increase, reflecting the 17 20 increase in deposits to fund asset growth offset by a 31 basis point decrease in interest rates paid. Average interest-bearing deposits increased to $1,358.3 million for the year ended December 31, 1999 from $1,231.7 million for the same period in 1998, a 10 percent increase. The growth in deposits was primarily a result of the Company increasing its core deposit base through its expanding branch network, as well as its international customers. Average time deposits from banks decreased to $85.7 million for the year ended December 31, 1999 from $128.9 million for the same period in 1998 or a 34 percent decrease, due largely to the Company's reduced activities in the Region. An analysis of the Company's yields earned and average loan balances segregating domestic and foreign earning assets is presented in TABLE THREE. The yields earned on foreign loans increased 30 basis points to 9.2 percent while yields earned on domestic loans have decreased by 160 basis points to 8.5 percent from 10.1 percent. PROVISION FOR CREDIT LOSSES The Company's provision for credit losses increased to $20.3 million for the year ended December 31, 1999 from $9.6 million for the same period in 1998. This 111 percent increase was largely a result of an increase in provisions for credit losses of $15 million taken in the third quarter as a result of events in Ecuador and conditions in Latin America. Net loan chargeoffs during the year ended December 31, 1999 amounted to $11.7 million compared to $7.1 million for the year 1998. The allowance for credit losses was increased to $21.4 million at December 31, 1999 from $12.8 at December 31, 1998, a 67 percent increase. The ratio of the allowance for credit losses to total loans was 1.92 percent at December 31, 1999 from 1.08 percent as of the same period in 1998. A more detailed review of the provision for credit losses is presented in TABLE SEVENTEEN through TABLE NINETEEN. NON-INTEREST INCOME Non-interest income increased to $20.7 million for the year ended December 31, 1999 from $17.6 million for the same period in 1998, an 18 percent increase. Trade finance fees and commissions decreased by $1.1 million due largely to lower letter of credit volume which is related to slow economic conditions in the Region. Structuring and syndication fees increased by $2.9 million as a result of various structuring and syndication transactions completed during the year; increasing these fees to $6.3 million from $3.4 million for the years ended December 31, 1999 and 1998, respectively. Customer service fees increased by $379 thousand due largely to Harmoney(R) related fees charged during the period. Harmoney is the Bank's remote banking system which allows customers to access trade finance services and cash management through the internet. The changes in non-interest income from year to year are analyzed in TABLE SIX. 18 21 TABLE TWO. YIELDS EARNED AND RATES PAID (Dollars in thousands)
For The Years Ended -------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 December 31, 1997 -------------------------------- ------------------------------ ------------------------------- Average Average Average Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ---------- --------- ------ ---------- ---------- ------ ---------- ---------- ------- Total interest earning assets Loans: Commercial loans $1,073,858 $ 95,742 8.92 $1,013,558 $ 91,465 9.02 $ 612,069 $ 57,288 9.36% Acceptances discounted 110,505 10,016 9.06 131,158 12,165 9.27 107,818 10,733 9.95% Overdraft 7,372 1,659 22.50 12,212 2,306 18.89 6,890 1,307 18.96% Mortgage loans 2,932 203 6.92% 11,523 949 8.24% 11,144 934 8.38% ---------- ---------- ----- ---------- ---------- ----- ---------- ---------- ----- Total Loans 1,194,667 107,620 9.01 1,168,451 106,885 9.15 737,921 70,262 9.52% Time deposits with banks 175,925 15,940 9.06 122,278 10,989 8.99 102,360 8,909 8.70% Investments 148,804 8,787 5.91 70,916 4,903 6.91 44,978 2,980 6.63% Federal funds sold 31,370 1,647 5.25 27,307 1,484 5.43 18,186 1,008 5.54% ---------- ---------- ----- ---------- ---------- ----- ---------- ---------- ----- Total investments and interest earning deposits with banks 356,099 26,374 7.41 220,501 17,376 7.88 165,524 12,897 7.79% Total interest earning assets 1,550,766 133,994 8.64 1,388,952 124,261 8.95 903,445 83,159 9.20% ---------- ----- ---------- ----- ---------- ----- Total non interest earning assets 95,123 119,100 104,401 ---------- ---------- ---------- Total assets $1,645,889 $1,508,052 $1,007,846 ========== ========== ========== Interest bearing liabilities Deposits: NOW and Savings sccounts 23,255 566 2.43 20,218 424 2.10 20,101 439 2.18% Money market 43,850 2,116 4.83 46,342 2,177 4.70 43,752 2,060 4.71% Presidential money market 44,749 2,159 4.82 3,284 121 3.68 3,385 97 2.87% Certificate of deposits (including IRA) 1,154,974 63,090 5.46 1,033,030 59,730 5.78 582,933 34,463 5.91% Time deposits from banks (IBF) 85,746 3,858 4.50 128,853 7,266 5.64 127,964 6,853 5.36% Other 5,761 435 7.55 18 1 2.96 61 2 2.92% ---------- ---------- ----- ---------- ---------- ----- ---------- ---------- ----- Total deposits 1,358,335 72,224 5.32 1,231,745 69,719 5.66 778,196 43,913 5.64% Trust preferred securities 12,650 1,232 9.74% Federal funds purchased 1,461 78 5.34 3,423 197 5.77 4,975 284 5.70% Other borrowings 1,356 103 7.60 4,743 364 8.65 0 0 0.00% ---------- ---------- ----- ---------- ---------- ----- ---------- ---------- ----- Total interest bearing liabilities 1,373,802 73,637 5.36 1,239,912 70,280 5.67 783,171 44,197 5.64% ---------- ---------- ----- ---------- ---------- ----- ---------- ---------- ----- Non interest bearing liabilities Demand deposits 76,937 69,699 63,921 Other liabilities 59,963 89,498 81,443 ---------- ---------- ---------- Total non interest bearing liabilities 136,900 159,197 145,364 Stockholders' equity 135,187 108,943 79,311 ---------- ---------- ---------- Total liabilities and stockholder's equity $1,645,889 $1,508,052 $1,007,846 ========== ========== ========== Net interest income / net interest spread $ 60,357 3.28% $ 53,981 3.28% $ 38,962 3.56% ========== ===== ========== ===== ========== ===== Margin: Interest income / interest earning asset 8.64% 8.95% 9.20% Interest expense / interest earning assets 4.75% 5.06% 4.89% ----- ----- ----- Net interest margin 3.89% 3.89% 4.31% ===== ===== =====
19 22 \TABLE THREE. YIELDS EARNED - DOMESTIC AND FOREIGN EARNING ASSETS (Dollars in thousands)
For The Years Ended ----------------------------------------------------------------------------------------------------------- December 31, 1999 December 31, 1998 December 31, 1997 ----------------------------------- ----------------------------------- ---------------------------------- % of % of $ of Average Total Average Total Average Total Average Yield/ Average Average Yield/ Average Average Yield/ Average Balance Interest Rate Assets Balance Interest Rate Assets Balance Interest Rate Assets --------- -------- ------- ------- -------- -------- ------- ------- ------- -------- ------- ------- Total interest earning assets Loans: Domestic $ 350,000 $ 29,918 8.5% 21.3% $ 249,027 $ 25,155 10.1% 16.5% $ 175,209 $ 18,240 10.4% 17.4% Foreign 844,667 77,702 9.2% 51.3% 919,424 81,730 8.9% 61.0% 562,712 52,022 9.2% 55.8% ---------- -------- --- ----- ---------- -------- ---- ----- --------- ------- ---- ----- Total Loans 1,194,667 107,620 9.0% 72.6% 1,168,451 106,885 9.1% 77.5% 737,921 70,262 9.5% 73.2% Investment and time deposits with banks Domestic 140,890 7,924 5.6% 8.5% 71,751 3,924 5.5% 4.7% 45,786 2,487 5.4% 4.5% Foreign 215,209 18,450 8.6% 13.1% 148,750 13,452 9.0% 9.9% 119,738 10,410 8.7% 11.9% ---------- -------- --- ----- ---------- -------- ---- ----- ---------- -------- ---- ----- Total investments and interest earning 356,099 26,374 7.4% 21.6% 220,501 17,376 7.9% 14.6% 165,524 12,897 7.8% 16.4% Total interest earning assets 1,550,766 $ 133,994 8.6% 94.2% 1,388,952 $124,261 8.9% 92.1% 903,445 $ 83,159 9.2% 89.6% ============== ============== ============== ----- Total non interest earning assets 95,123 5.8% 119,100 7.9% 104,401 10.4% ---------- ----- ---------- ----- ---------- ----- Total Assets $1,645,889 100.0% $1,508,052 100.0% $1,007,846 100.0% ========== ===== ========== ===== ========== =====
20 23 TABLE FOUR. RATE VOLUME ANALYSIS (Dollars in thousands)
Year Ended December 31, 1999 Year Ended December 31, 1998 Compared to Year Ended Compared to Year Ended December 31, 1998 December 31, 1997 -------------------------------------- ------------------------------------- Changes Due To: Changes Due To: Volume Rate Total Volume Rate Total -------- -------------- -------- -------- --------------- ------- Increase (decrease) in net interest income due to: Loans: Commercial loans $ 5,442 $ (1,165) $ 4,277 $ 37,578 $ (3,401) $ 34,177 Acceptances discounted (1,915) (233) (2,148) 2,323 (891) 1,432 Overdrafts (914) 267 (647) 1,009 (10) 999 Mortgage loans (708) (38) (746) 32 (17) 15 Investments: Time deposits with other banks 4,821 129 4,950 1,734 346 2,080 Investment securities 5,385 (1,500) 3,885 1,719 204 1,923 Federal funds sold 221 (59) 162 505 (29) 476 -------- -------- -------- -------- -------- -------- Total earning assets 12,332 (2,599) 9,733 44,900 (3,798) 41,102 -------- -------- -------- -------- -------- -------- Deposits: NOW and savings 64 78 142 9 (24) (15) Money market (117) 56 (61) 122 (5) 117 Presidential money market 1,528 510 2,038 (3) 27 24 Certificates of deposits 7,051 (3,691) 3,360 13,027 12,240 25,267 Time deposits with banks (IBF) (2,431) (977) (3,408) 48 365 413 Other 319 115 434 (1) -- (1) Trust preferred securities 1,232 -- 1,232 -- -- -- Federal funds purchased (113) (6) (119) (88) 2 (86) Other borrowings (260) (1) (261) 364 -- 364 -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities 7,273 (3,916) 3,357 13,478 12,607 26,083 -------- -------- -------- -------- -------- -------- Change in net interest income $ 5,059 $ 1,317 $ 6,376 $ 31,422 $(16,433) $ 15,019 ======== ======== ======== ======== ======== ========
21 24 TABLE FIVE. RATE VOLUME ANALYSIS - DOMESTIC AND FOREIGN (Dollars in thousands)
Year Ended December 31, 1999 Year Ended December 31, 1998 Compared to Year Ended Compared to Year Ended December 31, 1998 December 31, 1997 -------------------------------------- ------------------------------------- Changes Due To: Changes Due To: Volume Rate Total Volume Rate Total -------- -------------- -------- -------- --------------- ------- Increase (decrease) in net interest income due to: Loans: Domestic $ 10,200 $ (5,437) $ 4,763 $ 7,685 $ (770) $ 6,915 Foreign (6,645) 2,617 (4,028) 32,978 (3,270) 29,708 Investments and time deposits with banks: Domestic 3,782 219 4,001 1,410 27 1,437 Foreign 6,010 (1,013) 4,997 2,522 520 3,042 -------- -------- -------- -------- -------- -------- Total earning assets $ 13,347 $ (3,614) $ 9,733 $ 44,595 $ (3,493) $ 41,102 ======== ======== ======== ======== ======== ========
TABLE SIX. NON-INTEREST INCOME (Dollars in thousands)
For the Year Ended December 31, -------------------------------------------------------------------- 1997 to 1998 1998 to 1999 1997 % Change 1998 % Change 1999 -------- -------- -------- -------- -------- Trade finance fees and commissions $ 12,768 2.6% $ 13,101 -8.1% $ 12,035 Structuring and syndication fees 2,535 32.2% 3,352 86.9% 6,266 Customer service fees 934 23.0% 1,149 33.0% 1,528 Gain (loss) on sale of assets 108 -303.7% (220) -355.5% 562 Other 97 76.3% 171 74.9% 299 -------- ------ -------- ------ -------- Total non-interest income $ 16,442 6.8% $ 17,553 17.9% $ 20,690 ======== ====== ======== ====== ========
OPERATING EXPENSES Operating expenses increased to $32.1 million for the year ended December 31, 1999 from $28.1 million for the same period in 1998, a 14 percent increase. A discussion of the significant components of noninterest expense in 1999 compared to 1998 is as follows: employee compensation and benefits remained at $14.5 million for the years ended December 31, 1999 and 1998. Occupancy expenses remained stable at $4.2 million for the years ended December 31, 1999 and 1998. Other expenses increased to $13.3 million for the year ended December 31, 1999 from $9.3 million for the same period in 1998, due in substantial part to an increase in legal expense as a result of various litigation actions commenced by or against the Company in 1998 which continued in 1999. The Company's efficiency ratio remained consistent at 39 percent in 1999 and 1998. The changes in operating expenses from year to year are analyzed in TABLE SEVEN. The Company's income tax expense was $10.3 million and $12.0 million for 1999 and 1998, respectively. The effective tax rate was 36 percent of pretax income in both years. NOTE SIX of the consolidated financial statements includes an analysis of the components of the provision for income taxes. 22 25 TABLE SEVEN. OPERATING EXPENSES (Dollars in thousands)
For the Year Ended December 31, --------------------------------------------------------------------- 1997 to 1998 1998 to 1999 1997 % Change 1998 % Change 1999 -------- ----------- -------- ------------ -------- Employee compensation and benefits $ 13,162 10.4% $ 14,527 0.2% $ 14,556 Occupancy and equipment 3,251 30.1% 4,229 1.0% 4,273 Other operating expenses 6,902 12.1% 7,736 24.7% 9,648 Legal Expense 108 1382.4% 1,601 126.5% 3,627 -------- ------ -------- ----- -------- Total Operating Expenses $ 23,423 19.9% $ 28,093 14.3% $ 32,104 ======== ====== ======== ===== ========
YEAR 2000 Since June 1997, the Company assessed and prepared its computer systems and applications to be functional on January 1, 2000. Due to these efforts, the Company did not experience any material system errors or failures as a result of Year 2000 issues. Concurrently, the Company upgraded its computer systems during 1999 to accommodate the growth of the past two years. These new systems were Year 2000 compliant. Consequently, the total costs relating exclusively to Year 2000 compliance were approximately $100,000, which was funded from normal operations. 1998 COMPARED TO 1997 NET INTEREST INCOME An analysis of the Company's net interest income and average balance sheet for the last five years is presented in TABLE ONE and TABLE TWO. Net interest income increased to $54.0 million for the year ended December 31, 1998 from $39.0 million for the same period in 1997, a 39 percent increase. The increase was due largely to the growth in average earning assets offset, to some extent, by a decrease in net interest margin. Average earning assets increased to $1,389.0 million for the year ended December 31, 1998 from $903.4 million for the same period in 1997, a 54 percent increase, while yields earned on average assets decreased by 25 basis points compared to the same period. Average loans and acceptances discounted increased to $1,168.5 million for the year ended December 31, 1998 from $737.9 million for the same period in 1997, a 58 percent increase, while average interest-earning deposits due from other banks increased to $122.3 million for the year ended December 31, 1998 from $102.4 million for the same period in 1997, a 19 percent increase. Net interest margin decreased to 3.89 percent for the year ended December 31, 1998 from 4.31 percent for the same period in 1997, a 42 basis point decrease. The primary reasons for this decrease were (i) loan yields relative to reference rates decreased in certain countries in the Region and (ii) transactions with larger customers and transactions with multi-national customers, which command more competitive pricing. Interest income increased to $124.3 million for the year ended December 31, 1998 from $83.2 million for the same period in 1997, a 49 percent increase, reflecting an increase in loans in the Region and the United States, partially offset by a decrease in prevailing interest rates and a tightening of loan spreads in the Region as discussed above. Interest expense increased to $70.3 million for the year ended December 31, 1998 from $44.2 million for the same period in 1997, a 59 percent increase, reflecting the increase in deposits to fund asset growth and a two basis point increase in interest rates paid. Average interest-bearing deposits increased to $1,231.7 million for the year ended December 31, 1998 from $778.2 million for the same period in 1997, a 58 percent increase. The growth in deposits was primarily a result of the Company increasing its core deposit base from its expanding branch network, as well as its international customers. The Company's time deposits due from banks also increased to $128.9 million for the year ended December 31, 1998 from $128.0 million for the same period in 1997. An analysis of the Company's yields earned and average loan balances segregating domestic and foreign earning assets is presented 23 26 in TABLE THREE. The yields earned on domestic loans have decreased by three basis points to 10.1 percent from 10.4 percent. PROVISION FOR CREDIT LOSSES The Company's provision for credit losses increased to $9.6 million for the year ended December 31, 1998 from $7.0 million for the same period in 1997. This 37 percent increase was largely a function of the 22 percent growth in total loans. Net loan chargeoffs during the year ended December 31, 1998 amounted to $7.1 million compared to $2.4 million for the year ended December 31, 1997. The allowance for credit losses was increased to $12.8 million at December 31, 1998 from $10.3 million at December 31, 1997, a 24 percent increase. The ratio of the allowance for credit losses to total loans was 1.08 percent at December 31, 1998 from 1.07 percent for the same period in 1997. A more detailed review of the provision for credit losses is presented in TABLE SEVENTEEN through TABLE NINETEEN. NON-INTEREST INCOME Non-interest income increased to approximately $17.6 million for the year ended December 31, 1998 from $16.4 million for the same period in 1997, a 7 percent increase. Trade finance fees and commissions increased by $333 thousand due largely to lending facility fees which increased by $185 thousand during 1998 compared to 1997 as a result of the growth in loans. Structuring and syndication fees increased by $817 thousand as a result of various structuring and syndication transactions completed during the year increasing these fees to $3.4 million from $2.5 million for the years ended December 31, 1998 and 1997, respectively. Customer service fees increased by $215 thousand. The changes in non-interest income from year to year are analyzed in TABLE SIX. OPERATING EXPENSES Operating expenses increased to $28.1 million for the year ended December 31, 1998 from $23.4 million for the same period in 1997, a 20 percent increase. The growth in expenditures was primarily to support revenue growth. A discussion of the significant components of noninterest expense in 1998 compared to 1997 is as follows: employee compensation and benefits increased to $14.5 million for the year ended December 31, 1998 from $13.2 million for the same period in 1997, a 10 percent increase. This was primarily due to an increase in the number of employees to 264 at December 31, 1998 from 250 at the same period in 1997. The majority of the employees were added to support the Puerto Rico branch and other areas within the bank. There were also salary increases for existing personnel. Occupancy expenses increased to $4.2 million for the year ended December 31, 1998 from $3.3 million for the same period in 1997, a 27 percent increase as a result of the additional branches. Other expenses increased to $9.3 million for the year ended December 31, 1998 from $7.0 million for the same period in 1997, primarily due to the increase in legal expense as a result of various litigation actions commenced by or against the Company in 1998. The Company's efficiency ratio experienced a favorable decrease to 39 percent in 1998 from 42.3 percent in 1997. The changes in operating expenses from year to year are analyzed in TABLE SEVEN. The Company's income tax expense for 1998 was $12.0 million, for an effective tax rate of 35.5 percent of pretax income. Income tax expense for 1997 was $9.1 million for an effective rate of 36.4 percent. The decrease in the effective tax rate is the result of a state income tax refund for prior year filings. The increase of income tax expense was the result of the 35 percent increase in pretax income. As the Company increases its foreign loans and investments in relation to total assets these activities are not taxable in the State of Florida, thus reducing the overall effective tax rate. NOTE SIX of the consolidated financial statements includes an analysis of the components of the provision for income taxes. BALANCE SHEET REVIEW 1999 COMPARED TO 1998 The Company manages its balance sheet by monitoring interest rate sensitivity, credit risk, liquidity risk and capital positions to reduce the potential adverse impact on net interest income that might result from changes in interest rates. Control of interest rate risk is conducted through systematic monitoring of maturity mismatches. The Company's investment decision-making takes into account not only the rates of return and their underlying degree of risk, but also liquidity requirements, including minimum cash reserves, withdrawal and maturity of deposits and additional demand for funds. Total consolidated assets increased one percent, or $14.9 million for the year ended December 31, 1999, which included an increase of $53.2 million in interest-earning assets and a decrease of $38.3 million in non-interest earning assets. The increase in consolidated assets reflects an increase of $159.7 million in securities available for sale offset by a decrease in net loans of $71.7 million. The overall increase in consolidated assets 24 27 was principally funded by deposits from the branch network and in retained earnings. CASH, DEMAND DEPOSITS WITH OTHER BANKS AND FEDERAL FUNDS SOLD Cash, demand deposits with other banks and federal funds sold are considered cash and cash equivalents. Balances of these items fluctuate daily depending on many factors which include or relate to the particular banks that are clearing funds, loan payoffs, deposit gathering and reserve requirements. Cash, demand deposits with other banks and federal funds sold were $85.1 million at December 31, 1999 compared to $111.8 million at December 31, 1998. INTEREST-EARNING DEPOSITS WITH OTHER BANKS AND SECURITIES Interest-earning deposits with other banks decreased to $187.7 million at December 31, 1999 from $200.2 million at December 31, 1998. As part of its overall liquidity management process, the Company places funds with foreign correspondent banks. These placements are primarily short-term, typically 180 days or less. The purpose of these placements is to obtain an enhanced return on high quality short-term instruments and to solidify existing relationships with correspondent banks. The banks with which placements are made and the amount placed are currently approved by the Bank's Asset Liability Committee. In addition, this Committee reviews adherence with internal interbank liability policies and procedures. As indicated in TABLE EIGHT these interest-earning deposits with other banks are well-diversified throughout the Region and in other countries. The level of such deposits has decreased principally, related to reductions in Ecuador, Bahamas and the Dominican Republic. The short-term nature of these deposits allows the Company the flexibility to redeploy these assets into higher yielding loans which are largely related to the financing of trade. Investment securities increased to $276.1 million at December 31, 1999 from $115.0 million at December 31, 1998. The increase has been primarily in foreign debt securities classified as available for sale. On December 31, 1999 management changed its original intent with respect to $166 million in bearer debt securities which were classified as loans and accounted for as held to maturity securities under Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. These securities, along with all other securities classified as held to maturity, were transferred to and are being accounted for as securities available for sale at fair market value under SFAS No. 115. NOTE TWO of the consolidated financial statements reports amortized fair value and maturity information on the securities portfolio. 25 28 TABLE EIGHT. INTEREST-EARNING DEPOSITS WITH OTHER BANKS (Dollars in thousands) Country December 31, 1999 - ------- ----------------- Argentina $ 47,000 Brazil 37,635 Ecuador 28,000 Suriname 25,000 Panama 10,250 Bahamas (1) 10,000 Jamaica 8,500 British West Indies 5,000 Dominican Republic 5,000 Bolivia 3,500 Guyana 3,000 Nicaragua 2,000 Paraguay 2,000 United States 800 --------- Total $ 187,685 ========= (1) Consists of placements in the Bahamas branch of a multinational financial institution. 26 29 LOAN PORTFOLIO The Company's loan portfolio decreased by $63.3 million during the year ended December 31, 1999 in relation to December 31, 1998. This decrease was due primarily to the transfer of bearer debt securities classified as loans to securities available for sale discussed earlier. At December 31, 1999, commercial-domestic loans increased by $105.6 million which resulted from management's ability to increase lending in the U. S. market. At December 31, 1999 approximately 41 percent of the Company's portfolio consisted of loans to domestic borrowers and 59 percent of the Company's portfolio consisted of loans to foreign borrowers. This represents an increase of 27.9 percent in U. S. exposure as the Company concentrated its efforts on this market due to slow economic conditions in the Region. Details on the loans by type are shown in TABLE NINE below. The Company's loan portfolio is largely trade related in nature and is relatively short-term. Approximately 69 percent of loans had maturities of less than one year. Additionally, the loan portfolio is an important source of liquidity since the Company's predominant business, international trade finance, is self liquidating in nature and a significant part of the loans and extensions of credit mature within one year. The term to maturity of the Company's loans at December 31, 1999 are shown on TABLE TEN. TABLE NINE. LOANS BY TYPE (In thousands)
Years Ended December 31, -------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- --------- --------- -------- Domestic: Commercial and industrial(1) $ 394,841 $ 289,264 $ 179,673 $ 110,750 $ 96,856 Acceptances discounted 59,040 56,706 45,153 23,314 33,059 Residential mortgages 2,140 10,494 12,008 10,610 11,363 ---------- --------- --------- --------- -------- Subtotal Domestic 456,021 356,464 236,834 144,674 141,278 Foreign: Banks and other financial institutions 224,155 304,011 349,643 129,376 136,681 Commercial and industrial(1) 338,411 405,819 319,925 179,824 81,433 Acceptances discounted 59,256 72,597 55,301 80,935 62,838 Government and official institutions 38,358 40,639 3,091 750 750 ---------- ---------- --------- --------- -------- Subtotal Foreign 660,180 823,066 727,960 390,885 281,702 ---------- ---------- --------- --------- -------- Total loans $1,116,201 $1,179,530 $ 964,794 $ 535,559 $422,980 ========== ========== ========= ========= ========
(1) Includes pre-export financing, warehouse receipts and refinancing of letters of credits. 27 30 TABLE TEN. LOAN MATURITIES (In thousands)
As of December 31, 1999 (1) -------------------------------------------------------------- Mature Mature After One But Mature Within Within After Five One Year Five Years Years Total -------- ------------- ---------- --------- Domestic loans: Commercial and Industrial $242,717 $ 132,416 $ 19,492 $ 394,625 Acceptances discounted 59,040 -- -- 59,040 Foreign loans: Commercial and Industrial 412,781 172,830 15,314 600,925 Acceptances discounted 58,161 1,095 -- 59,256 -------- --------- -------- ---------- Total $772,699 $ 306,341 $ 34,806 $1,113,846 ======== ========= ======== ========== Fixed $474,518 $ 207,850 $ 27,518 $ 709,886 Adjustable 298,181 98,491 7,288 403,960 -------- --------- -------- ---------- Total fixed and adjustable $772,699 $ 306,341 $ 34,806 $1,113,846 ======== ========= ======== ==========
(1) Does not include mortgage loans and installment loans in the aggregate amount of $2.3 million. TABLES ELEVEN AND TWELVE 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 outstanding by country. The aggregate amount of the Company's cross-border outstandings by primary credit risk includes cash and demand deposits with other banks, interest-earning deposits with other banks, investment securities, due from customers on bankers acceptances, due from customers on deferred payment letters of credit and net loans. 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, the price of the underlying goods or commodities being financed and overall economic conditions in a given country. At December 31 1999 approximately 25.9 percent in principal amount of the Company's loans were outstanding to borrowers in four countries other than the United States: Panama (11.4 percent), Guatemala (6.0 percent), Brazil (4.4 percent) and El Salvador (4.1 percent). The United States exposure grew $100.0 million representing 40.9 percent of the loan portfolio compared to 30.2 percent in 1998. 28 31 TABLE ELEVEN. LOANS BY COUNTRY (Dollars in thousands)
AT DECEMBER 31, ------------------------------------------------------------------------------ 1999 1998 1997 -------------------- ------------------- ---------------------- % OF % OF % OF TOTAL TOTAL TOTAL COUNTRY AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS - ------- ------ ----- ------ ----- ------ ----- United States $ 456,021 40.9% $ 356,464 30.2% $ 236,834 24.5% Argentina 35,494 3.2% 38,171 3.2% 58,477 6.0% Bolivia (2) -- -- 20,816 1.8% 38,058 3.9% Brazil 49,214 4.4% 60,685 5.1% 58,040 6.0% British West Indies (2) 22,082 2.0% -- -- -- -- Colombia 28,437 2.5% 43,793 3.7% 23,768 2.5% Dominican Republic 41,604 3.7% 29,563 2.5% 40,161 4.2% Ecuador 43,622 3.9% 46,917 4.0% 74,485 7.7% El Salvador 45,847 4.1% 37,196 3.2% 40,306 4.2% Guatemala 66,531 6.0% 119,227 10.1% 91,178 9.5% Honduras 42,352 3.8% 59,564 5.0% 59,439 6.2% Jamaica (2) 28,628 2.6% 29,066 2.5% -- -- Mexico (2) -- -- 25,250 2.1% -- -- Panama 127,419 11.4% 119,615 10.1% 77,295 8.0% Peru 29,648 2.7% 49,382 4.2% 68,094 7.1% Russia (2) -- -- -- -- 17,500 1.8% Suriname (2) -- -- 21,868 1.9% -- -- Venezuela 17,842 1.6% 19,756 1.7% 16,299 1.7% Other (1) 81,460 7.3% 102,197 8.7% 64,860 6.7% ---------- ----- ---------- ---- ------------ ----- Total $1,116,201 100.0% $1,179,531 00.0% $ 964,794 100.0% ========== ===== ========== ==== ============ =====
(1) Other consists of loans to borrowers in countries in which loans did not exceed 1 percent of total loans. (2) These countries had loans which did not exceed 1 percent of total loans in the periods indicated. 29 32 At December 31, 1999 approximately 31.7 percent in cross-border outstanding were due from borrowers in five countries other than the United States: Brazil (10.0 percent), Panama (6.7 percent), Argentina (6.6 percent), Ecuador (4.5 percent) and Guatemala (3.9 percent). TABLE TWELVE. TOTAL CROSS-BORDER OUTSTANDING BY COUNTRY AND TYPE (Dollars in million)
At December 31, ------------------------------------------------------------------ % of % of % of Total Total Total 1999 Assets 1998 Assets 1997 Assets ------ ------- ------ ------ ------ ------- Argentina $ 113 6.6% $ 59 3.5% $ 69 5.2% Bahamas (2) 21 1.2% -- -- -- -- Bolivia 18 1.0% 26 1.5% 44 3.3% Brazil 173 10.0% 100 5.9% 85 6.3% British West Indies (2) -- -- 36 2.1% 11 0.8% Colombia 48 2.8% 54 3.2% 24 1.8% Costa Rica (2) -- -- 16 0.9% -- -- Dominican Republic 55 3.2% 48 2.8% 39 2.9% Ecuador 78 4.5% 100 5.9% 90 6.7% El Salvador 44 2.6% 52 3.1% 46 3.4% Guatemala 68 3.9% 131 7.7% 92 6.9% Honduras 43 2.5% 69 4.1% 52 3.9% Jamaica 35 2.0% 40 2.4% 32 2.4% Mexico (2) 20 1.2% 25 1.5% -- -- Nicaragua (2) -- -- 15 0.9% 12 0.9% Panama 116 6.7% 119 7.0% 72 5.4% Peru 42 2.4% 56 3.3% 74 5.5% Russia (2) -- -- -- -- 17 1.3% Suriname (2) 32 1.9% 27 1.6% -- -- United Kingdom (2) 15 0.9% -- -- -- -- Venezuela (2) 17 1.0% 19 1.1% -- -- Other (1) 75 4.4% 83 4.9% 39 2.9% ------ ----- ------ ----- ------ ----- Total $1,013 58.8% $1,075 63.4% $ 798 59.6% ====== ===== ====== ===== ====== =====
(1) Other consists of cross-border outstanding to countries in which such cross-border outstanding did not exceed 0.75 percent of the Company's total assets at any of the periods indicated. (2) These countries had cross-border outstanding which did not exceed 0.75 percent of total assets in the periods indicated. 30 33 TOTAL CROSS-BORDER OUTSTANDINGS BY TYPE
At December 31, --------------------------------- 1999 1998 1997 ------ ------ ---- Government and official institutions $ 114 $ 73 $ 25 Banks and other financial institutions 451 498 442 Commercial and industrial 384 418 275 Acceptances discounted 64 86 56 ------ ------ ---- Total $1,013 $1,075 $798 ====== ====== ====
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 $27.8 million and $5.8 million, respectively, at December 31, 1999 compared to $75.6 million and $6.5 million, respectively, at December 31, 1998. This decrease reflects the reduction in letter of credit activity in the Region largely as a result of slow economic conditions. 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. The Company has three Bank branches in Miami, one each in Tampa, Winter Haven, Sarasota, West Palm Beach and Weston. In pricing its deposits, the Company analyzes the market carefully, attempting to price its deposits competitively with the larger financial institutions in the area. TABLE TWO provides information on average deposit amounts and rates paid to each deposit category. Total deposits were $1,535.6 million at December 31, 1999 compared to $1,477.1 million at December 31, 1998. Average interest-bearing deposits increased by 10.2 percent to $1,358.3 million at December 31, 1999 from $1,231.7 million at December 31, 1998. The Company was successful in expanding its deposit base in time deposits and certificates of deposit in denominations of less than $100,000 which increased 23.3 percent to $630 million at December 31, 1999 from $511.4 million at December 31, 1998. In the summer of 1999, the Company opened its newest branch in Weston, which positively contributed to the deposit growth achieved in all markets. Additionally, the Company expanded Presidential Money Market deposits over the year which grew to $44.7 million at December 31, 1999 from $3.3 million at December 31, 1998. TRUST PREFERRED SECURITIES In December 1998, the Company issued $11 million in Beneficial Unsecured Securities, of Series A ("Trust Preferred Securities") out of a guarantor trust at a rate of 9.75 percent. The Trust Preferred Securities are considered Tier I capital for regulatory purposes. Trust Preferred Securities increased by $1.7 million upon the exercise of an over-allotment option by the underwriter in January 1999. See Note Seven of the Consolidated Financial Statements for further details. 31 34 TABLE THIRTEEN reports maturity periods of certificate of deposits of $100,000 and greater. TABLE THIRTEEN. MATURITIES OF AND AMOUNTS OF CERTIFICATES OF DEPOSITS AND OTHER TIME DEPOSITS $100,000 OR MORE (In thousands)
Certificates Other Time of Deposit Deposits-IBF $100,000 or More $100,000 or More Total ---------------- ---------------- -------- Three months or less $ 87,410 $ 24,025 $111,435 Over 3 through 6 months 109,583 7,531 117,114 Over 6 through 12 months 136,999 2,750 139,749 Over 12 months 75,433 -- 75,433 -------- -------- -------- Total $409,425 $ 34,306 $443,731 ======== ======== ========
OFF-BALANCE SHEET CONTINGENCIES In the normal course of business, the Company utilizes various financial instruments with off-balance sheet risk to meet the financing needs of its customers, including commitments to extend credit, commercial letters of credit, shipping guarantees, standby letters of credit and forward foreign exchange contracts. TABLE FOURTEEN reports the total volume and average monthly volume of the Company's export and import letters of credit for the periods indicated. The letter of credit volume decreased by 30 percent to $524.8 million from $746.8 million as a result of shifts toward more on-balance sheet financing and slower economic conditions throughout the Region. TABLE FOURTEEN. CONTINGENCIES - COMMERCIAL LETTERS OF CREDIT (In thousands)
Year Ended December 31, ------------------------------------------------------------------------------------------- 1999 1998 1997 ----------------------- -------------------------- ------------------------ Average Average Average Total Monthly Total Monthly Total Monthly Volume Volume Volume Volume Volume Volume --------- -------- --------- -------- --------- -------- Export Letters of Credit (1) $ 227,904 $ 18,992 $ 397,683 $ 33,140 $ 424,748 $ 35,396 Import Letters of Credit (1) 296,943 24,745 349,099 29,092 394,758 32,897 --------- -------- --------- -------- --------- -------- Total $ 524,847 $ 43,737 $ 746,782 $ 62,232 $ 819,506 $ 68,293 ========= ======== ========= ======== ========= ========
(1) Represents certain contingent liabilities not reflected on the Company's balance sheet. 32 35 The Company provides letter of credit services globally. TABLE FIFTEEN sets forth the distribution of the Company's contingent liabilities by country of the applicant and issuing bank for import and export letters of credit, respectively. As shown by the table, contingent liabilities increased by 17 percent to $150.6 million at December 31, 1999 from December 31, 1998 as a result of increased letters of credit related to domestic corporate names. TABLE FIFTEEN. CONTINGENT LIABILITIES (1) (In thousands)
At December 31, ------------------------------------ 1999 1998 1997 -------- -------- -------- Argentina (3) $ -- $ 1,680 $ -- Aruba (3) 3,720 -- -- Bolivia (3) -- 3,890 3,883 Brazil (3) -- -- 4,123 Colombia (3) -- -- 3,936 Costa Rica 9,893 2,846 3,168 Dominican Republic 4,707 7,015 4,759 Ecuador (3) -- 3,703 17,839 El Salvador 2,734 1,995 3,837 Guatemala 9,475 26,132 11,577 Guyana (3) 4,165 2,374 -- Haiti 5,705 2,088 7,857 Honduras 4,174 2,427 5,550 Nicaragua (3) -- -- 3,386 Panama 14,242 14,538 12,439 Paraguay (3) -- 1,961 2,395 Peru (3) 3,573 -- 5,566 Suriname (3) 5,677 11,690 -- Switzerland (3) -- 1,588 -- United States 74,643 39,415 94,629 Venezuela (3) 2,593 -- -- Other (2) 6,143 5,374 13,139 -------- -------- -------- Total $151,444 $128,716 $198,083 ======== ======== ========
(1) Includes export and import letters of credit, standby letters of credit and letters of indemnity. (2) Other includes those countries in which contingencies represent less than 1 percent of the Company's total contingencies at each of the above dates. (3) These countries had contingencies, which did not exceed 1 percent of the Company's total contingencies as of the period indicated. 33 36 LIQUIDITY The Company seeks to manage its assets and liabilities to reduce the potential adverse impact on net interest income that might result from changes in interest rates through systematic monitoring of maturity mismatches. The Company's investment decision-making takes into account not only the rates of return and their underlying degree of risk, but also liquidity requirements, including minimum cash reserves, withdrawal and maturity of deposits and additional demand for funds. For any given period, the pricing structure is matched when an equal amount of assets and liabilities reprice. An excess of assets or liabilities over these matched items results in a gap or mismatch, as shown on TABLE SIXTEEN. A positive gap denotes asset sensitivity and normally means that an increase in interest rates would have a positive effect on net interest income while a decrease in interest rates would have a negative effect on net interest income. However, because different types of assets and liabilities with similar maturities may reprice at different rates or may otherwise react differently to changes in overall market rates or conditions, changes in prevailing interest rates may not necessarily have such effects on net interest income. All of the Company's assets and liabilities are denominated in dollars and therefore the Company has no material foreign exchange risk. Cash and cash equivalents were $85.1 million on December 31, 1999, a decrease from $111.8 million from December 31, 1998. During 1999, net cash provided by operating activities was $58.2 million, net cash used in investing activities was $139.3 million and net cash provided by financing activities was $54.4 million. For further information on cash flows, see the Consolidated Statement of Cash Flows in the Consolidated Financial Statements. The Company's principal sources of liquidity and funding are its diverse deposit base and the sales of bankers' acceptances as well as loan participations. The level and maturity of deposits necessary to support the Company's lending and investment activities is determined through monitoring loan demand and through its asset/liability management process. Considerations in managing the Company's liquidity position include, but are not limited to, scheduled cash flows from existing assets, contingencies and liabilities, as well as projected liquidity needs arising from anticipated extensions of credit. Furthermore, the liquidity position is monitored daily by management to maintain a level of liquidity conducive to efficient operations and is continuously evaluated as part of the asset/liability management process. Historically, the Company has increased its level of deposits to allow for its planned asset growth. Customer deposits have increased through the branch network, and private banking customers, as well as deposits related to the trade activity. The majority of the Company's deposits are short-term and closely match the short-term nature of the Company's assets. At December 31, 1999 interest-earning assets maturing within 180 days were $909 million, representing 55 percent of total earning assets. The short-term nature of the loan portfolio and the fact that a portion of the loan portfolio consists of bankers' acceptances provides additional liquidity to the Company. Liquid assets at December 31, 1999 were $375 million, 22 percent of total assets, and consisted of cash and cash equivalents, due from banks-time and foreign debt securities. At December 31, 1999 the Company had been advised of $52 million in available interbank funding. TABLE SIXTEEN presents the projected maturities or interest rate adjustments of the Company's earning assets and interest-bearing funding sources based upon the contractual maturities or adjustment dates at December 31, 1999. 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. 34 37 TABLE SIXTEEN. INTEREST RATE SENSITIVITY (Dollars in thousands)
December 31, 1999 ------------------------------------------------------------------------------------------------ 0 to 30 31 to 90 91 to 180 181 to 365 1 to 5 Over 5 Days Days Days Days Years Years Total ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earning Assets: Loans $ 201,001 $ 215,045 $ 220,886 $ 135,581 $ 307,825 $ 35,863 $1,116,201 Federal funds sold 63,400 -- -- -- -- -- 63,400 Investment securities 20,942 26,461 43,343 49,310 24,726 106,040 270,822 Interest earning deposits with other banks 41,800 31,250 44,477 45,158 25,000 -- 187,685 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total 327,143 272,756 308,706 230,049 357,551 141,903 1,638,108 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Funding Sources: Savings and transaction deposits 37,699 28,663 67,828 -- -- -- 134,190 Certificates of deposits of $100k or more 46,687 40,723 109,583 136,999 75,433 -- 409,425 Certificates of deposits under $100k 62,476 130,588 203,792 329,633 90,356 -- 816,845 Other time deposits 21,695 2,330 7,531 2,750 -- -- 34,306 Funds overnight 63,450 -- -- -- -- -- 63,450 Trust preferred securities -- -- -- -- -- 12,650 12,650 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total $ 232,007 $ 202,304 $ 388,734 $ 469,382 $ 165,789 $ 12,650 $1,470,866 ========== ========== ========== ========== ========== ========== ========== Interest sensitivity gap $ 95,136 $ 70,452 ($ 80,028) ($ 239,333) $ 191,762 $ 129,253 $ 167,242 ========== ========== ========== ========== ========== ========== ========== Cumulative gap $ 95,136 $ 165,588 $ 85,560 ($ 153,773) $ 37,989 $ 167,242 ========== ========== ========== ========== ========== ========== ========== Cumulative gap as a percentage of total earning assets 5.81% 10.11 5.22% -9.39% 2.32% 10.21% ========== ========== ========== ========== ========== ==========
35 38 CREDIT QUALITY REVIEW ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses reflects management's judgment of the level of allowance adequate to provide for reasonably foreseeable losses, based upon the following factors: (i) the economic conditions in those countries in the Region in which the Company conducts trade finance activities; (ii) the credit condition of its customers and correspondent banks, as well as the underlying collateral, if any; (iii) historical experience and (iv) the average maturity of its loan portfolio. In addition, although the Company's credit losses have been relatively limited to date, management believes that the level of the Company's allowance should reflect the potential for political and economic instability in certain countries of the Region and the possibility that serious economic difficulties in a country could adversely affect all of the Company's loans to borrowers in or doing business with that country. Determining the appropriate level of the allowance for credit losses requires management's judgment, including application of the factors described above to assumptions and estimates made in the context of changing political and economic conditions in many of the countries of the Region. Accordingly, there can be no assurance that the Company's current allowance for credit losses will prove to be adequate in light of future events and developments. At December 31, 1999, the allowance for credit losses was approximately $21.4 million, an increase of 67 percent from $12.8 million at December 31, 1998. This increase relates to the increase in provision for credit losses discussed earlier. 36 39 TABLE SEVENTEEN provides certain information with respect to the Company's allowance for credit losses, provision for credit losses and chargeoff and recovery activity for the periods shown. TABLE SEVENTEEN. CREDIT LOSS EXPERIENCE (In thousands)
For the Year Ended December 31, ------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Balance of allowance for credit losses at beginning of period $ 12,794 $ 10,317 $ 5,725 $ 4,450 $ 4,133 Charge-offs: Domestic: Commercial (3,299) (3,357) (1,693) (951) (1,097) Acceptances -- (100) -- -- -- Residential -- -- -- -- -- Installment (5) -- (3) (8) (3) ----------- ----------- ----------- ----------- ----------- Total domestic (3,304) (3,457) (1,696) (959) (1,100) Foreign: Government and official institutions -- -- -- -- -- Banks and other financial institutions (2,330) (3,901) (896) (678) -- Commercial and industrial (6,216) -- -- (146) (1,044)(1) Acceptances discounted -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total foreign (8,546) (3,901) (896) (824) (1,044) ----------- ----------- ----------- ----------- ----------- Total charge-offs (11,850) (7,358) (2,592) (1,783) (2,144) Recoveries: Domestic: Commercial 1 12 203 16 10 Acceptances -- -- -- -- -- Residential -- -- -- -- -- Installment 3 -- 1 2 1 Foreign: Banks and other financial institutions 163 202 -- -- -- ----------- ----------- ----------- ----------- ----------- Total recoveries 167 214 204 18 11 ----------- ----------- ----------- ----------- ----------- Net (charge-offs) recoveries (11,683) (7,144) (2,388) (1,765) (2,133) Provision for credit losses 20,300 9,621 6,980 3,040 2,450 ----------- ----------- ----------- ----------- ----------- Balance at end of period $ 21,411 $ 12,794 $ 10,317 $ 5,725 $ 4,450 =========== =========== =========== =========== =========== Average loans $ 1,194,667 $ 1,168,451 $ 737,921 $ 485,758 $ 370,568 Total loans $ 1,116,201 $ 1,179,530 $ 964,794 $ 535,559 $ 422,980 Net charge-offs to average loans 0.98% 0.61% 0.32% 0.36% 0.58% Allowance to total loans 1.92% 1.08% 1.07% 1.07% 1.05%
(1) Related to extension of credit to a domestic-based business operated by a company organized under the laws of a foreign country. 37 40 TABLE EIGHTEEN sets forth an analysis of the allocation of the allowance for credit losses by category of loans and the allowance for credit losses allocated to foreign loans. The allowance is established to cover potential losses inherent in the portfolio as a whole or is available to cover potential losses on any of the Company's loans. TABLE EIGHTEEN. ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES (In thousands)
Year Ended December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------ Allocation of the allowance by category of loans: Domestic: Commercial $ 3,199 $ 1,138 $ 2,053 $ 1,964 $ 680 Acceptances 269 211 315 226 333 Residential mortgages 10 66 59 54 57 ------- ------- ------- ------- ------ Total domestic 3,478 1,415 2,427 2,244 1,070 Foreign: Government and official institutions 1,496 -- -- -- -- Banks and other financial institutions 5,152 3,033 3,854 2,112 1,900 Commercial and industrial 11,015 8,010 3,442 920 1,101 Acceptances discounted 270 336 594 449 379 ------- ------- ------- ------- ------ Total foreign 17,933 11,379 7,890 3,481 3,380 Total $21,411 $12,794 $10,317 $ 5,725 $4,450 ======= ======= ======= ======= ====== Percent of loans in each category to total loans: Domestic: Commercial 35.4% 24.5% 18.6% 20.6% 22.8% Acceptances 5.3% 4.8% 4.7% 4.4% 7.8% Residential 0.2% 0.9% 1.2% 2.0% 2.7% ------- ------- ------- ------- ------ Total domestic 40.9% 30.2% 24.5% 27.0% 33.3% Foreign: Government and official institutions 3.4% 3.4% 0.1% 0.1% 0.2% Banks and other financial institutions 20.1% 25.8% 36.5% 24.2% 32.3% Commercial and industrial 30.3% 34.4% 33.2% 33.6% 19.3% Acceptances discounted 5.3% 6.2% 5.7% 15.1% 14.9% ------- ------- ------- ------- ------ Total foreign 59.1% 69.8% 75.5% 73.0% 66.7% Total 100.0% 100.0% 100.0% 100.0% 100.0% ======= ======= ======= ======= ======
38 41 TABLE NINETEEN. ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES ALLOCATED TO FOREIGN LOANS (In thousands)
Year Ended December 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Balance, beginning of year $ 11,379 $ 7,890 $ 3,481 $ 3,380 $ 2,062 Provision for credit losses 15,100 7,188 5,305 925 2,362 Net charge-offs (8,546) (3,699) (896) (824) (1,044)(1) -------- ------- ------- ------- ------- Balance, end of period $ 17,933 $11,379 $ 7,890 $ 3,481 $ 3,380 ======== ======= ======= ======= =======
(1) Related to extensions of credit to a domestic-based business operated by a company organized under the laws of a foreign country. The Company usually places an asset on nonaccrual status when any payment of principal or interest is over 90 days past due or earlier if management determines the collection of principal or interest to be unlikely. Loans over 90 days past due may not be placed on nonaccrual if they are in the process of collection and are either secured by property having a realizable value at least equal to the outstanding debt and accrued interest or are fully guaranteed by a financially responsible party whom the Company believes is willing and able to discharge the debt, including accrued interest. In most cases, if a borrower has more than one loan outstanding under its line with the Company and any of its individual loans becomes over 90 days past due, the Company places all outstanding loans to that borrower on nonaccrual status. The Company does not have a rigid chargeoff policy but instead charges off loans on a case-by-case basis as determined by management and approved by the Board of Directors. In some instances, loans may remain in the nonaccrual category for a period of time during which the borrower and the Company negotiate restructured repayment terms. The Company attributes its consistent basis of asset quality to the short-term nature of its loan portfolio, the composition of its borrower base, the importance that borrowers in the Region attach to maintaining their continuing access to financing for foreign trade and to the Company's loan underwriting policies. The Company accounts for impaired loans in accordance with 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. Total nonperforming loans to total loans increased when compared to historical levels as a result of additional loans entering the nonperforming category. Management monitors these loans very closely. 39 42 TABLE TWENTY. NONPERFORMING LOANS (In thousands)
At December 31, --------------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- ------- ------- ------- ------- Domestic: Non accrual $ 6,995 $ 2,189 $ 3,100 $ 3,087 $ 1,345 Past due over 90 days and accruing -- 69 -- -- 582 -------- ------- ------- ------- ------- Total domestic nonperforming loans 6,995 2,258 3,100 3,087 1,927 Foreign: Non accrual 9,588 6,396 2,949 1,654 2,287 Past due over 90 days and accruing 1,992 404 -- 112 301 -------- ------- ------- ------- ------- Total foreign nonperforming loans 11,580 6,800 2,949 1,766 2,588 Total nonperforming loans (1) $ 18,575 $ 9,058 $ 6,049 $ 4,853 $ 4,515 ======== ======= ======= ======= ======= Total nonperforming loans to total loans 1.66% 0.77% 0.48% 0.91% 1.07% Total nonperforming assets to total assets 1.08% 0.53% 0.64% 0.64% 0.73%
(1) During such periods the Company did not have any loans which were deemed to be "troubled debt restructurings" as defined in SFAS No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. At December 31, 1999 and December 31, 1998 the Company had no nonaccruing investment securities. For the year ended December 31, 1999 the amount of interest income that was accrued on the loans in the previous table was approximately $155 thousand. For the year ended December 31, 1999 the amount of interest income that would have been accrued on the loans in the previous table in accordance with their contractual terms was approximately $1.6 million, of which $1.5 million represented interest income on foreign loans and $68 thousand on domestic loans. Management does not believe that there is a material amount of loans not included in the foregoing table where known information about possible credit problems of the borrowers would cause management to have serious doubts as to the ability of the borrowers to comply with the present loan repayment terms and which may result in such loans becoming nonaccruing loans. CAPITAL RESOURCES Stockholders' equity at December 31, 1999 was $135.0 million compared to $123.5 million at December 31, 1998 after adjustments for fair value accounting. This increase was due primarily to $18.4 million of retained earnings. During 1997 the Company paid dividends on preferred stock of $319 thousand, which were within the amounts allowed by banking and holding company regulations. The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The regulations require the Company and the Bank to meet specific capital adequacy guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's and the Bank's capital classification is also subject to qualitative judgments by the regulators about interest rate risk, concentration of credit risk and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of Tier I capital (as defined in the regulations) to total average assets (as defined) and minimum ratios of Tier I and total capital (as defined) to risk-weighted assets (as defined). The Company was required by the OCC to record, under protest, a transfer risk reserve of $32 million related to the Bank's exposure in Ecuador. This reserve was recorded for regulatory reporting purposes only and not for the Company's consolidated financial statements prepared in accordance with generally accepted accounting principles. The Company is appealing, within the OCC, this requirement. NOTE EIGHT of the consolidated financial statements reports Company and Bank capital ratios. 40 43 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK MANAGEMENT In the normal course of conducting business activities, the Company is exposed to market risk which includes both price and liquidity risk. The Company's price risk arises from fluctuations in interest rates, and foreign exchange rates that may result in changes in values of financial instruments. The Company does not have material direct market risk related to commodity and equity prices. Liquidity risk arises from the possibility that the Company may not be able to satisfy current and future financial commitments or that the Company may not be able to liquidate financial instruments at market prices. Risk management policies and procedures have been established and are utilized to manage the Company's exposure to market risk. The strategy of the Company is to operate at an acceptable risk environment while maximizing its earnings. Market risk is managed by the Asset Liability Committee which formulates and monitors the performance of the Company based on established levels of market risk as dictated by policy. In setting the tolerance levels of market risk, the Committee considers the impact on both earnings and capital potential changes in the outlook in market rates, global and regional economies, liquidity, business strategies and other factors. The Company's asset and liability management process is utilized to manage interest rate risk through the structuring of balance sheet and off-balance sheet portfolios. It is the strategy of the Company to maintain as neutral an interest rate risk position as possible. By utilizing this strategy the Company "locks in" a spread between interest-earning assets and interest-bearing liabilities. Given the matching strategy of the Company and the fact that it does not maintain significant medium and/or long-term exposure positions, the Company's interest rate risk will be measured and quantified through an interest rate sensitivity report. For any given period, the Company's pricing structure is matched when an equal amount of assets and liabilities reprice. An excess of assets or liabilities over these matched items results in a gap or mismatch. A positive gap denotes asset sensitivity and normally means that an increase in interest rates would have a positive effect on net interest income. On the other hand a negative gap denotes liability sensitivity and normally means that a decline in interest rates would have a positive effect 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. TABLE SIXTEEN provides the Company's Interest Rate Sensitivity Reports as of December 31, 1999. This table shows that interest-bearing liabilities maturing or repricing within one year exceeded interest-earning assets by $153.4 million. The Company monitors that the assets and liabilities are closely matched to minimize interest rate risk. On December 31, 1999 the interest rate risk position of the Company was not significant since the impact of a 100 basis point rise or fall of interest rates over the next 12 months is estimated at 2 percent of net income. Substantially all of the Company's assets and liabilities are denominated in dollars, therefore the Company has no material foreign exchange risk. In addition, the Company has no trading account securities; therefore it is not exposed to market risk resulting from trading activities. NOTE THIRTEEN of the consolidated financial statements reports fair value of financial instruments. As reported in this note, the carrying values approximate their fair values which generally minimizes the exposure to market risk resulting from interest rate fluctuations. This minimal risk is the result of the short-term nature of the Company's interest-earning assets and the matching maturity level of the interest-bearing liabilities. On a daily basis the Bank's Chief Financial Officer and the Bank's Treasurer are responsible for measuring and managing market risk. 41 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Reference is made to information under the captions "Information as to Directors and Executive Officers" and "Meetings of the Board of Directors and Committees" in the Registrant's definitive proxy statement relating to its 2000 Annual Meeting of Stockholders, which will be filed with the Commission within 120 days after the close of the Registrant's fiscal year ended December 31, 1999, all of which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Reference is made to the information set forth in the Registrant's definitive proxy statement relating to its 2000 Annual Meeting of Stockholders under the caption "Executive Compensation" and continuing 42 45 through the caption "Certain Transactions with Management" (excluding the information set forth under the caption "Compensation Committee Report") which will be filed with the Commission within 120 days after the close of the Registrant's fiscal year ended December 31, 1999, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Reference is made to the information set forth under the caption "Ownership of Equity Securities" in the Registrant's definitive proxy statement relating to its 2000 Annual Meeting of Stockholders, which will be filed with the Commission within 120 days after the close of the Registrant's fiscal year ended December 31, 1999, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Reference is made to the information set forth under the caption "Certain Transactions with Management" in the Registrant's definitive proxy statement relating to its 2000 Annual Meeting of Stockholders, which will be filed with the Commission within 120 days after the close of the Registrant's fiscal year ended December 31, 1999, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. The following financial statements and financial statement schedules are contained herein or are incorporated herein by reference:
Page in Form 10-K Independent Auditors' Report 46 Consolidated Statements of Condition as of December 31, 1999 and 1998. 47 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 48 Consolidated Statements of Comprehensive Income for the years ended December 31, 1999, 1998 and 1997 49 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 50 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 51 Notes to Consolidated Financial Statements 52
43 46 All Schedules are omitted because they are either not required or the information is otherwise included in the consolidated financial statements or notes thereto. 2. Exhibits. The following exhibits are contained herein or are incorporated herein by reference: DESCRIPTION OF EXHIBIT 3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1, Registration No. 333-20435) 3.2 Amended and Restated Bylaws of the Company as amended March 21, 2000 4.1 Form of Common Stock certificate (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1, Registration No. 333-20435) 10.1 Company's 1993 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-1, Registration No. 333-20435) 10.2 Company's 1998 Stock Option Plan. 10.3 Lease Agreement, dated December 20, 1997, by and between Hamilton Bank, N.A. and System Realty Twelve, Inc. regarding the Company's corporate headquarters (incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-1, Registration No. 333-20435) 10.4 Employment Agreement dated October 1, 1999 with Mr. Eduardo A. Masferrer 10.5 Employment Agreement dated October 1, 1999 with Mr. Juan Carlos Bernace 10.6 Employment Agreement dated October 1, 1999 with Ms. Maura Acosta 10.7 Employment Agreement dated October 1, 1999 with Mr. J. Reid Bingham 10.8 Employment Agreement dated March 13, 2000 with Mr. James J. Gartner 10.9 Employment Agreement dated October 1, 1999 with Mr. John M.R. Jacobs 10.10 Employment Agreement dated October 1, 1999 with Ms. Maria Justo 10.11 Employment Agreement dated October 1, 1999 with Ms. Alina Cannon 10.12 Employment Agreement dated October 1, 1999 with Mr. Adolfo D. Martinez 21.1 Subsidiaries of the Company 23.1 Consent of Deloitte & Touche LLP. 27.1 Financial Data Schedule (for SEC use only). (b) No reports on Form 8-K were filed during the fourth quarter of 1999. 44 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, this 13th day of April, 2000. HAMILTON BANCORP INC. /s/ Eduardo A. Masferrer ---------------------------- Eduardo A. Masferrer, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on April 13, 2000 on behalf of the Registrant and in the capacities indicated. /s/ Eduardo A. Masferrer /s/ William Alexander - ------------------------- --------------------------- Eduardo A. Masferrer William Alexander Director Director /s/ Juan Carlos Bernace /s/ Ronald Frazier - ------------------------- --------------------------- Juan Carlos Bernace Ronald Frazier Director Director /s/ Thomas F. Gaffney /s/ Ronald A. Lacayo - ------------------------- --------------------------- Thomas F. Gaffney Ronald A. Lacayo Director Director /s/ George Lyall /s/ Ben L. Moyer - ------------------------- --------------------------- George Lyall Ben L. Moyer Director Director /s/ John M. R. Jacobs - --------------------------- John M. R. Jacobs, Senior Vice President Chief Financial Officer and Treasurer 45 48 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Hamilton Bancorp Inc.: We have audited the accompanying consolidated statements of condition of Hamilton Bancorp Inc. and its subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally acepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial condition of the Company at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Certified Public Accountants Miami, Florida March 24, 2000 46 49 HAMILTON BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION DECEMBER 31, 1999 AND 1998 (Dollars in Thousands, Except Share Information) - ------------------------------------------------------------------------------
1999 1998 ---- ---- ASSETS CASH AND DEMAND DEPOSITS WITH OTHER BANKS $ 21,710 $ 24,213 FEDERAL FUNDS SOLD 63,400 87,577 ----------- ----------- Total cash and cash equivalents 85,110 111,790 INTEREST-EARNING DEPOSITS WITH OTHER BANKS 187,685 200,203 SECURITIES AVAILABLE FOR SALE (Amortized cost: $288,710 in 1999 and $85,509 in 1998) 274,277 84,725 SECURITIES HELD TO MATURITY 30,291 LOANS - NET 1,091,976 1,163,705 DUE FROM CUSTOMERS ON BANKERS ACCEPTANCES 27,767 75,567 DUE FROM CUSTOMERS ON DEFERRED PAYMENT LETTERS OF CREDIT 5,835 6,468 PROPERTY AND EQUIPMENT - NET 5,209 4,775 ACCRUED INTEREST RECEIVABLE 19,111 19,201 GOODWILL - NET 1,658 1,833 OTHER ASSETS 22,672 9,005 ----------- ----------- TOTAL $ 1,721,300 $ 1,707,563 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS $ 1,535,606 $ 1,477,052 OTHER BORROWINGS 6,116 TRUST PREFERRED SECURITIES 12,650 11,000 BANKERS ACCEPTANCES OUTSTANDING 27,767 75,567 DEFERRED PAYMENT LETTERS OF CREDIT OUTSTANDING 5,835 6,468 OTHER LIABILITIES 5,544 7,814 ----------- ----------- Total liabilities 1,587,402 1,584,017 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 4, 12) STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 75,000,000 shares authorized, 10,081,147 shares issued and outstanding at December 31, 1999 and 10,050,062 shares issued and outstanding at December 31, 1998 101 100 Capital surplus 60,708 60,117 Retained earnings 82,175 63,815 Accumulated other comprehensive loss (9,086) (486) ----------- ----------- Total stockholders' equity 133,898 123,546 ----------- ----------- TOTAL $ 1,721,300 $ 1,707,563 =========== ===========
See accompanying notes to consolidated financial statements. 47 50 HAMILTON BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Dollars in Thousands, Except Share Information) - ------------------------------------------------------------------------------
1999 1998 1997 ---- ---- ---- INTEREST INCOME: Loans, including fees $ 107,620 $ 106,885 $ 70,262 Deposits with other banks 15,940 10,989 8,909 Investment securities 8,787 4,903 2,980 Federal funds sold 1,647 1,484 1,008 ------------ ------------ ------------ Total 133,994 124,261 83,159 ------------ ------------ ------------ INTEREST EXPENSE: Deposits 72,224 69,719 43,913 Trust preferred securities 1,232 Federal funds purchased and other borrowings 181 561 284 ------------ ------------ ------------ Total 73,637 70,280 44,197 ------------ ------------ ------------ NET INTEREST INCOME 60,357 53,981 38,962 PROVISION FOR CREDIT LOSSES 20,300 9,621 6,980 ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 40,057 44,360 31,982 ------------ ------------ ------------ NON-INTEREST INCOME: Trade finance fees and commissions 12,035 13,101 12,768 Syndication and structuring fees 6,266 3,352 2,535 Customer service fees 1,528 1,149 934 Net gain (loss) on sale of assets 562 (220) 108 Other 299 171 97 ------------ ------------ ------------ Total 20,690 17,553 16,442 OPERATING EXPENSES: Employee compensation and benefits 14,556 14,527 13,162 Occupancy and equipment 4,273 4,229 3,251 Other 13,275 9,337 7,010 ------------ ------------ ------------ Total 32,104 28,093 23,423 ------------ ------------ ------------ INCOME BEFORE PROVISION FOR INCOME TAXES 28,643 33,820 25,001 PROVISION FOR INCOME TAXES 10,283 12,021 9,098 ------------ ------------ ------------ NET INCOME $ 18,360 $ 21,799 $ 15,903 ============ ============ ============ NET INCOME PER COMMON SHARE: Basic $ 1.82 $ 2.18 $ 1.81 ============ ============ ============ Diluted $ 1.79 $ 2.12 $ 1.73 ============ ============ ============ AVERAGE SHARES OUTSTANDING: Basic 10,069,898 9,983,208 8,806,379 ============ ============ ============ Diluted 10,275,223 10,304,180 9,173,680 ============ ============ ============
See accompanying notes to consolidated financial statements. 48 51 HAMILTON BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Dollars in Thousands) - ------------------------------------------------------------------------------
1999 1998 1997 ---- ---- ---- NET INCOME $ 18,360 $ 21,799 $ 15,903 OTHER COMPREHENSIVE (LOSS) INCOME, Net of tax: Unrealized (depreciation) appreciation in securities available for sale during year (8,600) (433) 18 Less: Reclassification adjustment for gains included in net income (69) -------- -------- -------- Total (8,600) (433) (51) -------- -------- -------- COMPREHENSIVE INCOME $ 9,760 $ 21,366 $ 15,852 ======== ======== ========
See accompanying notes to consolidated financial statements. 49 52 HAMILTON BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 (Dollars in Thousands, Except Share Information) ------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK -------------------------- --------------------- CAPITAL SHARES AMOUNT SHARES AMOUNT SURPLUS ------ ------ ------ ------ ------- BALANCE, DECEMBER 31, 1996 101,207 1 $ 5,205,030 52 $ 17,318 Net change in unrealized loss on securities available for sale, net of taxes (51) (51) Cash dividends on preferred stock, net of withholding taxes (319) Conversion of preferred stock into common stock with 6.5 to 1 split (101,207) (1) 466,160 5 (4) Conversion of Bank stock and warrants into common stock with 6.5 to 1 split 1,396,759 14 (14) Sale of 2,760,000 shares of common stock in public offering, net 2,760,000 27 38,966 Net income ----------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1997 9,827,949 98 56,266 Issuance of 222,113 shares of common stock from exercise of options 222,113 2 2,048 Reduction of tax liability due to deductibility of stock options exercised 1,803 Net change in unrealized loss on securities available for sale, net of taxes Net Income ----------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 10,050,062 100 60,117 Issuance of 31,085 shares of common stock from exercise of options 31,085 1 286 Reduction of tax liability due to deductibility of stock options exercised 305 Net change in unrealized loss on securities available for sale, net of taxes Net Income ----------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1999 $10,081,147 $ 101 $ 60,708 =========== =========== ===========
ACCUMULATED OTHER TOTAL RETAINED COMPREHENSIVE STOCKHOLDERS' EARNINGS LOSS EQUITY -------- ---- -------------- BALANCE, DECEMBER 31, 1996 26,432 (2) 43,800 Net change in unrealized loss on securities available for sale, net of taxes (51) (51) Cash dividends on preferred stock, net of withholding taxes Conversion of preferred stock into common stock with 6.5 to 1 split (319) (319) Conversion of Bank stock and warrants into common stock with 6.5 to 1 split Sale of 2,760,000 shares of common stock in public offering, net 38,993 Net income 15,903 15,903 ----------- ----------- ----------- BALANCE, DECEMBER 31, 1997 42,016 (53) 98,327 Issuance of 222,113 shares of common stock from exercise of options 2,050 Reduction of tax liability due to deductibility of stock options exercised 1,803 Net change in unrealized loss on securities available for sale, net of taxes (433) (433) Net Income 21,799 21,799 ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 63,815 (486) 123,546 Issuance of 31,085 shares of common stock from exercise of options 287 Reduction of tax liability due to deductibility of stock options exercised 305 Net change in unrealized loss on securities available for sale, net of taxes (8,600) (8,600) Net Income 18,360 18,360 ----------- ----------- ----------- BALANCE, DECEMBER 31, 1999 $ 82,175 $ (9,086) $ 133,898 =========== =========== ===========
50 53 HAMILTON BANCORP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Dollars in Thousands) - -------------------------------------------------------------------------------
1999 1998 1997 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 18,360 $ 21,799 $ 15,903 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,283 1,173 1,024 Provision for credit losses 20,300 9,621 6,980 Deferred tax benefit (3,746) (723) (2,615) Write down on security available for sale 4,106 587 Net gain on sale of securities available for sale (108) Net loss (gain) on sale of loans and other real estate owned (561) 220 Proceeds from the sale of bankers acceptances and loan participations 25,238 102,402 80,007 Increase in accrued interest receivable and other assets (4,767) (7,963) (5,248) (Decrease) increase in other liabilities (2,008) 4,554 107 --------- --------- --------- Net cash provided by operating activities 58,205 131,670 96,050 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease (increase) in interest-earning deposits with other banks 12,518 (86,473) (33,253) Purchase of securities available for sale (762,150) (245,442) (201,448) Purchase of securities held to maturity (14,703) (31,299) Proceeds from paydowns of securities held to maturity 3,307 989 Purchase of loan participations (69,414) (17,463) Proceeds from sales and maturities of securities available for sale 763,180 214,037 176,203 Increase in loans - net (88,727) (327,696) (512,139) Purchases of property and equipment - net (1,495) (936) (2,166) Proceeds from sale of loans and other real estate owned 18,224 21,798 --------- --------- --------- Net cash used in investing activities (139,260) (472,485) (572,803) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in deposits - net 58,554 342,005 496,407 Proceeds from trust preferred securities offering 1,650 11,000 (Repayment of) proceeds from other borrowing (6,116) 6,116 Net proceeds from issuance of common stock 287 2,050 38,993 Cash dividends on preferred stock (319) --------- --------- --------- Net cash provided by financing activities 54,375 361,171 535,081 --------- --------- --------- NET (DECEASE) INCREASE IN CASH AND CASH EQUIVALENTS (26,680) 20,356 58,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 111,790 91,434 33,106 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 85,110 $ 111,790 $ 91,434 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid during the year $ 73,536 $ 68,665 $ 42,555 ========= ========= ========= Income taxes paid during the year $ 14,957 $ 12,717 $ 9,077 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: Other real estate owned acquired through foreclosure $ 165 =========
51 54 HAMILTON BANCORP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 - ------------------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Hamilton Bancorp Inc. (the "Company") is a holding company formed in 1988 primarily to acquire ownership in Hamilton Bank, N.A. (the "Bank"), a national Federal Reserve member bank which commenced operations in February 1983. As of December 31, 1999, the Company owned 99.78% of the outstanding common stock of the Bank. The Bank's business is focused primarily on foreign trade and providing innovative services for its financial correspondents and exporting/importing firms. The Bank offers these services through its main office and three branches in Miami, Florida, and a branch in Tampa, Winter Haven, Sarasota, West Palm Beach, Weston, Florida and San Juan, Puerto Rico. The accounting and reporting policies of the Company conform to generally accepted accounting principles and to general practices within the banking industry. The following summarizes the more significant of these policies: BASIS OF PRESENTATION - The accompanying consolidated financial statements include the accounts of the Company, the Bank and Hamilton Capital Trust I (the "Trust", see Note 7). All significant intercompany amounts have been eliminated in consolidation. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS - For purposes of the consolidated statements of cash flows, the Company considers cash, demand deposits with other banks, and federal funds sold as cash and cash equivalents. Generally, federal funds are sold for one-day periods. The Federal Reserve requires banks to maintain certain average reserve balances, in the form of vault cash or funds on deposit with the Federal Reserve, based upon the total of a bank's net transaction accounts. At December 31, 1999 and 1998, the Bank met its average reserve requirement. INVESTMENT SECURITIES - Investment securities are accounted for under Statement of Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under SFAS No. 115, investment securities must be classified and accounted for under the following conditions: TRADING ACCOUNT SECURITIES - Trading account securities are held in anticipation of short-term sales or market movements. Trading account securities are stated at fair value. Gains or losses on the sale of trading account securities, as well as unrealized fair value adjustments, are included in operating income. At December 31, 1999 and 1998, the Company held no trading account securities. 52 55 SECURITIES AVAILABLE FOR SALE - Securities to be held for unspecified periods of time including securities that management intends to use as part of its asset/liability strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, or other similar factors are classified as available for sale and are carried at fair value. Unrealized gains or losses are reported as a net amount in accumulated other comprehensive income (loss) within stockholders' equity until realized. Gains and losses are recognized using the specific identification method upon realization. SECURITIES HELD TO MATURITY - Securities that management has a positive intent and the ability to hold to maturity are carried at cost, adjusted for amortization of premiums and accretions of discounts over the life of the securities using a method which approximates the level-yield method. TRANSFERS - Transfers of securities between classifications are recorded at fair value. Unrealized gains (losses) on securities transferred into available for sale are recorded as accumulated other comprehensive income (loss) within stockholders' equity, while unrealized gains (losses) on securities transfers into trading are recognized in income immediately. Unrealized gains (losses) on securities transferred to held to maturity are continued to be maintained in accumulated other comprehensive income (loss) within stockholders' equity, however, such unrealized gains (losses) are amortized to income over the period until maturity as an adjustment of yield, using the effective yield method. ALLOWANCE FOR CREDIT LOSSES - The allowance for credit losses is established through a provision for credit losses charged to expense based on management's evaluation of the potential losses in its loan portfolio. Such evaluation, which includes a review of all loans for which full collectability may not be reasonably assured, considers, among other matters, historical loss experience, net realizable value of collateral, current economic conditions and trends, geographical considerations, and such other factors as in management's judgment deserve recognition. Many of these factors involve a significant degree of estimation and are beyond management's control or are subject to changes which may be unforeseen. Although management believes the allowance is adequate to absorb losses on existing loans that may become uncollectible, the ultimate losses may vary significantly from the current estimates. IMPAIRED LOANS - A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. A loan is not impaired during a period of delay in payment if the creditor expects to collect all amounts due including interest accrued at the contractual interest rate for the period of delay. Individually identified impaired loans are measured based on the present value of payments expected to be received, using the historical effective loan rate as the discount rate. Alternatively, measurement may also be based on observable market prices, or for loans that are solely dependent on the collateral for repayment, measurement may be based on the fair value of the collateral. The Company evaluates commercial loans individually for impairment, while groups of smaller-balance homogeneous loans (generally residential mortgage and installment loans) are collectively evaluated for impairment. The Company has classified all non-accrual loans as impaired. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized by the straight-line method over the remaining term of the applicable leases or their useful lives, whichever is shorter. The useful lives used are as follows: Building 30 years Leasehold improvements 5 - 10 years Furniture and equipment 5 - 7 years Automobiles 5 years GOODWILL - Goodwill of approximately $861,000 arising from the acquisition of the Bank during 1988 and of approximately $1,980,000 arising from the Bank's branch purchase and assumption of deposits during 1994 are being amortized on a straight-line basis over a period of twenty and fifteen years, respectively. The Company reviews goodwill periodically for events or changes in circumstances that may indicate that the carrying amount is not recoverable on an undiscounted cash flow basis. FEDERAL FUNDS PURCHASED - Federal funds purchased generally mature within one to four days from the transaction date. At December 31, 1999 and 1998, there were no federal funds purchased outstanding. 53 56 INCOME RECOGNITION - Interest income on loans is recognized based upon the principal amounts outstanding. Loans over 90 days past due may not be placed on nonaccrual if they are in the process of collection and are either secured by property having a realizable value at least equal to the outstanding debt and accrued interest or are fully guaranteed by a financially responsible party whom the Bank believes is willing and able to discharge the debt, including accrued interest. Loans are placed on a nonaccruing status when management believes that interest on such loans may not be collected in the normal course of business. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan. Trade finance fees and commissions include fees for letters of credit and acceptances. Nonrefundable fees on letters of credit and acceptances are recognized at execution date. Syndication and structuring fees are earned in connection with the purchase, participation and placement, without recourse or future obligation, of trade finance obligations and for arranging financing for domestic and foreign customers. Nonrefundable fees earned for such transactions are fully recognized in income at the time the transaction is consummated. TRANSFERS OF FINANCIAL ASSETS - Transfers of loans and securities for which the Company has surrendered control over those assets are accounted for as sales to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. If a sale, the Company recognizes and initially measures assets controlled and liabilities incurred at fair value and gain or loss is recognized immediately into income. All financial asset transfers not meeting the sale criteria are required to be accounted for as secured borrowing with collateral (or other security interest) pledged. During 1999, 1998 and 1997, the Company recorded no gains or losses on transfers of loans and securities. INCOME TAXES - The provision for income taxes is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. The Company provides for deferred taxes under the liability method. Under such method, deferred taxes are adjusted for tax rate changes as they occur. Deferred income tax assets and liabilities are computed annually for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. NET INCOME PER COMMON SHARE - Basic earnings per share is computed based on the average number of common shares outstanding and diluted earnings per share is computed based on the average number of common and potential common shares (consisting of stock options, see Note 9) outstanding under the treasury stock method. STOCK SPLIT - On January 21, 1997, the Company's Board of Directors (the "Board") approved a 6.5 for 1 common stock split (see Note 9). Retroactive restatement has been made to all share amounts to reflect the stock split. STOCK-BASED COMPENSATION - SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages, but does not require, companies to record compensation cost for stock-based employee and non-employee members of the Board compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation to employees and non-employee members of the Board using the intrinsic value method as prescribed by Accounting Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. Accordingly, compensation cost for stock options issued to employees and non-employee members of the Board are measured as the excess, if any, of the fair value of the Company's stock at the date of grant over the amount an employee or non-employee member of the Board must pay for the stock. RECLASSIFICATIONS - Certain amounts in the 1998 and 1997 financial statements have been reclassified for comparative purposes. NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Among other provisions, SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It also requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES-DEFERRAL OF THE EFFECTIVE DATE OF SFAS STATEMENT NO. 133, which changes the effective date of SFAS 133 for financial statements for fiscal years beginning after June 15, 2000. Management has not determined what effects, if any, the adoption of SFAS No. 133 will have on the Company's consolidated financial statements. 54 57 2. INVESTMENT SECURITIES A comparison of the amortized cost and fair value of investment securities at December 31, 1999 and 1998 is as follows (dollars in thousands):
1999 --------------------------------------------------- AMORTIZED GROSS UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ----- ----------- ---------- AVAILABLE FOR SALE: Foreign debt securities $180,138 $ 1,283 $ 10,311 $171,110 U.S. Government and agency securities 54,698 5 5 54,698 Mortgage backed securities 28,370 -- 1,792 26,578 Perpetual subordinated euronotes 15,000 -- 3,579 11,421 Foreign bank stocks 4,180 -- -- 4,180 Municipal bonds 3,239 -- -- 3,239 Federal Reserve Bank stock 1,985 -- -- 1,985 Other 1,100 28 62 1,066 -------- -------- -------- -------- Total $288,710 $ 1,316 $ 15,749 $274,277 ======== ======== ======== ========
1998 --------------------------------------------------- AMORTIZED GROSS UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ----- ----------- ---------- AVAILABLE FOR SALE: U.S. Government and agency securities $ 46,835 $ 11 $ 2 $ 46,844 Foreign debt securities 20,284 15 383 19,916 Perpetual subordinated euronotes 15,000 -- -- 15,000 Federal Reserve Bank stock 1,262 -- -- 1,262 Foreign bank stocks 1,028 -- 276 752 Other 1,100 28 177 951 -------- -------- -------- -------- Total $ 85,509 $ 54 $ 838 $ 84,725 ======== ======== ======== ======== HELD TO MATURITY: Mortgage backed securities $ 17,242 $ 30 $ 203 $ 17,069 Municipal bonds 3,000 -- -- 3,000 Foreign government debt securities 10,049 -- -- 10,049 -------- -------- -------- -------- Total $ 30,291 $ 30 $ 203 $ 30,118 ======== ======== ======== ========
There were no sales of securities available for sale during the years ended December 31, 1999 and 1998. During the year ended December 31, 1997, gross realized gains on the sale of securities available for sale were approximately $109,000 and gross realized loss were approximately $1,000. 55 58 Investment securities with an amortized cost and fair value of approximately $79,896,000 and $78,207,000, respectively, at December 31, 1999, were pledged as collateral for public deposits. The following table shows the amortized cost and the fair value by maturity distribution of the securities portfolio at December 31, 1999: AVAILABLE FOR SALE --------------------- AMORTIZED FAIR COST VALUE --------- ------ Within one year $144,571 $140,057 One to five years 25,952 24,726 Five to ten years 57,063 55,029 Over ten years 38,859 35,813 ---------- ---------- Total 266,445 255,625 Federal Reseve Bank stock 1,985 1,985 Foreign bank stocks 4,180 4,180 Perpetual subordinated euronotes 15,000 11,421 Other 1,100 1,066 ---------- ---------- Total securities $ 288,710 $ 274,277 ========== ========== 3. LOANS Loans consist of the following at December 31, 1999 and 1998 (dollars in thousands): 1999 1998 ---- ---- Commercial (primarily trade related): Domestic $ 394,625 $ 289,032 Foreign 600,924 750,469 Acceptances discounted - trade related: Domestic 59,040 56,706 Foreign 59,256 72,597 Residential mortgages 2,140 10,494 Installment 216 232 ---------- ---------- Total 1,116,201 1,179,530 Less: Unearned income: Acceptances discounted 2,669 2,814 Other 145 217 Allowance for credit losses 21,411 12,794 ---------- ---------- Loans - net $1,091,976 $1,163,705 ========== ========== The Bank's business activity is mostly with customers and correspondent banks located in South Florida, Central America, South America, and the Caribbean. The majority of the credits are for the finance of imports and exports and have maturities of up to 180 days. These credits are secured either by banks, factored receivables, cash, or the underlying goods. Management closely monitors its credit concentrations by industry, geographic locations, and type of collateral as well as individual customers. As of December 31, 1998, the Company had approximately $136 million in bearer debt securities which were classified as loans and were accounted for as held to maturity securities under SFAS No. 115. During 1999, all held to maturity securities were transferred to and are being accounted for as available for sale securities under SFAS No. 115. 56 59 A summary of the activity in the allowance for credit losses for the years ended December 31, 1999, 1998 and 1997 is as follows (dollars in thousands): 1999 1998 1997 ---- ---- ---- Balance at the beginning of year $ 12,794 $ 10,317 $ 5,725 Provision charged to operations 20,300 9,621 6,980 Loan charge-offs, net of recoveries (11,683) (7,144) (2,388) -------- -------- -------- Balance at the end of year $ 21,411 $ 12,794 $ 10,317 ======== ======== ======== At December 31, 1999 and 1998, the recorded investment in impaired loans was approximately $16,583,000 and $8,586,000, respectively. These impaired loans required an allowance for credit losses of approximately $6,173,000 and $2,786,000, respectively. The average recorded investment in impaired loans during the years ended December 31, 1999 and 1998 was approximately $17,884,000 and $8,562,000, respectively. For the years ended December 31, 1999, 1998 and 1997 the Bank recognized interest income on these impaired loans prior to their classification as impaired of approximately $155,000, $412,000 and $65,000, respectively. 4. PROPERTY AND EQUIPMENT The following is a summary of property and equipment at December 31, 1999 and 1998 (dollars in thousands): 1999 1998 ---- ---- Land $ 811 $ 811 Building and improvements 1,559 1,530 Leasehold improvements 2,260 2,553 Furniture and equipment 6,965 5,691 Automobiles 80 80 ------- ------- Total 11,675 10,665 Less accumulated depreciation and amortization 6,466 5,890 ------- ------- Property and equipment - net $ 5,209 $ 4,775 ======= ======= Depreciation and amortization expense related to property and equipment for the years ended December 31, 1999, 1998 and 1997 was approximately $1,060,000, $944,000, and $841,000, respectively. The Bank owns the land and the building for one of its Miami branches, the Winter Haven and Sarasota branches and leases its main facilities, six branches and certain equipment under noncancelable agreements (accounted for as operating leases). The leases have renewal periods of five to ten years, available to the Bank under the same terms and conditions as the initial leases and one subject to annual rent adjustments based upon the Consumer Price Index. 57 60 The approximate future minimum payments, by year and in the aggregate, on these leases at December 31, 1999 are as follows (dollars in thousands): YEAR ENDING DECEMBER 31, AMOUNT ------------ ------ 2000 $2,345 2001 2,174 2002 1,860 2003 1,776 2004 1,761 Thereafter 3,654 ----- Total minimum lease payments $ 13,570 ======== Rent expense was approximately $1,802,000, $1,726,000, and $1,381,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 5. DEPOSITS Deposits consist of the following at December 31, 1999 and 1998 (dollars in thousands): 1999 1998 ---- ---- Noninterest-bearing $ 77,390 $ 76,895 ---------- ---------- Interest-bearing: NOW, money market and savings 142,790 90,477 Time, under $100,000 816,845 672,736 Time, $100,000 and over 409,425 530,373 International Banking Facility (IBF) deposits 89,156 106,571 ---------- ---------- Total interest-bearing 1,458,216 1,400,157 ---------- ---------- Total $1,535,606 $1,477,052 ========== ========== Time deposits in amounts of $100,000 and over at December 31, 1999 mature as follows (dollars in thousands): AMOUNT ------ Three months or less $ 87,410 Three months to twelve months 246,582 One year to five years 75,433 -------- Total $409,425 ======== 58 61 6. INCOME TAXES The components of the provision for income taxes are as follows for the years ended December 31, 1999, 1998 and 1997 (dollars in thousands):
1999 1998 1997 ---- ---- ---- Current income taxes: Federal $ 12,844 $ 11,503 $ 10,352 State 395 149 481 Foreign 790 1,092 880 -------- -------- -------- Total current provision 14,029 12,744 11,713 -------- -------- -------- Deferred income taxes: Federal (3,539) (683) (2,515) State (207) (40) (100) -------- -------- -------- Total deferred (benefit) provision (3,746) (723) (2,615) -------- -------- -------- Provision for income taxes $ 10,283 $ 12,021 $ 9,098 ======== ======== ========
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to pretax income for the following reasons:
1999 1998 1997 ---- ---- ---- Federal statutory rate 35.0 % 35.0 % 35.0 % Increase in taxes: State income tax, net of federal income tax benefit 0.4 0.1 1.0 Other, net 0.5 0.4 0.4 ------ ------ ---- Effective income tax rate 35.9 % 35.5 % 36.4 % ====== ====== ====
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The tax effects of significant items comprising the Company's net deferred tax asset as of December 31, 1999 and 1998 are as follows (dollars in thousands): 1999 1998 ---- ---- Deferred tax assets: Difference between book and tax basis of allowance for credit losses $7,628 $4,734 Difference between book and tax basis of property 193 63 Non-accrual interest 492 ------- ------ Total deferred tax assets 8,313 4,797 ------- ------ Deferred tax liabilities-other 230 Net deferred tax asset 8,313 4,567 Available for sale securities 5,347 298 ------- ------ $13,660 $4,865 ======= ====== 59 62 Recognition of deferred tax assets is based on management's belief that it is more likely than not that the tax benefit associated with certain temporary differences and tax credits will be realized. A valuation allowance is recorded for those deferred tax items for which it is more likely than not that realization will not occur. No valuation allowances have been recorded at December 31, 1999 and 1998, respectively. 7. TRUST PREFERRED SECURITIES On December 28, 1998, the Company issued $11,000,000 of 9.75% Beneficial Unsecured Securities, Series A (the "Preferred Securities") out of a guarantor trust. On January 14, 1999, the Trust issued an additional $1,650,000 of Preferred Securities upon the exercise of an over-allotment by the underwriters. The Trust holds 9.75% Junior Subordinated Deferrable Interest Debentures, Series A (the "Subordinated Debentures") of the Company purchased with the proceeds of the securities issued. Interest from the Subordinated Debentures of the Company is used to fund the preferred dividends of the Trust. Distributions on the Preferred Securities are cumulative and are payable quarterly. The Trust must redeem the Preferred Securities when the Subordinated Debentures are paid at maturity on or after December 31, 2028, or upon earlier redemption. Subject to the Company having received any required approval of regulatory agencies, the Company has the option at any time on or after December 31, 2008 to redeem the Subordinated Debentures, in whole or in part. Additionally, the Company has the option at any time prior to December 31, 2008 to redeem the Subordinated Debentures, in whole but not in part, if certain regulatory or tax events occur or if there is a change in certain laws that require the Trust to register under the law. The Preferred Securities are considered to be Tier I capital for regulatory purposes. 8. STOCKHOLDERS' EQUITY REGULATORY MATTERS - The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. 60 63 The components of regulatory capital used to calculate capital ratios are detailed in the table below:
At December 31, ------------------ 1999 1998 ---- ---- Stockholders' equity per generally accepted accounting principles $ 133,898 $ 123,546 Trust preferred securities 12,650 11,000 Less intangible assets (1,658) (1,429) Other accumulated comprehensive loss 9,086 486 Less: mandated regulatory adjustments (net of applicable income taxes) (24,875) --------- --------- Tier 1 Capital 129,101 133,603 Allowance for credit losses 14,933 12,794 --------- --------- Total Capital $ 144,034 $ 146,397 ========= =========
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 "mark to market" 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 this connection, 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 result of these proceedings and directions, 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 approval 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. The Company is subject to risk-based capital and leverage guidelines issued by the Board of Governors of the Federal Reserve System and the Bank is subject to similar guidelines issued by the OCC. These guidelines are used to evaluate capital adequacy and include the required minimums shown in the following table. To be "well capitalized" under federal bank regulatory agency definitions, a depository institution must have a Tier 1 ratio of at least 6%, a combined Tier 1 and Tier 2 ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a directive, order or written agreement to meet and maintain specific capital levels. The regulatory agencies are required by law to take specific prompt actions with respect to institutions that do not meet minimum capital standards. As of December 31, 1999 and 1998, the Bank's capital ratios exceeded the ratios set by the regulatory agencies for "well capitalized" depository institutions. The Company's consolidated and the Bank's actual capital amounts and ratios are also presented in the table (dollars in thousands). 61 64
TO BE WELL REQUIRED CAPITALIZED UNDER FOR CAPITAL PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS ------------------------- ------------------------- -------------------------- Amount Ratio Amount Ratio Amount Ratio ------------ ---------- ------------ ---------- ------------ ----------- AS OF DECEMBER 31, 1999: COMPANY Total Capital (to Risk Weighted Assets) $ 144,034 12.5% $92,436 8.0 % ========== ===== ======== ===== Tier I Capital (to Risk Weighted Assets) $ 129,101 11.2% $46,218 4.0 % ========== ===== ======== ===== Tier I Capital (to Average Assets) $ 129,101 7.5% $51,659 3.0 % ========== ==== ======== ===== BANK Total Capital (to Risk Weighted Assets) $ 136,501 11.4 % $92,511 8.0 % $ 119,389 10.0 % ========== ====== ======== ===== ========== ====== Tier I Capital (to Risk Weighted Assets) $ 121,497 10.2 % $47,755 4.0 % $ 71,633 6.0 % ========== ====== ======== ===== ========= ===== Tier I Capital (to Average Assets) $ 121,497 7.1 % $68,503 4.0 % $ 85,629 5.0 % ========== ===== ======== ===== ========= ===== AS OF DECEMBER 31, 1998: COMPANY Total Capital (to Risk Weighted Assets) $ 146,397 13.2% 8.0 % 8.0 % ========== ===== ===== ===== Tier I Capital (to Risk Weighted Assets) $ 133,603 12.0% 4.0 % 4.0 % ========== ===== ===== ===== Tier I Capital (to Average Assets) $ 133,603 8.0% 3.0 % 3.0 % ========== ==== ===== ===== BANK Total Capital (to Risk Weighted Assets) $ 134,680 12.2 % 8.0 % 8.0 % $ 110,768 10.0 % ========== ====== ===== ===== ========== ====== Tier I Capital (to Risk Weighted Assets) $ 121,886 11.0 % 4.0 % 4.0 % $ 66,461 6.0 % ========== ====== ===== ===== ========== ====== Tier I Capital (to Average Assets) $ 121,886 7.3 % 4.0 % 4.0 % $ 83,086 5.0 % ========== ====== ===== ===== ========== ======
The Bank is currently disputing certain additional adjustments mandated by the OCC for regulatory reporting purposes. If the Bank were to record these adjustments the capital ratios for the Company and the Bank as of December 31, 1999 would be as follows: COMPANY BANK ------- ---- Total Capital (to Risk Weighted Assets) 11.5% 10.9% Tier I Capital (to Risk Weighted Assets) 10.2% 9.6% Tier I Capital (to Average Assets) 6.9% 6.5% The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 1999, approximately $48,479,000 of retained earnings were available for dividend declaration without prior regulatory approval. During 1999 and 1998, approximately $4,614,000 and $2,252,000 of dividends were paid by the Bank to the Company, respectively, which are within the amounts allowed by regulations. The Company has placed more emphasis on financing imports of goods into the United States and thereby increased the relative size of its assets employed in the domestic market as compared to its exposure in the Region (as defined in Note 14). The Company will also focus on the Hispanic business community in light of bank consolidations in recent months which has resulted in the absorption of several Hispanic banks in the South Florida area. In addition, prudent risk management, in particular with regard to emerging market countries, calls for avoidance of high concentrations of risk in these countries in relation to a bank's capital. Currently, United States bank regulatory agencies consider that exposure in these markets should be limited to levels that would not impair the safety and soundness of a banking institution. As a consequence, the Company's exposure in the Region was significantly reduced at December 31, 1998 and was further reduced in 1999. The Company expects the 1999 levels will be maintained in 2000. While the Company is well capitalized for the purposes of the "prompt corrective action" provisions, to date it has not paid any dividends and does not anticipate doing so. Nevertheless, due to 62 65 economic difficulties being experienced by various countries in the Region, the Federal Reserve has requested that the Company not pay any dividends or incur any debt (excluding "trust preferred securities") without the consent of the Federal Reserve. PUBLIC OFFERING - On March 26, 1997 the Company completed its initial public offering issuing an aggregate of 2,760,000 shares at $15.50 per share with net proceeds of approximately $38,994,000. In connection with the initial public offering, the Board amended and restated the articles of incorporation of the Company authorizing 75,000,000 shares of common stock and 10,000,000 shares of "blank check" preferred stock. In addition, the Board approved a 6.5 for 1 common stock split and reorganization of the capital structure of the Company consisting of (i) the conversion of all outstanding shares of the Company's Preferred Shares (Series B and C) into 466,160 shares (post-stock split) of common stock and (ii) the issuance of an aggregate of 1,396,759 shares (post-stock split) of common stock for all outstanding warrants to purchase shares of common stock of the Bank. PREFERRED STOCK - During June 1994, the Company's Board amended and restated the Company's articles of incorporation providing for the issuance of shares of Series B and Series C ("Preferred Shares"), 14% fixed rate, non-cumulative, non-voting, perpetual preferred stock. The Company, on June 30, 1994, issued an aggregate of 60,207 shares of Series B Preferred Shares at $50 per share and on December 31, 1994 issued 41,000 shares of Series C Preferred Shares at $50 per share. In connection with the public offering and reorganization the preferred shares were converted into 466,160 shares (post-stock split) of common stock. WARRANTS - In connection with the stock purchase and sale agreement dated March 21, 1988, stock warrants were issued which granted an option to acquire additional common shares of the Bank in an amount equal to twenty percent of the outstanding common shares of the Bank at the time of exercise, at $.01 per share. The option was for a period of ten years that commenced on May 28, 1988. In connection with the public offering and reorganization the warrants (and bank stock resulting from exercise of warrants) were converted into 1,396,759 shares (post-stock split) of common stock. 9. STOCK OPTION PLAN In December 1993, the Company adopted the 1993 Stock Option Plan (the "1993 Plan"), pursuant to which 877,500 shares of Common Stock (post-stock split) were reserved for issuance upon exercise of options. The 1993 Plan is designed as a means to retain and motivate key employees and directors. The Company's Compensation Committee, or in the absence thereof, the Board, administers and interprets the 1993 Plan and is authorized to grant options thereunder to all eligible employees of the Company, including executive officers and directors (whether or not they are employees) of the Company or affiliated companies. Options granted under the 1993 Plan are on such terms and at such prices as determined by the Compensation Committee, except that the per share exercise price of incentive stock options cannot be less than the fair market value of the Common Stock on the date of grant. The 1993 Plan will terminate on December 31, 2003, unless sooner terminated by the Company's Board. Option activity for the years ended December 31, 1999, 1998 and 1997 are presented below: 63 66
NUMBER OPTION FAIR 1999 OF SHARES PRICE VALUE - ---------------------------------------------------------------------------------------- Beginning balance 711,219 $ 9.23 - 29.125 Exercised (31,085) 9.23 Canceled (31,113) 25.00 - 29.125 ------- ----------------- Ending Balance 649,021 $ 9.23 - $29.125 ====== Options which became exercisable during the year 186,803 Options exercisable at December 31, 533,436
NUMBER OPTION FAIR 1998 OF SHARES PRICE VALUE - ---------------------------------------------------------------------------------------- Beginning balance 776,875 $ 9.23 - 29.125 Granted (1) 173,388 25.00 - 25.47 $7.64 -7.50 Exercised (222,113) 9.23 Canceled (16,931) 9.23 - 29.125 --------- ----------------- Ending Balance 711,219 $9.23 - $29.125 ========= Options which became exercisable during the year 649,500 Options exercisable at December 31, 427,387
NUMBER OPTION FAIR 1997 OF SHARES PRICE VALUE - ---------------------------------------------------------------------------------------- Beginning balance 585,000 $ 9.23 Granted (1) 193,500 29.125 $ 6.55 Canceled (1,625) 9.23 --------- ----------------- Ending Balance 776,875 $9.23 - $29.125 ========= ================= Options which became exercisable during the year -- Options exercisable at December 31, -- - ----------------------------------------------------------------------------------------
(1) The grants vest twelve months after the grant as to 33.3% of the grant, 33.3% vesting eighteen months after grant and the remaining 33.4% vesting twenty-four months after grant or upon the death of the option holder if earlier. The following table summarizes information about all stock options outstanding at December 31, 1999: OPTIONS OUTSTANDING ---------------------------------------------------------------- OPTIONS REMAINING OUTSTANDING CONTRACTED LIFE EXERCISE PRICE ---------------------------------------------------------------- 320,415 6 years $ 9.230 176,768 8 years $ 29.125 151,838 9 years $ 25.00 - $ 25.47 64 67 The Company applies APB No. 25 and related interpretations in accounting for its stock options plan to employees and non-employee members of the Board as described in Note 1. Accordingly, no compensation expense has been recognized in the years ended December 31, 1999, 1998 and 1997, related to this plan. For purposes of the following proforma disclosures, the fair value of the options granted in 1998 and 1997 have been estimated on the date of grant using the Black-Scholes options pricing model with the following assumptions used for grants in 1998 and 1997, respectively: no dividend yield; expected volatility of 48% and 32%; risk-free interest rate of 4.5% and 5.68% and an expected term of two years and the fair value of the options granted in 1996 was estimated using the minimum value method prescribed by SFAS No. 123 for nonpublic entities. Had compensation cost been determined based on the fair value at the date of grant consistent with requirement of SFAS 123 the Company's net income and net income and per common share would have been reduced to the proforma amounts indicated below (dollars in thousands, except share information). YEAR ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 ---- ---- ---- Net income: As reported $ 18,360 $ 21,799 $ 15,903 Proforma 17,301 21,185 15,762 Net income per common share: Basic: As reported 1.82 2.18 1.81 Proforma 1.72 2.12 1.79 Diluted: As reported 1.79 2.12 1.73 Proforma 1.68 2.06 1.72 10. 401(K) PLAN The Company maintains a 401(k) plan, which was initiated in 1993, for its executive officers and other employees. Under the terms of the 401(k) plan, for each dollar contributed by an employee, the Company intends to contribute a discretionary amount on behalf of participants (the "Matching Contribution"). In addition, at the end of the plan year, the Company may make an additional contribution (the "Additional Contributions") on behalf of participants. Additional Contributions are allocated in the same proportion that the Matching Contribution made on the participant's behalf bears to the Matching Contribution made on behalf of all participants during the year. The amount that the Company contributes to the 401(k) plan has historically varied from year to year. During the years ended December 31, 1999, 1998 and 1997, the Company's matching and additional contributions amounted to approximately $82,000, $155,000 and $128,000 respectively. 65 68 11. RELATED PARTY TRANSACTIONS Directors, officers and their related entities have borrower and depositor relationships with the Bank in the ordinary course of business. Loan balances to these individuals and their related entities approximated $544,000 and $324,000 at December 31, 1999 and 1998, respectively, and the balance of deposit accounts approximated $1,897,000 and $1,722,000 at December 31, 1999 and 1998, respectively. At December 31, 1999 there were no outstanding commercial and standby letters of credit transactions outstanding with these individuals. At December 31, 1998 there were approximately $100,000 of outstanding commercial and standby letters of credit transactions with these individuals and their related entities 12. OFF-BALANCE SHEET RISK, COMMITMENTS AND CONTINGENCIES OFF-BALANCE SHEET RISK AND COMMITMENT. In the normal course of business, the Bank utilizes various financial instruments with off-balance sheet risk to meet the financing needs of its customers, including commitments to extend credit, commercial letters of credit, shipping guarantees, standby letters of credit and forward foreign exchange contracts. These financial instruments involve, to varying degrees, elements of credit risk. The credit risk associated with these financial instruments, as further discussed herein, is not recorded in the statement of condition. The contractual or notional amounts of such instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The credit risks associated with financial instruments are generally managed in conjunction with the Bank's statements of condition activities and are subject to normal credit policies, financial controls, and risk limiting and monitoring procedures. Credit losses are incurred when one of the parties fails to perform in accordance with the terms of the contract. The Bank's exposure to credit loss is represented by the contractual or notional amount of the commercial letters of credit, shipping guarantees, and standby letters of credit. This is the maximum potential loss of principal in the event the commitment is drawn upon and the counterparty defaults. A summary of the Bank's contractual or notional amounts for financial instruments with off-balance sheet risk as of December 31, 1999 and 1998 along with a further discussion of these instruments, is as follows (dollars in thousands):
CONTRACTUAL OR NOTIONAL AMOUNT -------------------------------- 1999 1998 ------------- --------------- Commercial letters of credit $ 129,475 $ 116,078 Standby letters of credit 21,340 12,566 Shipping guarantees (indemnity letters) 629 72 Commitments to purchase foreign currency 5,862 2,850 Commitments to sell foreign currency 5,879 4,303 Commitments to extend credit 64,220 47,636
A commercial letter of credit is an instrument containing the commitment of the Bank stating that the Bank will honor drawings under and in full compliance with the terms of the letter of credit. The letters of credit are usually drawn on the presentation of certain required documents, such as commercial invoice and bills of lading. Essentially, letters of credit facilitate the purchase of merchandise by the Bank's customers by substituting the credit standing of the Bank for that of the Bank's customer. Commercial letter of credit contracts are generally for a short commitment period. 66 69 Standby letters of credit are commitments issued to guarantee the performance of a customer to a third party. The Bank issues standby letters of credit to ensure contract performance or assure payment by its customers. The guarantees extend for periods up to 12 months. The risk involved in issuing standby letters of credit is the same as the credit risk involved in extending loan facilities to customers and they are subject to the same credit approvals and monitoring procedures. The Bank holds certificates of deposit and guarantees from other banks as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held for standby letters of credit commitments at December 31, 1999 varies from zero percent to 100 percent. Shipping guarantees (also known as indemnity letters) are letters of guarantee issued by the Bank on behalf of its customer in favor of shipping agents. Normally, such facility is extended in instances where goods purchased under letters of credit have arrived at the port of destination and the shipping documents necessary for the release of the goods have not been received by the Bank. The purpose of the shipping guarantee is to indemnify the transportation company for any loss that might arise from the release of goods to the Bank's customer in the absence of the shipping documents. The Bank enters into forward foreign exchange contracts with its customers for the delayed exchange of foreign currency for U.S. dollars on behalf of such customers. These contracts provide a vehicle for the Bank's customers to hedge their future obligations in foreign currency. Upon entering such contracts with its customers, the Bank meets these foreign currency commitments by entering into equivalent contracts with other banks to purchase or sell equal amounts of the foreign currency to be delivered or received. Risks arise from the possible inability of the Bank's counterparties to meet the terms of their contracts and from movements in foreign currency exchange rates. However, the full notional amount of the contract is not at risk, as the Bank has the ability to settle these contracts in the foreign exchange market. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, upon extension of credit, is based on management's credit evaluation of the counterparty. LITIGATION. On January 31, 1998, Development Specialists, Inc., the Liquidating Trustee of the Model Imperial Liquidating Trust established under the Plan of Reorganization in the Model Imperial, Inc. Chapter 11 Bankruptcy proceeding, filed an action against the Bank in the United States Bankruptcy Court for the Southern District of Florida objecting to the Bank's proof of claim in the Chapter 11 proceeding and affirmatively seeking damages against the Bank 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 filed by the Trustee against other defendants that were involved with Model Imperial seeking the same damages as in the action against the Bank. The Company believes the claims are without merit, and the Bank is vigorously defending the action. A trial on various bankruptcy preference issues was held in November 1999, and the parties are awaiting the judge's ruling. From time to time the Bank is engaged in additional litigation incidental to its operations. While any litigation contains an element of uncertainty, the Bank, after considering the advice of legal counsel, believes the outcome of all aforementioned litigation will not have a material adverse effect on the Bank's financial position, results of operations or liquidity. 67 70 13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 1999 and, therefore, current estimates of fair value may differ significantly from the amounts presented herein (dollars in thousands).
DECEMBER 31, 1999 DECEMBER 31, 1998 ------------------------------------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- ------- ---------- -------- Assets: Cash and cash equivalents $ 85,110 $ 85,110 $ 111,790 $ 111,790 Interest-earning deposits with other banks 187,685 187,685 200,203 200,203 Securities available for sale 274,277 274,277 84,725 84,725 Securities held to maturity 30,291 30,118 Loans, net 1,091,976 1,082,589 1,163,705 1,160,775 Liabilities: Demand deposits 220,180 220,180 167,372 167,372 Time deposits 1,315,426 1,315,434 1,309,680 1,314,000 Other borrowings 6,116 6,116 Trust preferred securities 12,650 9,962 11,000 11,000 Contingent assets and liabilities: Bankers acceptances 27,767 208 75,567 567 Deferred payment letters of credit 5,835 26 6,468 29 Off-balance sheet instruments unrealized gains (losses): Commitments to extend credit 124 90 Commercial letters of credit 323 273 Standby letters of credit 320 188 Indemnity letters of credit 2 1 Commitments to purchase foreign currency 66 (8) Commitments to sell foreign currency 238 29
CASH AND CASH EQUIVALENTS - The carrying amount of cash on hand, demand deposits with other banks, and federal funds sold is a reasonable estimate of fair value. INTEREST-EARNING DEPOSITS WITH OTHER BANKS - The fair value of time deposits with other banks (several of which are foreign) is estimated using the rates currently offered for deposits of similar remaining maturities and taking into account the creditworthiness of the other bank. 68 71 SECURITIES AVAILABLE FOR SALE, SECURITIES HELD TO MATURITY AND TRUST PREFERRED SECURITIES - The fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. LOANS - The interest rates for commercial loans and acceptances discounted are based on the prime lending rate. The Bank updates these interest rates on a monthly basis. Thus, the carrying amount of commercial loans and acceptances discounted is a reasonable estimate of fair value. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEMAND DEPOSITS AND TIME DEPOSITS - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. OTHER BORROWINGS - The carrying amount of other borrowings is a reasonable estimate of fair value. CONTINGENT ASSETS AND LIABILITIES - The fair values of these assets and corresponding liabilities are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. OFF-BALANCE SHEET INSTRUMENTS - The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements, or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair values of commitments to purchase and sell foreign currency are based on quoted market prices or dealer quotes. 14. FOREIGN ACTIVITIES The Company's foreign activities primarily consist of providing global trade finance, with particular emphasis on trade finance, with and between South America, Central America, the Caribbean (the "Region") and the United States or otherwise involving the Region. The Company considers assets and revenues as associated with foreign activities on the basis of the country of domicile of the customer. The nature of the Company's operations make it difficult to determine precisely foreign activities profitability since it involves the use of certain judgmental allocations. Rates used to determine charges or credits for funds used or generated by foreign activities are based on actual costs during the period for selected interest-bearing sources of funds. Other operating income and expenses are determined based upon internal allocations appropriate to the individual activities. A summary of 69 72 the Company's domestic and foreign activities as of and for the years ended December 31, 1999, 1998 and 1997 is as follows (dollars in thousands): INCOME BEFORE OPERATING PROVISION FOR NET TOTAL INCOME INCOME TAXES INCOME ASSETS --------- ------------ --------- ----------- 1999 Domestic $ 27,739 $ 12,789 $ 9,855 $ 653,206 Foreign 53,308 15,854 8,505 1,070,184 ---------- ---------- ---------- ---------- Total $ 81,047 $ 28,643 $ 18,360 $1,723,390 ========== ========== ========== ========== 1998 Domestic $ 16,708 $ 8,789 $ 6,897 $ 610,834 Foreign 54,826 25,031 14,902 1,096,729 ---------- ---------- ---------- ---------- Total $ 71,534 $ 33,820 $ 21,799 $1,707,563 ========== ========== ========== ========== 1997 Domestic $ 12,635 $ 5,548 $ 3,529 $ 426,130 Foreign 42,769 19,453 12,374 916,004 ---------- ---------- ---------- ---------- Total $ 55,404 $ 25,001 $ 15,903 $1,342,134 ========== ========== ========== ========== 15. PARENT COMPANY FINANCIAL INFORMATION Condensed financial information for Hamilton Bancorp Inc. (Parent Company only) is as follows (dollars in thousands): STATEMENTS OF CONDITION DECEMBER 31, ------------------- 1999 1998 -------- -------- ASSETS Demand deposit with the Bank $ 5,536 $ 190 Securities available for sale 888 9,763 Goodwill, net 361 404 Other assets 1,351 960 Investment in subsidiaries 100,153 93,543 Investment in the Bank's preferred stock 38,650 30,050 -------- -------- Total $146,939 $134,910 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Subordinated debentures held by the Trust $ 13,041 $ 11,340 Other liabilities -- 24 Stockholders' equity 133,898 123,546 -------- -------- Total $146,939 $134,910 ======== ======== 70 73
YEARS ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 ---- ---- ---- STATEMENTS OF INCOME Interest income $ 313 $ 530 $ 339 Dividends from Bank and other income 4,708 2,258 1,105 --------- --------- --------- Total income 5,021 2,788 1,444 Interest expense 1,270 12 Operating expenses 1,290 1,539 294 --------- --------- --------- Total expenses 2,560 1,551 294 --------- --------- --------- Income before equity in undistributed income of subs2,461y 1,237 1,150 Equity in undistributed income of subsidiaries 15,229 20,391 14,787 --------- --------- --------- Income before income tax (benefit) provision 17,690 21,628 15,937 Income tax (benefit) provision (670) (171) 34 --------- --------- --------- Net income $ 18,360 $ 21,799 $ 15,903 ========= ========= =========
YEARS ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 ---- ---- ---- STATEMENTS OF CASH FLOWS Cash flows from operating activities: Net income $ 18,360 $ 21,799 $ 15,903 Adjustments to reconcile net income to net cash provided by operations: Equity in undistributed income of subsidiary (15,229) (20,391) (14,787) Write down on security available for sale 587 Amortization of goodwill 43 43 43 Other (517) 1,198 (269) --------- --------- --------- Net cash provided by operating activities 2,657 3,236 890 --------- --------- --------- Cash flows from investing activities: Purchase of securities available for sale (80,307) (140,163) (96,504) Proceeds from maturities of securities available for sale 89,354 131,172 95,216 Payment for investment in Bank's common stock 0 0 (20,237) Payment for investment in the Bank's preferred stock (8,600) (15,300) (10,000) Payment for investment in the Trust's common stock (51) (340) --------- --------- --------- Net cash used in investing activities 396 (24,631) (31,525) --------- --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 592 2,050 38,994 Proceeds from issuance of trust preferred securities 1,701 11,340 Cash dividends on preferred stock 0 0 (319) Net cash provided by (used in) financing activities 2,293 13,390 38,675 --------- --------- --------- Net (decrease) increase in cash 5,346 (8,005) 8,040 Cash at beginning of year 190 8,195 155 --------- --------- --------- Cash at end of year $ 5,536 $ 190 $ 8,195 ========= ========= =========
71 EX-3.2 2 BYLAWS OF COMPANY 1 Exhibit 3.2 BYLAWS OF HAMILTON BANCORP INC. (A FLORIDA CORPORATION) (AS AMENDED ON MARCH 21, 2000) 2 TABLE OF CONTENTS Article 1. Shareholders .............................................. 1 1.1 Annual Meeting ............................................ 1 1.2 Special Meeting ........................................... 1 1.3 Place of Meeting .......................................... 1 1.4 Action Without a Meeting .................................. 1 1.5 Notice Of Meeting ......................................... 1 1.6 Waiver of Notice Meeting .................................. 1 1.7 Fixing of Record Date ..................................... 2 1.8 Voting Record ............................................. 2 1.9 Voting Per Share .......................................... 2 1.10 Voting of Shares .......................................... 3 1.11 Proxies ................................................... 3 1.12 Quorum .................................................... 4 1.13 Manner of Action .......................................... 4 1.14 Voting for Directors ...................................... 4 1.15 Inspectors of Election .................................... 4 1.16 Conduct of Meetings ....................................... 5 Article 2. Board of Directors ............................................ 5 2.1 General Powers ............................................ 5 2.2 Number, Terms, Classification and Qualification ........... 5 2.3 Regular Meetings .......................................... 5 2.4 Special Meetings .......................................... 5 2.5 Waiver of Notice of Meeting ............................... 6 2.6 Quorum .................................................... 6 2.7 Manner of Action .......................................... 6 2.8 Presumption of Assent ..................................... 6 2.9 Action Without a Meeting .................................. 6 2.10 Meetings of the Board of Directors by Means of a Conference Telephone or Similar Communications Equipment ............. 6 2.11 Resignation ............................................... 7 2.13 Vacancies ................................................. 7 2.14 Compensation .............................................. 7 Article 3. Committees of the Board of Directors ...................... 7 Article 4. Officers .................................................. 8 4.1 Officers .................................................. 8 4.2 Appointment and Term of Office ............................ 8 4.3 Resignation ............................................... 8
-i- 3 4.4 Removal ................................................................... 8 4.5 Vacancies ................................................................. 8 4.6 Duties of Officers ........................................................ 8 4.7 Vice Presidents ........................................................... 8 4.8 Secretary ................................................................. 9 4.9 Treasurer ................................................................. 9 4.10 Other Officers, Employees and Agents ...................................... 9 4.11 Compensation .............................................................. 9 Article 5. Certificates of Stock ..................................................... 9 5.1 Certificates for Shares ................................................... 9 5.2 Transfer of Shares; Ownership of Shares ................................... 9 5.3 Lost Certificates ......................................................... 10 5.4 Legends for Preferences and Restrictions on Transfer ...................... 10 5.5 Registered Shareholders ................................................... 10 5.6 Redemption of Control Shares .............................................. 10 Article 6. Actions With Respect to Securities of Other Corporations .................. 11 Article 7. Amendments ................................................................ 11 Article 8. Corporate Seal ............................................................ 11 Article 9. Indemnification ........................................................... 11 Article 10. Gender .................................................................... 11 Article 11. Dividends ................................................................. 11 Article 12. Reserves .................................................................. 12 Article 13. Checks .................................................................... 12 Article 14. Fiscal Year ............................................................... 12
-ii- 4 BYLAWS OF HAMILTON BANCORP INC. ARTICLE 1. SHAREHOLDERS 1.1 ANNUAL MEETING. A meeting of shareholders shall be held each year for the election of directors and for the transaction of any other business that may come before the meeting. Annual meetings shall be held on such date and at such time fixed, from time to time, by the Board of Directors. 1.2 SPECIAL MEETING. Special meetings of the shareholders shall be held if called in accordance with the procedures set forth in the Corporation's Articles of Incorporation for the call of a special meeting of shareholders. 1.3 PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of Florida, as the place of meeting for any annual or special meeting of the shareholders. If no designation is made, the place of meeting shall be the principal office of the Corporation in the State of Florida. 1.4 ACTION WITHOUT A MEETING. Any required vote of shareholders must be taken at a meeting duly called and held, and may not be taken by written consent in lieu of a meeting. 1.5 NOTICE OF MEETING. Except as set forth in the Florida Business Corporation Act (hereinafter referred to as the "FBCA"), written or printed notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by first-class mail, by, or at the direction of, the president or the secretary, or the officer or other persons calling the meeting, to each-shareholder of record entitled to vote at such meeting. If the notice is mailed at least thirty (30) days before the date of the meeting, it may be effected by a class of United States mail other than first-class. If mailed, such notice shall be effective when mailed, if mailed postage prepaid and correctly addressed to the shareholder's address shown in the current record of shareholders the corporation. When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. If, however, after the adjournment, the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given as provided in this Section to each shareholder of record on the new record date entitled to vote at such meeting. 1.6 WAIVER OF NOTICE MEETING. Whenever any notice is required to be given to any shareholder, a waiver thereof in writing signed by the person or persons entitled to such notice, 5 whether signed before, during or after the time of the meeting stated therein, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, shall be equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute a waiver of (a) lack of or defective notice of such meeting, unless the person objects at the beginning of the meeting to the holding of the meeting or the transacting of any business at the meeting or (b) lack of defective notice of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the person objects to considering such matter when it is presented. 1.7 FIXING RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purposes, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy (70) days, and, in case of a meeting of shareholders, not less than ten (10) days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which the notice of the meeting is mailed or the date on which the resolutions of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 1.7, such determination shall apply to any adjournment thereof, except where the Board of Directors fixes a new record date for the adjourned meeting or as required by law. 1.8 VOTING RECORD. After fixing a record date for a meeting of shareholders, the Corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of the meeting, arranged by voting group with the address of, and the number and class and series, if any, of shares held by each. The shareholders' list must be available for inspection by any shareholder for a period of ten (10) days prior to the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the Corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the Corporation's transfer agent or registrar. Any shareholder of the Corporation or his agent or attorney is entitled on written demand to inspect the shareholders' list (subject to the requirements of FBCA ss. 607.1602(3)), during regular business hours and at his expense, during the period it is available for inspection. The Corporation shall make the shareholders' list available at the meeting of shareholders, and any shareholder or his agent or attorney is entitled to inspect the list at any time during the meeting or any adjournment. 1.9 VOTING PER SHARE. Except as otherwise provided in the Articles of Incorporation or by FBCA ss. 607.0721, each shareholder is entitled to one (1) vote for each outstanding share held by him on each matter voted at a shareholders' meeting. -2- 6 1.10 VOTING OF SHARES. A shareholder may vote at any meeting of shareholders of the Corporation, either in person or by proxy. Shares standing the name of another corporation, domestic or foreign, may be voted by the officer, agent or proxy designated by the bylaws of such corporate shareholder or, in the absence of any applicable bylaw, by such person or persons as the Board of Directors of the corporate shareholder may designate. In the absence of any such designation or, in case of conflicting designation by the corporate shareholder, the chairman of the board, the president, any vice president, the secretary and the treasurer of the corporate shareholder, in that order, shall be presumed to be fully authorized to vote such shares. Shares held by an administrator, executor, guardian, personal representative, or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name or the name of his nominee. Shares held by or under the control of a receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of creditors may be voted by such person without the transfer thereof into his name. If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the secretary of the Corporation is given notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, then acts with respect to voting shall have the following effect: (a) if only one votes, the person or by proxy, his act binds all; (b) if more than one vote, in person or by proxy, the act of the majority so voting binds all; (c) if more than one vote, in person or by proxy, but the vote is evenly split on any particular matter, each faction is entitled to vote the share or shares in question proportionally; or (d) if the instrument or order so filed shows that any such tenancy is held in unequal interest, a majority or a vote evenly split for purposes hereof shall be a majority or a vote evenly split in interest. The principles of this paragraph shall apply, insofar as possible, to execution of proxies, waivers, consent, or objections and for the purpose of ascertaining the presence of a quorum. 1.11 PROXIES. Any shareholder of the Corporation, other person entitled to vote on behalf of a shareholder pursuant to FBCA ss. 607.0721, or attorney-in-fact for such persons may vote the shareholder's shares in person or by proxy. Any shareholder of the Corporation may appoint a proxy to vote or otherwise act for him by signing an appointment form either personally or by his attorney-in-fact. An executed telegram or cablegram appearing to have been transmitted by such person, or a photographic, photostatic, or equivalent reproduction of an appointment form, shall be deemed a sufficient appointment form. -3- 7 An appointment of a proxy is effective when received by the secretary of the Corporation or such other officer or agent which is authorized to tabulate votes, and shall be valid for up to 11 months, unless a longer period is expressly provided in the appointment form. The death or incapacity of the shareholder appointing a proxy does not affect the right of the Corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. 1.12 QUORUM. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of these shares exists with respect to that matter. Except as otherwise provided in the Articles of Incorporation or by law, a majority of the shares entitled to vote on the matter by each voting group, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders, but in no event shall a quorum consist of less than one-third (1/3) of the shares of each voting group entitled to vote. If less than a majority of outstanding shares entitled to vote are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. After a quorum has been established at any shareholders' meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. 1.13 MANNER OF ACTION. If a quorum is present, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater or lesser number of affirmative votes is required by the Articles of Incorporation or by law. 1.14 VOTING FOR DIRECTORS. Unless otherwise provided in the Articles of Incorporation, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. 1.15 INSPECTORS OF ELECTION. Prior to each meeting of shareholders, the Board of Directors or the president may appoint one or more Inspectors of Election. Upon his appointment, each such Inspector shall take and sign an oath faithfully to execute the duties of Inspector at such meeting with strict impartiality and to the best of his ability. Such Inspectors shall determine the number of shares outstanding, the number of shares present at the meeting and whether a quorum is present at such meeting. The Inspectors shall receive votes and ballots and shall determine all challenges and -4- 8 questions as to the right to vote and shall thereafter count and tabulate all votes and ballots and determine the result. Such Inspectors shall do such further acts as are proper to conduct the elections of directors and the vote on other matters with fairness to all shareholders. The Inspectors shall make a certificate of the results of the elections of directors and the vote on other matters. No Inspector shall be a candidate for election as a director of the Corporation. 1.16 CONDUCT OF MEETINGS. The Chairman of the Board (or in his absence, the Vice Chairman, the President or such other designee of the Chairman of the Board) shall preside at the annual and special meetings of shareholders and shall be given full discretion in establishing the rules and procedures to be followed in conducting the meetings, except as otherwise provided by law, the Articles of Incorporation or in these bylaws. ARTICLE 2. - BOARD OF DIRECTORS 2.1 GENERAL POWERS. Except as provided in the Articles of Incorporation and by law, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, its Board of Directors. 2.2 NUMBER, TERMS, CLASSIFICATION AND QUALIFICATION. The Board of Directors of the Corporation shall consist of not less than one (1) nor more than twenty-one (21) directors with the exact number to be fixed from time to time by the affirmative vote of a majority of directors then in office or the affirmative vote of the holders of a majority of the shares entitled to vote on that matter. No decrease in the number of directors shall have the effect of shortening the term of an incumbent direct. A Director must be a natural person of at least eighteen (18) years of age, but need not be a citizen of the United States of America, a resident of the State of Florida, or a shareholder of the Corporation. Each director shall hold office until his successor shall have been elected and qualified or until his earlier resignation, removal from office or death. 2.3 REGULAR MEETINGS. An annual regular meeting of the Board of Directors may be held without notice immediately after, and at the same place as, the annual meeting of shareholders for the purpose of the election of officers and the transaction of such other business as may come before the meeting, and at such other time and place as may be determined by the Board of Directors. The Board of Directors may, at any time and from time to time, provide by resolution, the time and place, either within or without the State of Florida, for the holding of the annual regular meeting or additional regular meetings of the board of directors without other notice than such resolution. 2.4 SPECIAL MEETINGS AND NOTICE. Special meetings of the Board of Directors may be called by the Secretary on the written request of any two directors. The person or persons authorized to call special meetings of the Board of Directors may designate any place, either within or without the State of Florida, as the place for holding any special meeting of the Board of Directors called by them. If no designation is made, the place of the meeting shall be the principal office of the Corporation in the State of Florida. Written notice of special meetings of the Board of Directors shall be given to each director at least forty-eight (48) hours before the meeting. Except as required -5- 9 by statute, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Notices to directors shall either be in writing and delivered personally or mailed to the directors at their addresses appearing on the books of the Corporation or by oral communication (whether telephonically or face-to-face). Notice by mail shall be deemed to be given at the time when the same shall be received. Notice to directors may also be given by facsimile, telegram, or other form of electronic communication 2.5 WAIVER OF NOTICE OF MEETING. Notice of a meeting of the Board of Directors need not be given to any director who signs a written waiver of notice before, during or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting and the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened. 2.6 QUORUM. A majority of the number of directors fixed by, or in the manner provided in, these bylaws shall constitute a quorum for the transaction of business; provided, however, that whenever, for any reason, a vacancy occurs in the board of directors, a quorum shall consist of a majority of the remaining directors until the vacancy has been filled. 2.7 MANNER OF ACTION. The act of a majority of the directors present at a meeting at which a quorum is present when the vote is taken shall be the act of the Board of Directors. 2.8 PRESUMPTION OF ASSENT. A director of the Corporation who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken shall be presumed to have assented to the action taken, unless he objects at the beginning of the meeting, or promptly upon his arrival, to holding the meeting or transacting specific business at the meeting, or he votes against or abstains from the action taken. 2.9 ACTION WITHOUT A MEETING. Any action required or permitted to be taken at a meeting of the board of directors or a committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the directors. Action taken under this Section is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this Section shall have the effect of a meeting vote and may be described as such in any document. 2.10 MEETINGS OF THE BOARD OF DIRECTORS BY MEANS OF A CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT. Members of the Board of Directors may participate in a meeting of the board by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. -6- 10 2.11 RESIGNATION. Any director may resign at any time by giving written notice to Corporation, the Board of Directors or its chairman. The resignation of any director shall take effect when the notice is delivered unless the notice specifies a later effective date, in which event the board of directors may fill the pending vacancy before the effective date if they provide that the successor does not take office until the effective date. 2.12 REMOVAL. Any director, or the entire Board of Directors, may be removed at any time, with or without cause, by action of the shareholders, and any director may be removed for cause by the Board of Directors. In the case of any director which is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. The notice of the meeting at which a vote is taken to remove a director must set forth that the purpose or one of the purposes of the meeting is the removal of such director or directors. 2.13 VACANCIES. Any vacancy occurring in the Board of Directors and any directorship to be filled by reason of an increase in the size of the Board of Directors shall be filled as provided in the Corporation's Articles of Incorporation. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office, or until the next election of one or more directors by shareholders if the vacancy is caused by an increase in the number of directors. 2.14 COMPENSATION. Each director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors and committee thereof, and may be paid a stated salary as a director or a fixed sum for attendance at each meeting of the board of directors (or committee thereof) or both, as may from time to time be determined by action of the Board of Directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE 3. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees each of which, to the extent provided in such resolution, shall have and may exercise all the authority of the Board of Directors, except as prohibited by ss. 607.0825(1) of the FBCA. Each committee must have two or more members who serve at the pleasure of the Board of Directors. The Board of Directors, by resolution adopted in accordance with this article, may designate one or more directors as alternate members of any committee, who may act in the place and stead of any absent member or members at any meeting of such committee. Vacancies in the membership of a committee may be filled by the Board of Directors at a regular or special meeting of the Board of Directors. Each committee shall keep minutes and other appropriate records of its proceedings and report the same to the Board of Directors when required. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him -7- 11 by law. ARTICLE 4. - OFFICERS 4.1 OFFICERS. The officers of the Corporation shall be as determined by the Board of Directors and may include a Chairman of the Board, President, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may also appoint one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers and such other officers, as the Board of Directors shall deem appropriate. Any two (2) or more offices may be held by the same person. 4.2 APPOINTMENT AND TERM OF OFFICE. The officers of the Corporation may be appointed annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the appointment of officers shall not occur at such meeting, such appointment shall occur as soon thereafter as practicable. Each officer shall hold office until his successor shall have been duly appointed and qualified, or until his earlier resignation, removal from office or death. 4.3 RESIGNATION. Any officer of the Corporation may resign from his respective office or position by delivering notice to the Corporation. Such resignation if effective when delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date. 4.4 REMOVAL. Any officer elected or appointed by the Board of Directors may be removed, with or without cause, by the Board of Directors. Removal shall be without prejudice to the contract rights, if any, of the person removed. Election or appointment of any officer shall not itself create contract rights. 4.5 VACANCIES. Any vacancy, however, occurring, in any office may be filled by the Board of Directors. 4.6 DUTIES OF OFFICERS. The Chairman of the Board of the Corporation, or if there shall not be a Chairman of the Board, the President, shall preside at all meetings of the Board of Directors and of the shareholders. The Chairman of the Board, or if there shall not be a Chairman of the Board, the President, shall be the chief executive officer of the Corporation. Subject to the foregoing, the officers of the Corporation shall have such powers and duties as usually pertain to their respective offices and such additional powers and duties specifically conferred by law, by the Articles of Incorporation, by these Bylaws, or as may be assigned to them from time to time by the Board of Directors. 4.7 VICE PRESIDENTS. Each vice president shall possess, and may exercise, such power -8- 12 and authority, and shall perform such duties, as may from time to time be assigned to him by the Board of Directors. 4.8 SECRETARY. The secretary shall keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these bylaws or as required by law, be custodian of the corporate records and of the seal of the Corporation and keep a register of the post office address of each shareholder of the Corporation. In addition, the secretary shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to him by the Board of Directors and as are incident to the office of secretary. 4.9 TREASURER. The treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation, receive and give receipts for monies due and payable to the Corporation from any source whatsoever and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositaries as shall be utilized by the Corporation. In addition, the treasurer shall possess, and may exercise such power and authority, and shall perform such duties, as may from time to time be assigned to him by the Board of Directors and as are incident to the office of treasurer. 4.10 OTHER OFFICERS, EMPLOYEES AND AGENTS. Each and every other officer, employee and agent of the Corporation shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to him by the Board of Directors, the officer so appointing him and such officer or officers who may from time to time be designated by the Board of Directors to exercise such supervisory authority. 4.11 COMPENSATION. The compensation of the officers of the Corporation shall be fixed from time to time by either the Board of Directors or an appropriate committee of the Board of Directors, as the case may be. ARTICLE 5. - CERTIFICATES OF STOCK 5.1 CERTIFICATES FOR SHARES. The Board of Directors shall determine whether shares of the Corporation shall be uncertificated or certificated. If certificated shares are issued, certificates representing shares in the Corporation shall be signed (either manually or by facsimile) by the president or vice president and the secretary or an assistant secretary (which may be the same person) and may be sealed with the seal of the Corporation or a facsimile thereof. A certificate which has been signed by an officer or officers who later shall have ceased to be such officer when the certificate is issued shall nevertheless be valid. 5.2 TRANSFER OF SHARES; OWNERSHIP OF SHARES. Transfers of shares of stock of the Corporation shall be made only upon the stock transfer books of the Corporation, and only after the surrender to the Corporation of the certificates representing such shares. Except as provided by ss. 607.0721 of the FBCA, the person in whose name shares stand on the books of the Corporation shall -9- 13 be deemed by the Corporation to be the owner thereof for all purposes and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares on the part of any other person, whether or not is shall have express or other notice thereof. 5.3 LOST CERTIFICATES. The Corporation shall issue a new stock certificate in the place of any certificate previously issued if the holder of record of the certificate: (a) makes proof in affidavit form that the certificate has been lost, destroyed or wrongfully taken; (b) requests the issuance of a new certificate before the Corporation has notice that the lost, destroyed or wrongfully taken certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) at the discretion of the Board of Directors, gives bond-in such form and amount as the Corporation may direct, to indemnify the Corporation, the transfer agent and registrar against any claim that may be made on account of the alleged loss, destruction, or theft of a certificate; and (d) satisfies any other reasonable requirements imposed by the Corporation. 5.4 LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The designations, relative rights, preferences and limitations applicable to each class of shares of capital stock and the variations in rights, preferences and limitations determined for each series within a class (and the authority of the Board of Directors to determine variations for future series) shall be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the Corporation will furnish the shareholder a full statement of this information on request and without charge. Every certificate representing shares that are restricted as to the sale, disposition, or transfer of such shares shall also indicate that such shares are restricted as to transfer and there shall be set forth or fairly summarized upon the certificate, or the certificate shall indicate that the Corporation will furnish to any shareholder upon request and without charge, a full statement of such restrictions. If the Corporation issues any shares that are not registered under the Securities Act of 1933, as amended, or registered or qualified under applicable state securities laws, the transfer of any such shares shall be restricted substantially in accordance with the following legend: "THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT THE HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED." 5.5 REGISTERED SHAREHOLDERS. The Corporation shall be entitled to recognize the exclusive rights of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Florida. 5.6 REDEMPTION OF CONTROL SHARES. As provided by the Florida Business Corporation -10- 14 Act, if a person acquiring control shares of the Corporation does not file an acquiring person statement with the Corporation, the Corporation may, at the discretion of the Board of Directors, redeem the control shares at the fair value thereof at any time during the 60-day period after the last acquisition of such control shares. If a person acquiring control shares of the Corporation files an acquiring person statement with the Corporation, the control shares may be redeemed by the Corporation, at the discretion of the Board of Directors, only if such shares are not accorded full voting rights by the shareholders as provided by law. ARTICLE 6. - ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS Unless otherwise directed by the Board of Directors, the president or a designee of the president shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of shareholders of or with respect to, any action of shareholders of any other corporation in which the Corporation may hold securities and to otherwise exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in other corporations. ARTICLE 7. - AMENDMENTS Unless otherwise provided by law, these bylaws may be altered, amended or repeated in whole or in part, or new bylaws may be adopted, as provided in the Articles of Incorporation. ARTICLE 8. - CORPORATE SEAL The board of directors shall provide for a corporate seal which shall be circular and shall have the name of the Corporation, the year of its incorporation and the state of incorporation inscribed on it. ARTICLE 9. - INDEMNIFICATION The Corporation shall indemnify its officers and directors as provided in the Articles of Incorporation. ARTICLE 10. - GENDER All words used in these bylaws in the masculine gender shall extend to and shall include the feminine and neuter genders. ARTICLE 11. - DIVIDENDS The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares of capital stock in cash, property, or its own shares of capital stock pursuant to law and subject to the provisions of the Articles of Incorporation. -11- 15 ARTICLE 12. - RESERVES The Board of Directors may by resolution create a reserve or reserves out of earned surplus for any proper purpose or purposes, and may abolish any such reserve in the same manner. ARTICLE 13. - CHECKS All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. ARTICLE 14. - FISCAL YEAR The fiscal year of the Corporation shall end on December 31 of each year, unless otherwise fixed by resolution of the Board of Directors. -12- EX-10.2 3 1998 EXECUTIVE INCENTIVE PLAN 1 EXHIBIT 10.2 HAMILTON BANCORP INC. 1998 EXECUTIVE INCENTIVE COMPENSATION PLAN 1. PURPOSE. The purpose of this Plan is to advance the interests of Hamilton Bancorp Inc. (the "Company") by providing an additional incentive to attract and retain qualified and competent persons who are key employees or directors of the Company or its subsidiaries or affiliated entities, and upon whose efforts and judgment the success of the Company is largely dependent. 2. DEFINITIONS. As used herein, the following terms shall have the meaning indicated: (a) "Affiliate" shall mean any corporation other than the Company that is a member of an affiliated group of corporations, as defined in Section 1504 (determined without regard to Section 1504(b)) of the Internal Revenue Code, of which the Company is a member. (b) "Annual Incentive Award"shall mean a conditional right granted to a Participant under Section 13(c) hereof to receive a cash payment or other Award, unless otherwise determined by the Committee, after the end of a specified fiscal year. (c) "Award"shall mean any Option, Performance Award or Annual Incentive Award, together with any other right or interest granted to a Participant under the Plan. (d) "Board" shall mean the Board of Directors of the Company. (e) "Committee" shall mean the compensation committee appointed by the Board (as described in Section 14 hereof) or, if such a committee does not exist, the Board. (f) "Common Stock" shall mean the 1 cent par value Common Stock of the Company. (g) "Covered Employee" shall mean any individual who, on the last day of the taxable year of the Company, is (i) the Chief Executive Officer of the Company or is acting in such capacity (the "CEO"), (ii) among the four highest compensated officers of the Company and its Affiliates (other than the CEO), or (iii) otherwise considered to be a "Covered Employee" within the meaning of Section 162(m) of the Internal Revenue Code and the regulations promulgated thereunder. (h) "Director" shall mean a member of the Board. (i) "Eligible Person" means each Officer of the Company (as defined under the Exchange Act) and other officers, directors and employees of the Company or of any Subsidiary. An employee on leave of absence may be considered as still in the employ of the Company or a Subsidiary for purposes of eligibility for participation in the Plan. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (k) "Fair Market Value" of a Share on any date of reference shall be the "Closing Price" (as defined below) of the Common Stock on the business day immediately preceding such date or, if there are no sales on that date, then on the last previous day on which a sale was reported, unless the Committee in its sole discretion shall determine otherwise in a fair and uniform manner. For the purpose of determining Fair Market Value, the "Closing Price" of the Common Stock on any business day shall be (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of Common Stock on such exchange or reporting system, as reported in any newspaper of general 2 circulation, (ii) if the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System ("Nasdaq"), or any similar system of automated dissemination of quotations of securities prices in common use, the last reported sale price of Common Stock for such day on such system, or (ii) if neither clause (i) or (ii) is applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for Common Stock on at least five of the ten preceding days. If neither (i), (ii), or (iii) above is applicable, then Fair Market Value shall be determined in good faith by the Committee in a fair and uniform manner. (l) "Incentive Stock Option" shall mean an incentive stock option as defined in Section 422 of the Internal Revenue Code. (m) "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (n) "Non-Employee Director" shall refer to a Director who is not an employee of the Company or any Subsidiary. (o) "Non-Qualified Stock Option" shall mean an Option which is not an Incentive Stock Option. (p) "Officer" shall mean the Company's president, principal financial officer, principal accounting officer and any other person who the Company identifies as an executive officer. (q) "Option" shall mean any option granted under this Plan. (r) "Outside Director" shall mean a member of the Board who (i) is not a current employee of the Company or any Affiliate; (ii) is not a former employee of the Company or any Affiliate who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year; (iii) has not been an officer of the Company or any Affiliate; (iv) does not receive remuneration either directly or indirectly, in any capacity other than as a director; and (v) satisfies any other conditions that shall from time to time be required to qualify as an "outside director" under Section 162(m) of the Internal Revenue Code and the regulations thereunder and as a "Non-Employee Director" under Rule 16b-3 promulgated under the Exchange Act. For this purpose, "Remuneration" shall have the meaning afforded that term pursuant to Treasury Regulations issued under Section 162(m) of the Internal Revenue Code, and shall exclude any de minimis remuneration excluded under those Treasury Regulations. (s) "Participant" shall mean a person to whom an Award is granted under this Plan or any person who succeeds to the rights of such person under this Plan by reason of the death of such person; (t) "Performance Award" means a right, granted to a Eligible Person under Section 13 hereof, to receive Awards based upon performance criteria specified by the Committee or the Board. (u) "Plan" shall mean this Executive Incentive Compensation Plan. (v) "Share" shall mean a share of the Common Stock. (w) "Subsidiary" shall mean any corporation (other than the Company) in any unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2 3 3. SHARES AND OPTIONS. The Company may grant to Participants from time to time Options to purchase an aggregate of up to One Hundred Twenty-two Thousand Five Hundred (122,500) Shares from Shares held in the Company's treasury or from authorized and unissued Shares. If any Option granted under the Plan shall terminate, expire, or be canceled or surrendered as to any Shares, new Options may thereafter be granted covering such Shares. An Option granted hereunder shall be either an Incentive Stock Option or a Non-Qualified Stock Option as determined by the Committee at the time of grant of such Option, and shall clearly state, whether it is an Incentive Stock Option or Non-Qualified Stock Option. All Options shall be granted within 10 years from the effective date of this Plan. 4. DOLLAR LIMITATION. Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as Incentive Stock Options to the extent that the aggregate fair market value (determined at the time the Option is granted) of the Shares, with respect to which Options meeting the requirements of Internal Revenue Code Section 422(b) are exercisable for the first time by any individual during any calendar year (under all plans of the Company), exceeds $100,000. 5. CONDITIONS FOR GRANT OF OPTIONS (a) Each Option shall be evidenced by an option agreement that may contain any term deemed necessary or desirable by the Committee, provided such terms are not inconsistent with this Plan or any applicable law. Participants shall be those persons selected by the Committee in its sole discretion. Any person who files with the Committee, in a form satisfactory to the Committee, a written waiver of eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the duration of such waiver. (b) In granting Options, the Committee may take into consideration the contribution the person has made to the success of the Company and its subsidiaries and such other factors as the Committee shall determine. The Committee shall also have the authority to consult with and receive recommendations from Officers and other personnel of the Company with regard to these matters. The Committee may from time in granting Options under the Plan prescribe such other terms and conditions concerning such Options as it deems appropriate, including, without limitation, (i) prescribing the date or dates on which the Option becomes exercisable, (ii) providing that the Option rights accrue or become exercisable in installments over a period of years, or upon the attainment of stated goals or both, or (iii) if applicable, relating an Option to the continued employment of the Participant for a specified period of time, provided that such terms and conditions are not more favorable to a Participant than those expressly permitted herein. (c) If applicable, the Options granted to employees under this Plan shall be in addition to regular salaries, pension, life insurance or other benefits related to their employment or other relationship with the Company. Neither the Plan nor any Option granted under the Plan shall confer upon any person any right to employment or continuance of employment by the Company. (d) Notwithstanding any other provision of this Plan, and in addition to any other requirements of this Plan, the aggregate number of Shares with respect to which Options may be granted to any one Participant may not exceed 61,250, subject to adjustment as provided in Section 10(a) hereof. (e) Notwithstanding any other provision of this Plan, and in addition to any other requirements of this plan, Options may not be granted to a Covered Employee unless the grant of such Option is authorized by, and all of the terms of such Options are determined by, a Committee that is appointed in accordance with Section 14 of this Plan and all of whose members are Outside Directors. 3 4 (f) Incentive Stock Options may not be granted to any Non-Employee Directors. 6. EXERCISE PRICE. The exercise price per Share of any Option shall be any price determined by the Committee but shall not be less than the par value per Share; provided, however, that in no event shall the exercise price per Share of any Incentive Stock Option be less than the Fair Market Value of the Shares underlying such Option on the date such Option is granted. 7. EXERCISE OF OPTIONS. (a) An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option (ii) full payment of the aggregate exercise price of the Shares as to which the Option is exercised has been made and (iii) arrangements that are satisfactory to the Committee, in its sole discretion, have been made for the Participant's payment to the Company of the amount that is necessary for the Company employing the Participant to withhold in accordance with applicable Federal or state tax withholding requirements. (b) Unless further limited by the Committee in any Option, the option price of any Shares purchased shall be paid (i) in cash, (ii) by certified or official bank check, (iii) by money order, (iv) with Shares owned by the Participant that have been owned by the Participant for more than 6 months on the date of surrender or such other period as may be required to avoid a charge to the Company's earnings for financial accounting purposes, (v) by authorization for the Company to withhold Shares issuable upon exercise of the Option, (vi) by arrangement with a broker that is acceptable to the Committee where payment of the Option price is made pursuant to an irrevocable direction to the broker to deliver all or part of the proceeds from the sale of the Option Shares to the Company in payment of the Option price, or (vii) any combination of the foregoing. The Committee in its sole discretion may accept a personal check in full or partial payment of any Shares. If the exercise price is paid in whole or in part with Shares, the value of the Shares surrendered shall be their Fair Market Value on the date the Option is exercises. The Company in its sole discretion may, on an individual basis or pursuant to a general program established in connection with this Plan, and subject to applicable law, lend money to a Participant, guarantee a loan to a Participant, or otherwise assist a Participant to obtain the cash necessary to exercise all or a portion of an Option granted hereunder or to pay any tax liability of the Participant attributable to such exercise. If the exercise price is paid in whole or part with Participant's promissory note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the Shares that the Participant purchases upon exercise of such option, (iii) bear interest at a rate no less than the prime rate of the Company's principal bank subsidiary and (iv) contain such other terms as the Board in its sole discretion shall reasonably require. (c) No Participant shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of this Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 10 hereof. 8. EXERCISABILITV OF OPTIONS. Any Option shall become exercisable in such amounts, at such intervals and upon such terms as the Committee shall provide in such Option, except as otherwise provided in this Section 8. (a) The expiration date of an Option shall be determined by the Committee at the time of grant, but in no event shall an Option be exercisable after the expiration of 10 years from the date of grant of the Option. 4 5 (b) Unless otherwise provided in any Option, each outstanding Option shall become immediately fully exercisable: (i) if there occurs any transaction (which shall include a series of transactions occurring, within 60 days or occurring pursuant to a plan), that has the result that stockholders of the Company immediately before such transaction cease to own at least fifty percent (50%) of the voting stock of the Company or of any entity that results from the participation of the Company in a reorganization, consolidation, merger, liquidation or any other form of corporate transaction; (ii) if the stockholders of the Company shall approve a plan of merger, consolidation, reorganization, liquidation or dissolution in which the Company does not survive (unless the approved merger, consolidation, reorganization, liquidation or dissolution is subsequently abandoned); or (iii) if the stockholders of the Company shall approve a plan for the sale, lease, exchange or other disposition of all or substantially all the property and assets of the Company (unless such plan is subsequently abandoned). (c) The Committee may in its sole discretion accelerate the date on which any Option may be exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option. 9. TERMINATION OF OPTION PERIOD. (a) The unexercised portion of any Option granted to a Participant shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following: (i) three months after the date on which the Participant's employment with the Company or any Subsidiary, or service as a Director or as a director of any Subsidiary, is terminated or, in the case of a Non-Qualified Stock Option and unless the Committee shall otherwise determine in writing in its sole discretion, the date on which the Participant's employment with the Company or any Subsidiary, or service as a Director or as a director of any Subsidiary, is terminated, in either case for any reason other than by reason of (a) Cause, which shall mean "Cause" under such Participant's employment agreement, if any, and which, solely for purposes of this Plan, also shall mean the termination of the Participant's employment or the removal of the Participant as a Director or as a director of any Subsidiary by reason of the Participant's willful misconduct or gross negligence, (b) the Participant's mental or physical disability (within the meaning of Internal Revenue Code Section 22(e)) as determined by a medical doctor satisfactory to the Committee or (c) the Participant's death; (ii) immediately upon the termination of the Participant's employment with the Company or any Subsidiary, or service as a Director or as a director of any Subsidiary, for Cause; (iii) twelve months after the date on which the Participant's employment with the Company or any Subsidiary, or service as a Director or as a director of any Subsidiary, is terminated by reason of mental or physical disability (within the meaning of Internal Revenue Code Section 22(e)) as determined by a medical doctor satisfactory to the Committee, or 5 6 (iv) (a) twelve months after the date of the Participant's death or (b) three months after the date of the Participant's death if such death shall occur during the twelve month period specified in Subsection 9(a)(iii) hereof. (b) The Committee in its sole discretion may by giving written notice ("cancellation notice") cancel, effective upon the date of the consummation of any corporate transaction described in Subsections 8(b)(ii) or (iii) hereof, any Option that remains unexercised on such date. Such cancellation notice shall be given a reasonable period of time prior to the proposed date of such cancellation and may be given either before or after approval of such corporate transaction. 10. ADJUSTMENT OF SHARES. (a) If at any time while the Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of Shares, then and in such event: (i) appropriate adjustment shall be made in the maximum number of shares available for grant under the Plan, so that the same percentage of the Company's issued and outstanding Shares shall continue to be subject to being so optioned; and (ii) appropriate adjustment shall be made in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company's issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price. (b) Subject to the specific terms of any Option, the Committee may change the terms of Options outstanding under this Plan, with respect to the option price or the number of Shares subject to the Options, or both, when, in the Committee's sole discretion, such adjustments become appropriate by reason of a corporate transaction described in Subsections 8(b)(ii) or (iii) hereof. (c) Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights or warrants to subscribe thereof, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to the number of or exercise price of Shares then subject to outstanding Options granted under the Plan. (d) Without limiting the generality of the foregoing, the existence of outstanding Options granted under the Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise. 11. TRANSFERABILITY OF OPTIONS AND SHARES. 6 7 (a) No Incentive Stock Option, and unless the Committee's prior written consent is obtained (which consent may be obtained at the time an Option is granted) and the transaction does not violate the requirements of Rule 16-B-3 promulgated under the Exchange Act no Non-Qualified Stock Option, shall be subject to alienation, assignment, pledge, charge or other transfer other than by the Participant by will or the laws of descent and distribution, and any attempt to make any such prohibited transfer shall be void. Each Option shall be exercisable during the Participant's lifetime only by the Participant, or in the case of a Non-Qualified Stock Option that has been assigned or otherwise transferred with the Committee's prior written consent, only by the assignee consented to by the Committee. (b) Unless the Committee's prior written consent is obtained (which consent may be obtained at the time an Option is granted) and the transaction does not violate the requirements of Rule 16b-3 promulgated under the Exchange Act, no Shares acquired by an Officer, as that term is defined under Rule 16b-3, of the Company or Director or a director of any Subsidiary pursuant to the exercise of an Option may be sold, assigned, pledged or otherwise transferred prior to the expiration of the six-month period following the date on which the Option was granted. 12. ISSUANCE OF SHARES. As a condition of any sale or issuance of Shares upon exercise of any Option, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation including, but not limited to, the following: (a) a representation and warranty by the Participant to the Company, at the time any Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares; and (b) a representation, warranty and/or agreement to be bound by any legends that are, in the opinion of the Committee, necessary or appropriate to comply with the provisions of any securities law deemed by the Committee to be applicable to the issuance of the Shares and are endorsed upon the Share certificates. 13. PERFORMANCE AND ANNUAL INCENTIVE AWARDS. (a) Performance Conditions. The right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee or the Board. The Committee or the Board may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under Sections 13(b) and 13(c) hereof in the case of a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m). If and to the extent required under Code Section 162(m), any power or authority relating to a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m), shall be exercised by the Committee and not the Board. (b) Performance Awards Granted to Designated Covered Employees. If and to the extent that the Committee determines that a Performance Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as "performance-based compensation" for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance Award shall be contingent upon achievement of preestablished performance goals and other terms set forth in this Section 13(b). (i) Performance Goals Generally. The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels 7 8 of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 13(b). Performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being "substantially uncertain." The Committee may determine that such Performance Awards shall be granted, exercised and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants. (ii) Business Criteria. One or more of the following business criteria for the Company, on a consolidated basis, and/or specified subsidiaries or business units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall be used exclusively by the Committee in establishing performance goals for such Performance Awards: (1) total stockholder return; (2) such total stockholder return as compared to total return (on a comparable basis) of a publicly available index such as, but not limited to, the Standard & Poor's 500 Stock Index or the S&P Specialty Retailer Index; (3) net income; (4) pretax earnings; (5) earnings before interest expense, taxes, depreciation and amortization; (6) pretax operating earnings after interest expense and before bonuses, service fees, and extraordinary or special items; (7) operating margin; (8) earnings per share; (9) return on equity; (10) return on capital; (11) return on investment; (12) operating earnings; (13) working capital or inventory; and (14) ratio of debt to stockholders' equity. One or more of the foregoing business criteria shall also be exclusively used in establishing performance goals for Annual Incentive Awards granted to a Covered Employee under Section 13(c) hereof that are intended to qualify as "performance-based compensation" under Code Section 162(m). (iii) Performance Period; Timing For Establishing Performance Goals. Achievement of performance goals in respect of such Performance Awards shall be measured over a performance period of up to ten years, as specified by the Committee. Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for "performance-based compensation" under Code Section 162(m). (iv) Performance Award Pool. The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes of measuring Company performance in connection with Performance Awards. The amount of such Performance Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 13(b)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 13(b)(iii) hereof. The Committee may specify the amount of the Performance Award pool as a percentage of any of such business criteria, a percentage thereof in excess of a threshold amount, or as another amount which need not bear a strictly mathematical relationship to such business criteria. (v) Settlement of Performance Awards; Other Terms. Settlement of such Performance Awards shall be in cash, Shares, other Awards or other property, in the discretion of the Committee. The Committee may, in 8 9 its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance Awards. The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a performance period or settlement of Performance Awards. (c) Annual Incentive Awards Granted to Designated Covered Employees. If and to the extent that the Committee determines that an Annual Incentive Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as "performance-based compensation" for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Annual Incentive Award shall be contingent upon achievement of preestablished performance goals and other terms set forth in this Section 13(c). (i) Annual Incentive Award Pool. The Committee may establish an Annual Incentive Award pool, which shall be an unfunded pool, for purposes of measuring Company performance in connection with Annual Incentive Awards. The amount of such Annual Incentive Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 13(b)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 13(b)(iii) hereof. The Committee may specify the amount of the Annual Incentive Award pool as a percentage of any such business criteria, a percentage thereof in excess of a threshold amount, or as another amount which need not bear a strictly mathematical relationship to such business criteria. (ii) Potential Annual Incentive Awards. Not later than the end of the 90th day of each fiscal year, or at such other date as may be required or permitted in the case of Awards intended to be "performance-based compensation" under Code Section 162(m), the Committee shall determine the Eligible Persons who will potentially receive Annual Incentive Awards, and the amounts potentially payable thereunder, for that fiscal year, either out of an Annual Incentive Award pool established by such date under Section 13(c)(i) hereof or as individual Annual Incentive Awards. In the case of individual Annual Incentive Awards intended to qualify under Code Section 162(m), the amount potentially payable shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 13(b)(ii) hereof in the given performance year, as specified by the Committee; in other cases, such amount shall be based on such criteria as shall be established by the Committee. (iii) Payout of Annual Incentive Awards. After the end of each fiscal year, the Committee shall determine the amount, if any, of (A) the Annual Incentive Award pool, and the maximum amount of potential Annual Incentive Award payable to each Participant in the Annual Incentive Award pool, or (B) the amount of potential Annual Incentive Award otherwise payable to each Participant. The Committee may, in its discretion, determine that the amount payable to any Participant as an Annual Incentive Award shall be reduced from the amount of his or her potential Annual Incentive Award, including a determination to make no Award whatsoever. The Committee shall specify the circumstances in which an Annual Incentive Award shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a fiscal year or settlement of such Annual Incentive Award. (d) Written Determinations. All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the 9 10 achievement of performance goals relating to Performance Awards under Section 13(b), and the amount of any Annual Incentive Award pool or potential individual Annual Incentive Awards and the amount of final Annual Incentive Awards under Section 13(c), shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). The Committee may not delegate any responsibility relating to such Performance Awards or Annual Incentive Awards if and to the extent required to comply with Code Section 162(m). (e) Maximum Performance Award and Annual Incentive Award. The maximum amount that may be earned as an Annual Incentive Award or other cash Award in any fiscal year by any one Participant, and the maximum amount that may be earned as a Performance Award or other cash Award in respect of a performance period by any one Participant, shall be $5,000,000. (f) Status of Section 13(b) and Section 13(c) Awards Under Code Section 162(m). It is the intent of the Company that Performance Awards and Annual Incentive Awards under Section 13(b) and 13(c) hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Committee, constitute "qualified performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Sections 13(b), (c), (d), (e) and (f), including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards or an Annual Incentive Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards or Annual Incentive Awards does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements. 14. ADMINISTRATION OF THE PLAN. (a) The Plan shall be administered by the Committee, which shall consist of not less than two Directors, each of whom shall be Outside Directors. The Committee shall have all of the powers of the Board with respect to the Plan. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board and any vacancy occurring in the membership of the Committee may be filled by appointment of the Board. (b) The Committee, from time to time, may adopt rules and regulations for carrying out the purposes of the Plan. The Committee's determinations and its interpretation and construction of any provision of the Plan shall be final and conclusive. (c) Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members of the Committee at a meeting or (ii) without a meeting by the unanimous written approval of the members of the Committee. (d) The Board may reserve to itself the power to grant Options to employees or Directors of the Company or any Subsidiary who are not Covered Employees. If and to the extent that the Board reserves such powers, then all references herein to the Committee shall refer to the Board with respect to the Options granted by the Board. 10 11 15. INCENTIVE OPTIONS FOR 10% STOCKHOLDERS. Notwithstanding any other provisions of the Plan to the contrary, an Incentive Stock Option shall not be granted to any person owning directly or indirectly (through attribution under Section 424(d) of the Internal Revenue Code) at the date of grant, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or of its subsidiary [as defined in Section 424 of the Internal Revenue Code] at the date of grant) unless the option price of such Option is at least 110% of the Fair Market Value of the Shares subject to such Option on the date the Option is granted, and such Option by its terms is not exercisable after the expiration of five years from the date such Option is granted. 16. INTERPRETATION (a) The Plan shall be administered and interpreted so that all Incentive Stock Options granted under the plan will qualify as Incentive Stock Options under section 422 of the Internal Revenue Code. If any provision of the Plan should be held invalid for the granting of Incentive Stock Options or illegal for any reason, such determination shall not affect the remaining provisions hereof, but instead the Plan shall be construed and enforced as if such provision had never been included in the Plan. (b) This Plan shall be governed by the laws of the State of Florida. (c) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of the Plan. (d) Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate. (e) As it is the intent of the Company that the Plan comply in all respects with Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"), any ambiguities or inconsistencies in construction of the Plan shall be interpreted to give effect to such intention, and if any provision of the Plan is found not to be in compliance with Rule 16b-3, such provision shall be deemed null and void to the extent required to permit the Plan to comply with Rule 16b-3. The Board and the Committee each may from time to time adopt rules and regulations under, and amend, the Plan in furtherance of the intent of the foregoing. 17. AMENDMENT AND DISCONTINUATION OF THE PLAN. Either the Board or the Committee may from time to time amend the Plan or any Option; provided, however, that, except to the extent provided in Section 10, no such amendment may, without approval by the stockholders of the Company, (a) materially increase the benefits accruing to participants under the Plan, (b) materially increase the number of securities which may be issued under the Plan, or (c) materially modify the requirements as to eligibility for participation in the Plan; and provided further, that, except to the extent provided in Section 9, no amendment or suspension of the Plan or any Option issued hereunder shall substantially impair any Option previously granted to any Participant without the consent of such Participant. 18. EFFECTIVE DATE AND TERMINATION DATE. The effective date of the Plan is January 1, 1998, provided that the stockholders of the Company have approved the Plan on or before September 1, 1998, and the Plan shall terminate on the 10th anniversary of the effective date. 11 EX-10.4 4 EMPLOYMENT AGREEMENT - MASFERRER 1 EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS AGREEMENT is made effective this 1st day of October, 1999, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A., a national banking association located in Miami, Florida (collectively, the "Company"), and Eduardo A. Masferrer (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Company during the term of this Agreement. The Executive agrees to devote his best efforts to the business of the Company, and shall perform his duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person with the title of President and Chief Executive Officer of a multi-bank holding company of national chartered banks. The Executive shall report directly to the Board of Directors. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of five years and three months, commencing as of October 1, 1999 (the "Effective Date") and continuing through December 31, 2004, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the five-year term through: a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, unless either the Company or the Executive provides written notice of election not to renew, at least 90 days before the applicable December 31. 4. SALARY AND BENEFITS. (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the Executive an annual base salary in effect as of the date of the Agreement through December 31, 1999. Thereafter, base 1 2 salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2000. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment") up to five percent (5%) of pre-tax net income, after the deduction of loan loss provisions of the company. The amount actually awarded to the Executive will be determined by the Company's Board of Directors. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2000, relating to the 1999 year). (c) NON-QUALIFIED RETIREMENT PLANS. The Company shall provide a supplemental retirement benefit to the Executive which shall be no less than $650,000 per year beginning at age 65 and paid annually for 15 years, as amended or replaced by a successor plan approved by the Company's Board of Directors. (d) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (e) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (f) VACATION. The Executive shall be entitled to five weeks of paid vacation during each full year of his employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (g) AUTOMOBILE. The Company will provide the Executive with an automobile (the "Automobile") for use by the Executive in connection with the performance of his duties under this Agreement. (h) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of his duties, in accordance with any business conducted on behalf of the Company. 2 3 (i) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (j) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of his employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate his employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of his employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform his duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that he has not historically performed his duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company; 3 4 (iii) notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire authorized membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice and an opportunity for the Executive, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board he was guilty of conduct set forth above in clauses (i) or (ii) of this Section 5(b) and specifying the particulars thereof in detail. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates his employment for Good Reason, as defined herein: (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to two times the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Sections 4(c) and 4(d) according with the terms, conditions and limitations of the plans and any separate agreements under sections 4(c) and 4(d) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without his express written consent, the assignment to the Executive of any duties inconsistent with his positions, duties, responsibilities and status with the Company, or a change in his reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of his employment for Cause, Disability or retirement or as a result of his death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without his express written consent the failure by the Company to continue in effect the Non-Qualified Retirement Plan under Section 4(c), Stock Options under Section 4(d), the Life Insurance under Section 4(e) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's 4 5 participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him, or the failure by the Company to provide the Executive with the number of paid vacation days to which he is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 6. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. If within 24 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate his employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in this Section 6(b). (a) CHANGE OF CONTROL. The term "Change of Control" shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. (b) AMOUNT. Upon a termination after a Change of Control as provided above, the Executive will receive a Change of Control Benefit equal to 2.99 times the Executive's Base Annual Compensation as defined in this Section 6(b)(i) at the date of the Change of Control assuming the individual is in good employment. (i) BASE ANNUAL COMPENSATION. The Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during 5 6 the most recent five taxable years ending before the date of the Change of Control. This definition covers amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements, and defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). (ii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The company shall pay to the Executive any amounts due under sections 4(c) and 4(d) according with the terms, conditions and limitations of the plans and any separate agreements under sections 4(c) and 4(d) without regard to "vesting" thereunder. (c) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 6(a) and (b) the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under 6(a) and (b). (d) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (e) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 6 in a lump sum upon the Executive's Termination of Employment. 7. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of his duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of his employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 6 7 8. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of his employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 9. NO COMPETITION. Throughout the term of the Agreement and, unless the Agreement terminates pursuant to Sections 3, 5(b) or 5(c), through the second anniversary of the expiration of this Agreement, the Executive shall not directly or indirectly engage in the business of banking, or any other business in which any member of the Company directly or indirectly engages during the term of the Agreement; provided, however, that the restriction in this Section 9 shall apply only to United States based financial institutions such as banks, brokerages, insurance companies, savings and loans or any other such United States based institution that conducts business in the international trade financing market. For purposes of this Section 9, the Executive shall be deemed to engage in a business if he directly or indirectly, engages or invests in, owns, manages, operates, controls or participates in the ownership, management, operation or control of, is employed by, associated or in any manner connected with, or renders services or advice to, any business engaged in international trade financing, provided, however, that the Executive may invest in the securities of any enterprise (but without otherwise participating in the activities of such enterprise) if (x) such securities are listed on any national or regional securities (exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934 and (y) the Executive does not beneficially own (as defined Rule 1 3d-3 promulgated under the Securities Exchange Act of 1934) in excess of 5% of the outstanding capital stock of such enterprise. In consideration for the provisions of this Section 9, the Company will provide compensation to the Executive equal to the number two (2) times his annual Base Salary at the time of Termination. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate his or her employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with his present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate his employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use his name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement, and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if 7 8 his name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of his name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or attempted breach of the Executive's obligations under Sections 6 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; 8 9 (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that he or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when he is either a party, witness or a participant in any legal action brought against the Company. He will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its 9 10 business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign his rights or delegate his duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to his designee or, if there be no such designee, to his estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10 11 (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any provisions contained herein. Similarly, the use of the masculine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and a duly authorized Company officer have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. ______________________________ Eduardo A. Masferrer By __________________________ Chairman and CEO Title: 6971 S.W. 79 Avenue By __________________________ Miami, Florida 33143 Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-10.5 5 EMPLOYMENT AGREEMENT - BERNACE 1 EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS AGREEMENT is dated the 1st day of October, 1999, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A. (the "Bank"), a national banking association located in Miami, Florida (collectively, the "Company"), and Juan Carlos Bernace (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Company during the term of this Agreement. The Executive agrees to devote his best efforts to the business of the Company and shall perform his duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person who is a senior executive of a multi-bank holding company of national chartered banks and with the title of President of a national chartered bank. The Executive shall report as directed by the Board of Directors of the Company. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of three years and three months, commencing as of October 1, 1999 (the "Effective Date") and continuing through December 31, 2002, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the three-year term through a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or a Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, commencing December 31, 2000, unless either the Company or the Executive provides written notice of election not to renew at least 90 days before the applicable December 31. 4. SALARY AND BENEFITS. 1 2 (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the Executive an annual base salary in effect as of the date of the Agreement through December 31, 1999. Thereafter, base salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2000. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment). The amount actually awarded to the Executive will be determined by the Company's or the Bank's Compensation Committee. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2000, relating to the 1999 year). (c) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (d) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (e) VACATION. The Executive shall be entitled to the number of weeks of paid vacation during each full year of his employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of his duties, in accordance with any business conducted on behalf of the Company. (g) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (h) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 2 3 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of his employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate his employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of his employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform his duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that he has not historically performed his duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates his employment for Good Reason, as defined herein: 3 4 (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to two times the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without his express written consent, the assignment to the Executive of any duties inconsistent with his positions, duties, responsibilities and status with the Company, or a change in his reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of his employment for Cause, Disability or retirement or as a result of his death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without his express written consent the failure by the Company to continue in effect any Stock Options under Section 4(c), the Life Insurance under Section 4(d) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him, or the failure by the Company to provide the Executive with the number of paid vacation days to which he is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 6. PERFORMANCE BONUS UPON CERTAIN CHANGES OF CONTROL. If a Change of Control occurs during the term of this Agreement and if the compensation paid upon such Change of Control 4 5 on a per share basis equals or exceeds the closing price of a share of the Company's common stock on the date hereof plus twenty percent thereof, the Executive shall be paid a performance bonus equal to the Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control. The term "Change of Control" as used in this Agreement shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. 7. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. (a) TERMINATION. If within 24 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate his employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in Section 7(b). (b) AMOUNT. Upon a termination after a Change of Control as provided in Section 7(a), the Executive will receive a Change of Control Benefit equal to the greater of (i) two (2) times the Executive's Base Annual Compensation as defined in Section 7(c) at the date of the Change of Control assuming the individual is in good employment or (ii) the amount payable to the Executive as provided in Section 5(c). (c) BASE ANNUAL COMPENSATION. The Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the 5 6 most recent taxable year ending before the date of the Change of Control (including, amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements) PROVIDED, HOWEVER, that such amount shall not exceed an amount equal to three (3) times the Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent five taxable years ending before the date of the Change of Control (defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended). (d) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall also pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. (e) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 7, the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under this section 7. (f) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (g) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 7 in a lump sum upon the Executive's Termination of Employment. 8. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of his duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer 6 7 programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of his employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 9. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of his employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate his employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with his present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate his employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use his name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if his name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of his name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or attempted breach of the Executive's obligations under Sections 8 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such 7 8 injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and 8 9 binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that he or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when he is either a party, witness or a participant in any legal action brought against the Company. He will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign his rights or delegate his duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and 9 10 legatees. If the Executive should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to his designee or, if there be no such designee, to his estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any 10 11 provisions contained herein. Similarly, the use of the masculine or feminine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and duly authorized Company officers have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. _________________________ Juan Carlos Bernace By __________________________ Title: 5320 Alhambra Circle Coral Gables, Florida 33146 By __________________________ Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-10.6 6 EMPLOYMENT AGREEMENT - ACOSTA 1 EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS AGREEMENT is dated the 1st day of October, 1999, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A. (the "Bank"), a national banking association located in Miami, Florida (collectively, the "Company"), and Maura A. Acosta (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to her assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Company during the term of this Agreement. The Executive agrees to devote her best efforts to the business of the Company and shall perform her duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person with the title of Executive Vice President in charge of foreign shareholder relations of a holding company of national chartered banks with substantial Latin American shareholders. The Executive shall report as directed by the Board of Directors of the Company. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of three years and three months, commencing as of October 1, 1999 (the "Effective Date") and continuing through December 31, 2002, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the three-year term through a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or a Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, commencing December 31, 2000, unless either the Company or the Executive provides written notice of election not to renew at least 90 days before the applicable December 31. 4. SALARY AND BENEFITS. 1 2 (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the Executive an annual base salary in effect as of the date of the Agreement through December 31, 1999. Thereafter, base salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2000. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment). The amount actually awarded to the Executive will be determined by the Company's or the Bank's Compensation Committee. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2000, relating to the 1999 year). (c) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (d) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (e) VACATION. The Executive shall be entitled to the number of weeks of paid vacation during each full year of her employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of her duties, in accordance with any business conducted on behalf of the Company. (g) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (h) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 2 3 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of her employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate her employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of her employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform her duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that she has not historically performed her duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by her not in good faith and without reasonable belief that her action or omission was in the best interest of the Company. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates her employment for Good Reason, as defined herein: 3 4 (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to two times the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without her express written consent, the assignment to the Executive of any duties inconsistent with her positions, duties, responsibilities and status with the Company, or a change in her reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of her employment for Cause, Disability or retirement or as a result of her death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without her express written consent the failure by the Company to continue in effect any Stock Options under Section 4(c), the Life Insurance under Section 4(d) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce her benefits under any of such plans or deprive her of any material fringe benefit enjoyed by her, or the failure by the Company to provide the Executive with the number of paid vacation days to which she is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 6. PERFORMANCE BONUS UPON CERTAIN CHANGES OF CONTROL. If a Change of Control occurs during the term of this Agreement and if the compensation paid upon such Change of Control 4 5 on a per share basis equals or exceeds the closing price of a share of the Company's common stock on the date hereof plus twenty percent thereof, the Executive shall be paid a performance bonus equal to the Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control. The term "Change of Control" as used in this Agreement shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. 7. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. (a) TERMINATION. If within 24 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate her employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in Section 7(b). (b) AMOUNT. Upon a termination after a Change of Control as provided in Section 7(a), the Executive will receive a Change of Control Benefit equal to the greater of (i) two (2) times the Executive's Base Annual Compensation as defined in Section 7(c) at the date of the Change of Control assuming the individual is in good employment or (ii) the amount payable to the Executive as provided in Section 5(c). (c) BASE ANNUAL COMPENSATION. The Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the 5 6 most recent taxable year ending before the date of the Change of Control (including, amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements) PROVIDED, HOWEVER, that such amount shall not exceed an amount equal to three (3) times the Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent five taxable years ending before the date of the Change of Control (defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended). (d) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall also pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. (e) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 7, the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under this section 7. (f) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (g) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 7 in a lump sum upon the Executive's Termination of Employment. 8. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that she will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of her duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer 6 7 programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of her employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 9. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of her employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate her employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with her present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by her relating to a change of her principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) her aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate her employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use her name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if her name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of her name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or attempted breach of the Executive's obligations under Sections 8 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such 7 8 injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and 8 9 binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that she or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when she is either a party, witness or a participant in any legal action brought against the Company. She will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated her employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign her rights or delegate her duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and 9 10 legatees. If the Executive should die while any amounts would still be payable to her hereunder as if she had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to her designee or, if there be no such designee, to her estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any 10 11 provisions contained herein. Similarly, the use of the masculine or feminine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and duly authorized Company officers have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. _________________________ Maura A. Acosta By __________________________ Title: 6971 S.W. 79th Avenue Miami, Florida 33143 By __________________________ Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-10.7 7 EMPLOYMENT AGREEMENT - BINGHAM 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS AGREEMENT is dated the 1st day of October, 1999, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A. (the "Bank"), a national banking association located in Miami, Florida (collectively, the "Company"), and J. Reid Bingham (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Company during the term of this Agreement. The Executive agrees to devote his best efforts to the business of the Company and shall perform his duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person who is a senior executive of a multi-bank holding company of national chartered banks and of a national chartered bank. The Executive shall report as directed by the Board of Directors of the Company. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of three years and three months, commencing as of October 1, 1999 (the "Effective Date") and continuing through December 31, 2002, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the three-year term through a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or a Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, commencing December 31, 2000, unless either the Company or the Executive provides written notice of election not to renew at least 90 days before the applicable December 31. 4. SALARY AND BENEFITS. (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the 1 2 Executive an annual base salary in effect as of the date of the Agreement through December 31, 1999. Thereafter, base salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2000. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment). The amount actually awarded to the Executive will be determined by the Company's or the Bank's Compensation Committee. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2000, relating to the 1999 year). (c) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (d) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (e) VACATION. The Executive shall be entitled to the number of weeks of paid vacation during each full year of his employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of his duties, in accordance with any business conducted on behalf of the Company. (g) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (h) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 2 3 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of his employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate his employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of his employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform his duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that he has not historically performed his duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates his employment for Good Reason, as defined herein: 3 4 (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to two times the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without his express written consent, the assignment to the Executive of any duties inconsistent with his positions, duties, responsibilities and status with the Company, or a change in his reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of his employment for Cause, Disability or retirement or as a result of his death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without his express written consent the failure by the Company to continue in effect any Stock Options under Section 4(c), the Life Insurance under Section 4(d) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him, or the failure by the Company to provide the Executive with the number of paid vacation days to which he is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 6. PERFORMANCE BONUS UPON CERTAIN CHANGES OF CONTROL. If a Change of Control occurs during the term of this Agreement and if the compensation paid upon such Change of Control 4 5 on a per share basis equals or exceeds the closing price of a share of the Company's common stock on the date hereof plus twenty percent thereof, the Executive shall be paid a performance bonus equal to the Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control. The term "Change of Control" as used in this Agreement shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. 7. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. (a) TERMINATION. If within 24 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate his employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in Section 7(b). (b) AMOUNT. Upon a termination after a Change of Control as provided in Section 7(a), the Executive will receive a Change of Control Benefit equal to the greater of (i) two (2) times the Executive's Base Annual Compensation as defined in Section 7(c) at the date of the Change of Control assuming the individual is in good employment or (ii) the amount payable to the Executive as provided in Section 5(c). (c) BASE ANNUAL COMPENSATION. The Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the 5 6 most recent taxable year ending before the date of the Change of Control (including, amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements) PROVIDED, HOWEVER, that such amount shall not exceed an amount equal to three (3) times the Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent five taxable years ending before the date of the Change of Control (defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended). (d) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall also pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. (e) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 7, the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under this section 7. (f) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (g) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 7 in a lump sum upon the Executive's Termination of Employment. 8. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of his duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer 6 7 programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of his employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 9. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of his employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate his employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with his present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate his employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use his name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if his name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of his name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or attempted breach of the Executive's obligations under Sections 8 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such 7 8 injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and 8 9 binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that he or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when he is either a party, witness or a participant in any legal action brought against the Company. He will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign his rights or delegate his duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and 9 10 legatees. If the Executive should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to his designee or, if there be no such designee, to his estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any 10 11 provisions contained herein. Similarly, the use of the masculine or feminine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and duly authorized Company officers have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. _________________________ J. Reid Bingham By __________________________ Title: 600 Biltmore Way, #316 Coral Gables, Florida 33134 By __________________________ Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-10.8 8 EMPLOYMENT AGREEMENT - GARTNER 1 EXHIBIT 10.8 EMPLOYMENT AGREEMENT THIS AGREEMENT is dated March 13, 2000, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A. (the "Bank"), a national banking association located in Miami, Florida (collectively, the "Company"), and James J. Gartner (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Bank during the term of this Agreement. The Executive agrees to devote his best efforts to the business of the Company and shall perform his duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person who is a senior executive - risk management - of a national chartered bank. The Executive shall report as directed by the Board of Directors of the Bank. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of one year and nine and one half months, commencing as of March 13, 2000 (the "Effective Date") and continuing through December 31, 2001, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the three-year term through: a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, commencing December 31, 2000, unless either the Company or the Executive provides written notice of election not to renew, at least 45 days before the applicable December 31. 4. SALARY AND BENEFITS. (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the 1 2 Executive an annual base salary of US$180,000 through December 31, 2000. Thereafter, base salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2001. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment). The amount actually awarded to the Executive will be determined by the Company's or the Bank's Compensation Committee. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2001, relating to the 2000 year). (c) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (d) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (e) VACATION. The Executive shall be entitled to the number of weeks of paid vacation during each full year of his employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of his duties, in accordance with any business conducted on behalf of the Company. (g) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (h) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 2 3 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of his employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate his employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of his employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform his duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that he has not historically performed his duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates his employment for Good Reason, as defined herein: 3 4 (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to two times the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without his express written consent, the assignment to the Executive of any duties inconsistent with his positions, duties, responsibilities and status with the Company, or a change in his reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of his employment for Cause, Disability or retirement or as a result of his death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without his express written consent the failure by the Company to continue in effect any Stock Options under Section 4(c), the Life Insurance under Section 4(d) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him, or the failure by the Company to provide the Executive with the number of paid vacation days to which he is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 6. PERFORMANCE BONUS UPON CERTAIN CHANGES OF CONTROL. If a Change of Control 4 5 occurs during the term of this Agreement and if the compensation paid upon such Change of Control on a per share basis equals or exceeds the closing price of a share of the Company's common stock on the date hereof plus twenty percent thereof, the Executive shall be paid a performance bonus equal to the Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control. The term "Change of Control" as used in this Agreement shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. 7. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. (a) TERMINATION. If within 24 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate his employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in Section 7(b). (b) AMOUNT. Upon a termination after a Change of Control as provided in Section 7(a), the Executive will receive a Change of Control Benefit equal to the greater of (i) two (2) times the Executive's Base Annual Compensation as defined in Section 7(c) at the date of the Change of Control assuming the individual is in good employment or (ii) the amount payable to the Executive as provided in Section 5(c). 5 6 (c) BASE ANNUAL COMPENSATION. The Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control (including, amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements) PROVIDED, HOWEVER, that such amount shall not exceed an amount equal to three (3) times the Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent five taxable years ending before the date of the Change of Control (defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended). (d) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall also pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. (e) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 7, the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under this section 7. (f) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (g) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 7 in a lump sum upon the Executive's Termination of Employment. 8. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of his duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or 6 7 confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of his employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 9. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of his employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate his employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with his present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate his employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use his name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if his name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of his name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or 7 8 attempted breach of the Executive's obligations under Sections 8 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; 8 9 (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that he or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when he is either a party, witness or a participant in any legal action brought against the Company. He will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 9 10 (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign his rights or delegate his duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to his designee or, if there be no such designee, to his estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10 11 (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any provisions contained herein. Similarly, the use of the masculine or feminine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and duly authorized Company officers have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. ___________________________ James J. Gartner By __________________________ Title: Address: By __________________________ Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-10.9 9 EMPLOYMENT AGREEMENT - JACOBS 1 EXHIBIT 10.9 EMPLOYMENT AGREEMENT THIS AGREEMENT is dated the 1st day of October, 1999, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A. (the "Bank"), a national banking association located in Miami, Florida (collectively, the "Company"), and John M. R. Jacobs (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Company during the term of this Agreement. The Executive agrees to devote his best efforts to the business of the Company and shall perform his duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person who is a senior executive of a national chartered bank. The Executive shall report as directed by the Board of Directors of the Company. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors or the CEO of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of two years and three months, commencing as of October 1, 1999 (the "Effective Date") and continuing through December 31, 2001, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the two-year term through a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, commencing December 31, 2000, unless either the Company or the Executive provides written notice of election not to renew, at least 45 days before the applicable December 31. 4. SALARY AND BENEFITS. 1 2 (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the Executive an annual base salary in effect as of the date of the Agreement through December 31, 1999. Thereafter, base salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2000. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment). The amount actually awarded to the Executive will be determined by the Company's or the Bank's Compensation Committee. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2000, relating to the 1999 year). (c) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (d) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (e) VACATION. The Executive shall be entitled to the number of weeks of paid vacation during each full year of his employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of his duties, in accordance with any business conducted on behalf of the Company. (g) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (h) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 2 3 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of his employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate his employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of his employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform his duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that he has not historically performed his duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates his employment for Good Reason, as defined 3 4 herein: (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to two times the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without his express written consent, the assignment to the Executive of any duties inconsistent with his positions, duties, responsibilities and status with the Company, or a change in his reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of his employment for Cause, Disability or retirement or as a result of his death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without his express written consent the failure by the Company to continue in effect any Stock Options under Section 4(c), the Life Insurance under Section 4(d) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him, or the failure by the Company to provide the Executive with the number of paid vacation days to which he is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 4 5 6. PERFORMANCE BONUS UPON CERTAIN CHANGES OF CONTROL. If a Change of Control occurs during the term of this Agreement and if the compensation paid upon such Change of Control on a per share basis equals or exceeds the closing price of a share of the Company's common stock on the date hereof plus twenty percent thereof, the Executive shall be paid a performance bonus equal to the Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control. The term "Change of Control" as used in this Agreement shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. 7. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. (a) TERMINATION. If within 24 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate his employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in Section 7(b). (b) AMOUNT. Upon a termination after a Change of Control as provided in Section 7(a), the Executive will receive a Change of Control Benefit equal to the greater of (i) two (2) times the Executive's Base Annual Compensation as defined in Section 7(c) at the date of the Change of Control assuming the individual is in good employment or (ii) the amount payable to the Executive as provided in Section 5(c). 5 6 (c) BASE ANNUAL COMPENSATION. The Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control (including, amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements) PROVIDED, HOWEVER, that such amount shall not exceed an amount equal to three (3) times the Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent five taxable years ending before the date of the Change of Control (defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended). (d) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall also pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. (e) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 7, the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under this section 7. (f) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (g) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 7 in a lump sum upon the Executive's Termination of Employment. 8. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of his duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or 6 7 confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of his employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 9. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of his employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate his employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with his present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate his employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use his name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if his name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of his name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or 7 8 attempted breach of the Executive's obligations under Sections 8 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; 8 9 (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that he or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when he is either a party, witness or a participant in any legal action brought against the Company. He will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 9 10 (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign his rights or delegate his duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to his designee or, if there be no such designee, to his estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10 11 (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any provisions contained herein. Similarly, the use of the masculine or feminine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and duly authorized Company officers have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. _________________________ John M. R. Jacobs By __________________________ Title: Address: By __________________________ Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-10.10 10 EMPLOYMENT AGREEMENT - JUSTO 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS AGREEMENT is dated the 1st day of October, 1999, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A. (the "Bank"), a national banking association located in Miami, Florida (collectively, the "Company"), and Maria Justo (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to her assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Bank during the term of this Agreement. The Executive agrees to devote her best efforts to the business of the Company and shall perform her duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person who is a senior executive of a national chartered bank. The Executive shall report as directed by the Board of Directors of the Bank. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors or the CEO of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of three years and three months, commencing as of October 1, 1999 (the "Effective Date") and continuing through December 31, 2002, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the three-year term through a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or a Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, commencing December 31, 2000, unless either the Company or the Executive provides written notice of election not to renew at least 90 days before the applicable December 31. 4. SALARY AND BENEFITS. (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the 1 2 Executive an annual base salary in effect as of the date of the Agreement through December 31, 1999. Thereafter, base salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2000. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment). The amount actually awarded to the Executive will be determined by the Company's or the Bank's Compensation Committee. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2000, relating to the 1999 year). (c) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (d) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (e) VACATION. The Executive shall be entitled to the number of weeks of paid vacation during each full year of her employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of her duties, in accordance with any business conducted on behalf of the Company. (g) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (h) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 2 3 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of her employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate her employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of her employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform her duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that she has not historically performed her duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by her not in good faith and without reasonable belief that her action or omission was in the best interest of the Company. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates her employment for Good Reason, as defined herein: 3 4 (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to two times the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without her express written consent, the assignment to the Executive of any duties inconsistent with her positions, duties, responsibilities and status with the Company, or a change in her reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of her employment for Cause, Disability or retirement or as a result of her death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without her express written consent the failure by the Company to continue in effect any Stock Options under Section 4(c), the Life Insurance under Section 4(d) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce her benefits under any of such plans or deprive her of any material fringe benefit enjoyed by her, or the failure by the Company to provide the Executive with the number of paid vacation days to which she is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 6. PERFORMANCE BONUS UPON CERTAIN CHANGES OF CONTROL. If a Change of Control occurs during the term of this Agreement and if the compensation paid upon such Change of Control 4 5 on a per share basis equals or exceeds the closing price of a share of the Company's common stock on the date hereof plus twenty percent thereof, the Executive shall be paid a performance bonus equal to the Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control. The term "Change of Control" as used in this Agreement shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. 7. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. (a) TERMINATION. If within 24 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate her employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in Section 7(b). (b) AMOUNT. Upon a termination after a Change of Control as provided in Section 7(a), the Executive will receive a Change of Control Benefit equal to the greater of (i) two (2) times the Executive's Base Annual Compensation as defined in Section 7(c) at the date of the Change of Control assuming the individual is in good employment or (ii) the amount payable to the Executive as provided in Section 5(c). (c) BASE ANNUAL COMPENSATION. The Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the 5 6 most recent taxable year ending before the date of the Change of Control (including, amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements) PROVIDED, HOWEVER, that such amount shall not exceed an amount equal to three (3) times the Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent five taxable years ending before the date of the Change of Control (defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended). (d) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall also pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. (e) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 7, the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under this section 7. (f) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (g) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 7 in a lump sum upon the Executive's Termination of Employment. 8. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that she will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of her duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer 6 7 programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of her employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 9. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of her employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate her employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with her present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by her relating to a change of her principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) her aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate her employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use her name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if her name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of her name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or attempted breach of the Executive's obligations under Sections 8 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such 7 8 injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and 8 9 binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that she or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when she is either a party, witness or a participant in any legal action brought against the Company. She will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated her employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign her rights or delegate her duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and 9 10 legatees. If the Executive should die while any amounts would still be payable to her hereunder as if she had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to her designee or, if there be no such designee, to her estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any 10 11 provisions contained herein. Similarly, the use of the masculine or feminine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and duly authorized Company officers have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. _________________________ Maria Justo By __________________________ Title: 1421 Ancona Avenue Coral Gables, Florida 33146 By __________________________ Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-10.11 11 EMPLOYMENT AGREEMENT - CANNON 1 EXHIBIT 10.11 EMPLOYMENT AGREEMENT THIS AGREEMENT is dated the 1st day of October, 1999, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A. (the "Bank"), a national banking association located in Miami, Florida (collectively, the "Company"), and Alina Cannon (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to her assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Bank during the term of this Agreement. The Executive agrees to devote her best efforts to the business of the Company and shall perform her duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person who is a senior executive of a national chartered bank. The Executive shall report as directed by the Board of Directors of the Bank. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors or the CEO of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of one year and three months, commencing as of October 1, 1999 (the "Effective Date") and continuing through December 31, 2000, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the three-year term through a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, commencing December 31, 2000, unless either the Company or the Executive provides written notice of election not to renew, at least 30 days before the applicable December 31. 4. SALARY AND BENEFITS. (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the 1 2 Executive an annual base salary in effect as of the date of the Agreement through December 31, 1999. Thereafter, base salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2000. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment). The amount actually awarded to the Executive will be determined by the Company's or the Bank's Compensation Committee. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2000, relating to the 1999 year). (c) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (d) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (e) VACATION. The Executive shall be entitled to the number of weeks of paid vacation during each full year of her employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of her duties, in accordance with any business conducted on behalf of the Company. (g) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (h) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 2 3 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of her employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate her employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of her employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform her duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that she has not historically performed her duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by her not in good faith and without reasonable belief that her action or omission was in the best interest of the Company. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates her employment for Good Reason, as defined herein: 3 4 (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without her express written consent, the assignment to the Executive of any duties inconsistent with her positions, duties, responsibilities and status with the Company, or a change in her reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of her employment for Cause, Disability or retirement or as a result of her death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without her express written consent the failure by the Company to continue in effect any Stock Options under Section 4(c), the Life Insurance under Section 4(d) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce her benefits under any of such plans or deprive her of any material fringe benefit enjoyed by her, or the failure by the Company to provide the Executive with the number of paid vacation days to which she is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 6. PERFORMANCE BONUS UPON CERTAIN CHANGES OF CONTROL. If a Change of Control occurs during the term of this Agreement and if the compensation paid upon such Change of Control 4 5 on a per share basis equals or exceeds the closing price of a share of the Company's common stock on the date hereof plus twenty percent thereof, the Executive shall be paid a performance bonus equal to the Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control. The term "Change of Control" as used in this Agreement shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. 7. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. (a) TERMINATION. If within 12 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate her employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in Section 7(b). (b) AMOUNT. Upon a termination after a Change of Control as provided in Section 7(a), the Executive will receive a Change of Control Benefit equal to the greater of (i) two (2) times the Executive's Base Annual Compensation as defined in Section 7(c) at the date of the Change of Control assuming the individual is in good employment or (ii) the amount payable to the Executive as provided in Section 5(c). (c) BASE ANNUAL COMPENSATION. The Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the 5 6 most recent taxable year ending before the date of the Change of Control (including, amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements) PROVIDED, HOWEVER, that such amount shall not exceed an amount equal to three (3) times the Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent five taxable years ending before the date of the Change of Control (defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended). (d) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall also pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. (e) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 7, the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under this section 7. (f) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (g) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 7 in a lump sum upon the Executive's Termination of Employment. 8. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that she will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of her duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer 6 7 programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of her employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 9. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of her employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate her employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with her present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by her relating to a change of her principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) her aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate her employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use her name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if her name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of her name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or attempted breach of the Executive's obligations under Sections 8 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such 7 8 injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and 8 9 binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that she or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when she is either a party, witness or a participant in any legal action brought against the Company. She will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated her employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign her rights or delegate her duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and 9 10 legatees. If the Executive should die while any amounts would still be payable to her hereunder as if she had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to her designee or, if there be no such designee, to her estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any 10 11 provisions contained herein. Similarly, the use of the masculine or feminine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and duly authorized Company officers have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. _________________________ Alina Cannon By __________________________ Title: Address: By __________________________ Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-10.12 12 EMPLOYMENT AGREEMENT - MARTINEZ 1 EXHIBIT 10.12 EMPLOYMENT AGREEMENT THIS AGREEMENT is dated the 1st day of October, 1999, among Hamilton Bancorp Inc., a Florida corporation, Hamilton Bank, N.A. (the "Bank"), a national banking association located in Miami, Florida (collectively, the "Company"), and Adolfo D. Martinez (the "Executive"). INTRODUCTION The Boards of Directors of the Company have determined that it is in the best interests of the Company to retain the Executive's services and to reinforce and encourage the continued attention and dedication of the Executive to his assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company or the assertion of claims and actions against employees. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. EMPLOYMENT. Upon the terms and subject to the conditions contained in this Agreement, the Executive agrees to provide full-time services for the Bank during the term of this Agreement. The Executive agrees to devote his best efforts to the business of the Company and shall perform his duties in a diligent, trustworthy, and business-like manner, all for the purpose of advancing the business of the Company. 2. DUTIES. The duties of the Executive shall be those duties which can reasonably be expected to be performed by a person who is a senior executive of a national chartered bank. The Executive shall report as directed by the Board of Directors of the Bank. The Executive's duties may, from time to time, be changed or modified at the discretion of the Board of Directors or the CEO of the Company. 3. EMPLOYMENT TERM. Subject to the terms and conditions hereof, the Company agrees to employ the Executive for a term of one year and three months, commencing as of October 1, 1999 (the "Effective Date") and continuing through December 31, 2000, unless renewed under this Section 3. The Company may terminate the Executive's employment prior to the end of the three-year term through a Termination Due to Disability under Section 5(a), a Termination With Cause under Section 5(b) or Termination Without Cause under Section 5(c). The term of this Agreement shall be automatically extended for an additional year each December 31, commencing December 31, 2000, unless either the Company or the Executive provides written notice of election not to renew, at least 30 days before the applicable December 31. 4. SALARY AND BENEFITS. (a) BASE SALARY. The Company shall, during the term of this Agreement, pay the 1 2 Executive an annual base salary in effect as of the date of the Agreement through December 31, 1999. Thereafter, base salary shall be reviewed by the Company at least annually and any base salary increase shall be effective each January 1, beginning January 1, 2000. The Company may not, however, reduce the Executive's base salary at any time during the term of this Agreement. (b) ANNUAL INCENTIVE PAYMENT. Each year during this Agreement, the Executive shall be eligible to receive an annual incentive payment (the "Annual Incentive Payment). The amount actually awarded to the Executive will be determined by the Company's or the Bank's Compensation Committee. Any applicable bonus shall be paid by February 28 of each year (with the first bonus payable by February 28, 2000, relating to the 1999 year). (c) STOCK OPTIONS. The Company shall provide a stock option program to the Executive in accordance with the 1998 and 2000 Executive Incentive Plans, as amended or replaced by a successor plan approved by the Company's Board of Directors and, if necessary, its shareholders. The Executive will not be eligible to participate in any stock option plans reserved for outside directors. (d) LIFE INSURANCE. The Company shall provide life insurance coverage on the life of the Executive in accordance with the Company's Group Term Life Insurance Plan. The life insurance benefit will be paid upon death according to the following schedule; however, the death benefit is limited to a maximum of $350,000. YEARS OF SERVICE DEATH BENEFIT ---------------- ------------- 1-5 2 x Salary 5-10 3 x Salary 10-15 4 x Salary 15+ 5 x Salary (e) VACATION. The Executive shall be entitled to the number of weeks of paid vacation during each full year of his employment hereunder in accordance with the vacation policy adopted by the Company. In addition, upon any Termination under Section 5, except for Termination for Cause, the Executive will be paid any vacation earned in the calendar year of the termination but not taken through the date of the termination. (f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive in the course of his duties, in accordance with any business conducted on behalf of the Company. (g) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in the employee benefit programs generally available to employees of the Company, and to all normal perquisites provided to senior executive officers of the Company. (h) BENEFITS NOT IN LIEU OF COMPENSATION. No benefit or perquisite provided to the Executive shall be deemed to be in lieu of base salary, bonus, or other compensation. 2 3 5. TERMINATION OF EMPLOYMENT. The Board of Directors of the Company may terminate the employment of the Executive at any time as it deems appropriate. (a) DISABILITY. The Company may terminate the Executive's employment for Disability if the Executive is incapacitated or absent and unable to perform substantially all the regular Duties of his employment as defined under the Total Disability From Your Own Occupation under the Company's Long Term Disability Plan. If, during the term of this Agreement, the Executive's employment terminates due to Disability, the Company shall provide long term disability insurance that provides for an annual benefit of 2/3 of the Executive's Base Salary; however, this benefit is limited to the maximum allowed under the Company's Long Term Disability Plan in effect from time to time, but not less than $6,000 per month. (b) VOLUNTARY RESIGNATION OR TERMINATION FOR CAUSE. If the Executive shall voluntarily terminate his employment for other than Good Reason or if the Company shall discharge the Executive for Cause, as defined herein, this Agreement shall terminate immediately and the Company shall have no further obligation to make any payment under this Agreement which has not already become payable, but has not yet been paid, provided, however, that with respect to any stock options, restricted stock, incentive plans, deferred compensation arrangements, or other plans or programs in which the Executive is participating at the time of termination of his employment, the Executive's rights and benefits under each such plan shall be determined in accordance with the terms, conditions, and limitations of the plan and any separate agreement executed by the Executive which may then be in effect. For the purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon: (i) the willful and continued failure by the Executive to perform his duties with the Company (other than any such failure resulting from incapacity due to Disability), after a demand for specific performance is delivered to the Executive by the Board which identifies individual goals and objectives which must be accomplished to remedy the Executive's performance, as well as provides rationale as to the reason the Board believes that he has not historically performed his duties; (ii) the willful engaging by the Executive in gross misconduct materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (c) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If during the term of the Agreement, the Executive's employment is terminated by the Company without Cause or the Executive voluntarily terminates his employment for Good Reason, as defined herein: 3 4 (i) BASE SALARY. The Company shall pay the Executive in a lump sum an amount equal to the remaining term of this Agreement times the current annual base salary as provided in Section 4(a) in effect at the date of termination; (ii) ANNUAL INCENTIVE. To compensate the Executive for the current year's annual incentive, the Company shall pay to the Executive in a lump sum an amount equal to the aggregate amount paid to the Executive under Sections 4(b) for the most recently completed calendar year multiplied by a ratio whose numerator is the number of the current month as of the date of termination and the denominator is twelve. (iii) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. For purposes of this Agreement, the term "Good Reason" shall mean: (i) Without his express written consent, the assignment to the Executive of any duties inconsistent with his positions, duties, responsibilities and status with the Company, or a change in his reporting responsibilities, titles or offices, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of his employment for Cause, Disability or retirement or as a result of his death or by the Executive other than for Good Reason; (ii) A reduction by the Company in the Executive's base salary as in effect on the date hereof or as the same may be increased from time to time; (iii) Without his express written consent the failure by the Company to continue in effect any Stock Options under Section 4(c), the Life Insurance under Section 4(d) in which the Executive is participating (or plans providing substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him, or the failure by the Company to provide the Executive with the number of paid vacation days to which he is then entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect on the date hereof; or (iv) Any failure of the Company to obtain the assumption of, or the agreement to perform, this Agreement by any successor as contemplated in Section 16(a) hereof. 6. PERFORMANCE BONUS UPON CERTAIN CHANGES OF CONTROL. If a Change of Control occurs during the term of this Agreement and if the compensation paid upon such Change of Control 4 5 on a per share basis equals or exceeds the closing price of a share of the Company's common stock on the date hereof plus twenty percent thereof, the Executive shall be paid a performance bonus equal to the Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent taxable year ending before the date of the Change of Control. The term "Change of Control" as used in this Agreement shall have the following meaning: (i) A reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, directly or indirectly, own more than 80% of the combined voting power entitled to vote generally in the election of director of the reorganized, merged or consolidated entity's then outstanding voting securities; (ii) A liquidation or dissolution of the Company; (iii) The sale of more than 50% of the assets of the Company to any person or entity not controlled by or under common control with the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or (iv) The acquisition by any person, entity or "group", within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act, (excluding any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act)) of more than twenty percent (20%) of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. 7. TERMINATION AFTER CHANGE OF CONTROL BENEFIT. (a) TERMINATION. If within 12 months after a Change of Control, the Company shall terminate the Executive's employment other than pursuant to Section 5(a) or 5(b) hereof or if the Executive shall terminate his employment for Good Reason, then the Company shall pay to the Executive a benefit as defined in Section 7(b). (b) AMOUNT. Upon a termination after a Change of Control as provided in Section 7(a), the Executive will receive a Change of Control Benefit equal to the greater of (i) two (2) times the Executive's Base Annual Compensation as defined in Section 7(c) at the date of the Change of Control assuming the individual is in good employment or (ii) the amount payable to the Executive as provided in Section 5(c). (c) BASE ANNUAL COMPENSATION. The Executive's compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the 5 6 most recent taxable year ending before the date of the Change of Control (including, amounts includible in compensation, i.e., the base salary and cash annual incentive prior to any deferred arrangements) PROVIDED, HOWEVER, that such amount shall not exceed an amount equal to three (3) times the Executive's average annualized compensation paid by the Company and its affiliates which was includible in the Executive's gross income during the most recent five taxable years ending before the date of the Change of Control (defined as the individual's "base amount" under Section 280G of the Internal Revenue Code of 1986, as amended). (d) NONQUALIFIED RETIREMENT PLANS AND STOCK OPTIONS. The Company shall also pay to the Executive any amounts due under Section 4(c) according with the terms, conditions and limitations of the plans and any separate agreements under Section 4(c) without regard to "vesting" thereunder. (e) CONSIDERATION OF BENEFIT. As consideration for the benefit paid in Section 7, the Executive agrees to work with the new organization for a period of no less than six months. If the organization, however, terminates the employment of the Executive except under Termination for Cause, the Executive is still entitled to the benefit specified under this section 7. (f) LIMITATION OF BENEFIT: Notwithstanding anything to the contrary in this Agreement, if there are payments to the Employee which constitute "parachute payments," as defined in Section 280G of the Code, then the payments made to the Executive shall be the maximum of (x) one dollar ($1.00) less than the amount which would cause the payments to the Employee (including payments to the Employee which are not included in this Agreement) to be subject to the excise tax imposed by Section 4999 of the Code, and (y) the payments to the Employee (including payments to the Employee which are not included in the Agreement) after taking into account the excise tax imposed by Section 4999 of the Code. (g) PAYMENT OF BENEFIT. The Company shall pay any Change of Control Benefit payable as provided in this Section 7 in a lump sum upon the Executive's Termination of Employment. 8. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that he will have access to certain information of the Company and that such information is confidential and constitutes valuable, special and unique property of the Company. The Executive shall not at any time, either during or subsequent to the term of this Agreement, disclose to others, use, copy or permit to be copied, except in pursuance of his duties for and on behalf of the Company, it successors, assigns or nominees, any Confidential Information of the Company (regardless of whether developed by the Executive) without the prior written consent of the Company. The term "Confidential Information" with respect to any person means any secret or confidential information or know-how and shall include, but shall not be limited to, the plans, customers, costs, prices, uses, and applications of products and services, results of investigations, studies owned or used by such person, and all products, processes, compositions, computer 6 7 programs, and servicing, marketing or operational methods and techniques at any time used, developed, investigated, made or sold by such person, before or during the term of this Agreement, that are not readily available to the public or that are maintained as confidential by such person. The Executive shall maintain in confidence any Confidential Information of third parties received as a result of his employment with the Company in accordance with the Company's obligations to such third parties and the policies established by the Company. 9. DELIVERY OF DOCUMENTS UPON TERMINATION. The Executive shall deliver to the Company or its designee at the termination of his employment all correspondence, memoranda, notes, records, drawings, sketches, plans, customer lists, product compositions, and other documents and all copies thereof, made, composed or received by the Executive, solely or jointly with others, that are in the Executive's possession, custody, or control at termination and that are related in any manner to the past, present, or anticipated business or any member of the Company. 10. NO TAMPERING. Throughout the term of the Agreement and through the second anniversary of the expiration thereof, the Executive shall not (a) request, induce or attempt to influence any customers of the Company to curtail or cancel any business they may transact with the Company; or (b) request, induce or attempt to influence any employee of the Company to terminate his employment with the Company. 11. RELOCATION. The Company's requiring the Executive to be based anywhere other than Miami, Florida except for required travel on the Company's business to an extent substantially consistent with his present business travel obligations, or, in the event the Executive consents to any relocation, the failure by the Company to pay (or reimburse the Executive) for all reasonable moving expenses incurred by him relating to a change of his principal residence in connection with such relocation and to indemnify the Executive against any loss (defined as the difference between the actual sale price of such residence and the higher of (a) his aggregate investment in such residence or (b) the fair market value of such residence as determined by a real estate appraiser designated by the Executive and reasonably satisfactory to the Company) realized on the sale of the Executive's principal residence in connection with any such change of residence, shall constitute Good Reason for the Executive to voluntarily terminate his employment. 12. PUBLICITY AND ADVERTISING. The Executive agrees that the Company may use his name, picture, or likeness for any advertising, publicity, or other business purpose at any time, during the term of the Agreement and may continue to use materials generated during the term of the Agreement for a period of six months thereafter. The Executive shall receive no additional consideration if his name, picture or likeness is so used. The Executive further agrees that any negatives, prints or other material for printing or reproduction purposes prepared in connection with the use of his name, picture or likeness by the Company shall be and are the sole property of the Company. 13. REMEDIES. The Executive acknowledges that a remedy at law for any breach or attempted breach of the Executive's obligations under Sections 8 through 10 may be inadequate, agrees that the Company may be entitled to specific performance and injunctive and other equitable remedies in case of any such breach or attempted breach, and further agrees to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such 7 8 injunctive or other equitable relief. The Company shall have the right to offset against amounts to be paid to the Executive pursuant to the terms hereof any amounts from time to time owing by the Executive to the Company. The termination of the Agreement pursuant to Section 3, 5(a) or 5(b) shall not be deemed to be a waiver by the Company of any breach by the Executive of this Agreement or any other obligation owed the Company, and notwithstanding such a termination the Executive shall be liable for all damages attributable to such a breach. 14. DISPUTE RESOLUTION. Subject to the Company's right to seek injunctive relief in court as provided in Section 13 of this Agreement, any dispute, controversy or claim arising out of or in relation to or connection to this Agreement, including without limitation any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement, shall be exclusively and finally settled by arbitration, and any party may submit such dispute, controversy or claim, including a claim for indemnification under this Section 14, to arbitration. (a) ARBITRATORS. The arbitration shall be heard and determined by one arbitrator, who shall be impartial and who shall be selected by mutual agreement of the parties; provided, however, that if the dispute involves more than $1,000,000, then the arbitration shall be heard and determined by three (3) arbitrators. If three (3) arbitrators are necessary as provided above, then (i) each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration and (ii) the party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within thirty (30) days following the appointment of the last party-appointed arbitrator. (b) PROCEEDINGS. Unless otherwise expressly agreed in writing by the parties to the arbitration proceedings: (i) The arbitration proceedings shall be held in Miami, Florida, at a site chosen by mutual agreement of the parties, or if the parties cannot reach agreement on a location within thirty (30) days of the appointment of the last arbitrator, then at a site chosen by the arbitrators; (ii) The arbitrators shall be and remain at all times wholly independent and impartial; (iii) The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, as amended from time to time; (iv) Any procedural issues not determined under the arbitral rules selected pursuant to item (iii) above shall be determined by the law of the place of arbitration, other than those laws which would refer the matter to another jurisdiction; (v) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; (vi) The decision of the arbitrators shall be reduced to writing; final and 8 9 binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accounting presented to the arbitrators; made and promptly paid in United States dollars free of any deduction or offset; and any costs or fees incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement; (vii) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full, at 6% per annum; and (viii) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. (c) ACKNOWLEDGMENT OF PARTIES. Each party acknowledges that he or it has voluntarily and knowingly entered into an agreement to arbitration under this Section by executing this Agreement. 15. INDEMNIFICATION. The Executive shall be protected against any and all legal actions when he is either a party, witness or a participant in any legal action brought against the Company. He will be protected through any programs that cover the outside directors or other executives of the Company. 16. MISCELLANEOUS PROVISIONS. (a) SUCCESSORS OF THE COMPANY. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) EXECUTIVE'S HEIRS, ETC. The Executive may not assign his rights or delegate his duties or obligations hereunder without the written consent of the Company. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and 9 10 legatees. If the Executive should die while any amounts would still be payable to him hereunder as if he had continued to live, all such amounts, unless other provided herein, shall be paid in accordance with the terms of this Agreement to his designee or, if there be no such designee, to his estate. (c) NOTICE. For the purposes of this Agreement, notices and all other communications provide for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, provided that all notices to the Company shall be directed to the attention of the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) AMENDMENT OR WAIVER. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Company (which shall in any event include the Company's Chief Executive Officer). No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. (e) INVALID PROVISIONS. Should any portion of this Agreement be adjudged or held to be invalid, unenforceable or void, such holding shall not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereby agree that the portion so held invalid, unenforceable or void shall, if possible, be deemed amended or reduced in scope, or otherwise be stricken from this Agreement to the extent required for the purposes of validity and enforcement thereof. (f) SURVIVAL OF THE EXECUTIVE'S OBLIGATIONS. The Executive's obligations under this Agreement shall survive regardless of whether the Executive's employment by the Company is terminated, voluntarily or involuntarily, by the Company or the Executive, with or without Cause. (g) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. (h) GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Florida. (i) CAPTIONS AND GENDER. The use of captions and Section headings herein is for purposes of convenience only and shall not effect the interpretation or substance of any 10 11 provisions contained herein. Similarly, the use of the masculine or feminine gender with respect to pronouns in this Agreement is for purposes of convenience and includes either sex who may be a signatory. IN WITNESS WHEREOF, the Executive and duly authorized Company officers have signed this Agreement. EXECUTIVE: COMPANY: HAMILTON BANCORP INC. _________________________ Adolfo D. Martinez By __________________________ Title: Address: By __________________________ Title: HAMILTON BANK, N.A. By __________________________ Title: By __________________________ Title: 3750 N.W. 87th Avenue Miami, Florida 33178 11 EX-21.1 13 SUBSIDIARIES 1 EXHIBIT 21.1 Hamilton Bank, N.A. is a 99.7% owned subsidiary of Hamilton Bancorp Inc. Hamilton Capital Trust I, a Delaware business trust, is a 100% owned subsidiary of Hamilton Bancorp Inc. EX-23.1 14 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by the reference in Registration Statement No. 333-34725 of Hamilton Bancorp Inc. on Form S-8 of our report dated March 24, 2000, appearing in this Annual Report on Form 10-K of Hamilton Bancorp Inc. for the year ended December 31, 1999. DELOITTE & TOUCHE LLP Certified Public Accountants Miami, Florida April 13, 2000 EX-27.1 15 FINANCIAL DATA SCHEDULE
9 1,000 US DOLLAR YEAR DEC-31-1999 DEC-31-1998 DEC-31-1999 1 21,710 187,685 63,400 0 274,277 0 0 1,116,201 21,411 1,721,300 1,535,606 0 39,146 12,650 0 0 101 133,898 1,721,300 107,620 8,787 17,587 133,994 72,224 73,637 60,357 20,300 0 32,104 28,643 28,643 0 0 18,360 1.82 1.79 3.28 16,583 1,992 0 0 12,794 11,850 167 21,411 3,478 17,933 21,411
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