RNS Number : 3399X
North American Banks Fund Ltd
23 June 2008
North American Banks Fund Limited
Preliminary Results for the year ended 31 December 2007
Chairman's Statement
Against a backdrop of significant deterioration in the US economy the Company nevertheless made progress in the financial year ended 31
December 2007 making one new investment and three follow-on investments. This deterioration was particularly apparent on both the financial
and real estate sectors and further deterioration is anticipated in the coming financial year. The Company's investments have largely
avoided lending in the subprime sector and have not been involved in Collateralised Debt Obligations (CDO) investments as the majority did
not commence trading until after the emergence of the subprime crisis. Most of our investments had not started trading prior to this crisis
and as a result have been insulated from most of the fall out. However, the marked deterioration in the general US economy has slowed growth
for our investee banks and this has impacted on both valuations and subsequent fundraising rounds.
At the year end, the Net Asset Value ("NAV") per share was $9.20 compared with $9.19 at the end of 2006, with the increase attributable
to the write-ups of First American Financial Holdings, Inc., Florida Capital Group and First Atlantic financial Holdings, Inc. resulting
from subsequent financing rounds at higher prices than our investment cost.
During 2007, the Company completed the following new investment:
* $500,000 in Metropolitan Banc Group, Inc., the holding company for Metropolitan Bank, a seed investment in what will be a regional
bank focusing on the banking markets of Jackson, Mississippi and Memphis, Tennessee.
The Company also made follow-on investments in line with the Company's business plan:
* $3,530,000 First American Financial Holdings, Inc., the holding company for Avenue Bank, headquartered in Nashville, Tennessee,
focusing on real estate and middle market lending in addition to providing banking services to the entertainment industry;
* $2,500,000 in Trust Atlantic Financial Corporation, the holding company for Trust Atlantic Bank focusing on the banking market of
Raleigh-Durham, North Carolina; and
* $3,000,000 in First Atlantic Financial Holdings, Inc., the holding company for First Atlantic Bank of Florida, headquartered in
Jacksonville, Florida. This mid-market bank will specialise initially in Small Business Administration (SBA) lending.
Post year-end, a fourth follow-on investment was completed in a second round fundraising in Metropolitan Banc Group, Inc. (February
2008).
During 2007, three uplifts were recorded in valuation. These were: $117,500 in First American Financial, Inc., $500,000 in First
Atlantic Financial Holdings, Inc. and $30,000 in Florida Capital Group. An uplift of $500,000 was recorded post year-end in Metropolitan
Banc Group, Inc. following the second round fundraising. We remain confident that imminent financing rounds will result in an uplift in one
more of our current investments.
Unfortunately, our pre-seed investment of $150,000 in Texas Loan Star did not prove successful. The regulatory approval process
ultimately took longer than expected and due to a lack of working capital, the project has been dissolved. We have received loan stock of
$150,000 in another Texas based project, but given the current environment for fundraising of pre-seed investments, this project is
extremely unlikely to proceed and the investment has been written down to zero.
Of the funds raised in 2005 and called upon in June 2006, 82% was invested at the year-end, with a further 8% invested post year-end. At
31 December 2007, a total of $4.9 million was held in high interest cash deposits. Of this sum, $3.0 million has been invested post year-end
in Metropolitan Banc Group, Inc. As a result the Company is now fully invested in accordance with the business plan.
Post year end, however, three of the Company's investee banks have been affected by the sudden deterioration of the residential markets
in both Atlanta and Florida. As a consequence, a large number of residential construction loans are now becoming either past due or
non-accruing due to the inability of developers to dispose of their completed products in the market place. The situation in respect of the
Company's investment in MagnetBank, which has a material exposure to the Atlanta market in particular, is such that a significant provision
has been taken against this investment. MagnetBank is currently seeking to raise additional equity capital for its business; should it be
unsuccessful in this endeavour it is likely that provisions to cover our full investment would be necessary.
Despite this, all of the Company's remaining investments benefit not only from a strong capital base but also from the guidance of
experienced management teams and they are well placed to benefit from the opportunities being created by the fall out being generated by the
current turmoil in the US banking market.
These are difficult times for our Company, but shareholders should be confident that the Board will continue to work closely with the
investment team to monitor our investments and the community banking market as a whole, and make every effort to maximise shareholder
value.
Robin Dominic Monro-Davies
Chairman
23 June 2008
Investment Manager's Report
Cost Valuation Cost Valuation
31 Dec 2007 31 Dec 31 Dec 2006 31 Dec
US$ 2007 US$ US$ 2006 US$
Investment portfolio
Atlanta Bancorporation, Inc. 4,000,003 4,000,003 4,000,003 4,000,003
First American Financial 3,882,500 4,000,000 352,500 352,500
Holdings, Inc.
FirstAtlantic Financial 3,500,000 4,000,000 500,000 500,000
Holdings, Inc.
Florida Capital Group, Inc. 3,420,000 3,450,000 3,420,000 3,420,000
MagnetBank 3,948,000 3,948,000 3,948,000 3,948,000
Midwest Financial Holdings, 1,510,500 - 1,510,500 -
Inc.
Mountain Commerce Bancorp, 2,300,000 2,300,000 2,300,000 2,300,000
Inc.
NHB Holdings, Inc. 4,000,000 4,000,000 4,000,000 4,000,000
Other Assets 150,000 - 150,000 150,000
TrustAtlantic Financial 4,000,000 4,000,000 1,500,000 1,500,000
Corporation
Metropolitan Banc Group, Inc 500,000 500,000 - -
Cash 4,877,204 4,877,204 14,845,652 14,845,652
Total 36,088,207 35,075,207 36,526,655 35,016,155
Portfolio Overview
As at 31 December 2007 the portfolio was comprised of nine unquoted start-up banks in the US, with an aggregate value of $30.2 million
compared with a cost of $31.2 million. At the year-end $4.9 million was invested in high interest cash deposits. Of the available cash, $3
million has been utilised since the year end in the follow-on transaction in Metropolitan Banc Group Inc. Following this transaction, the
fund is now fully invested and, in accordance with the business plan, $1.9 million of cash is available for the administration of the fund.
During 2007 one new investment and three follow-on investments were made. There were no exits and one write-off in the year.
Portfolio (listed in order of original investment):
MagnetBank
MagnetBank has a Utah industrial charter and engages in traditional lending to small and medium sized businesses in Florida, North
Carolina, Idaho, Georgia and Texas. The bank opened for business in September 2005. By 31 December 2007 it had total assets of $455 million
and four loan production offices in operation in Salt Lake City, Atlanta, Raleigh and Houston. In August 2007, the bank successfully
converted its charter from a Utah Industrial Bank to a Utah Commercial Bank. The bank undertakes traditional lending, SBA lending and
Equipment Finance. Whilst the bank was profitable for the first three quarters of 2007, large write-offs in the fourth quarter resulted in a
loss for financial year 2007 of $2.92m. Since year end conditions in Magnet's market have deteriorated significantly with past due loans
rising to approximately 30% of the loan portfolio. This has resulted in MagnetBank being required to raise over $20 million in order to keep
within its regulatory guidelines. Just over $1 million is currently being raised at $3 a share and as such has required a provision of $2.764 million to be made. In the event the bank is not successful
in raising the remaining funds a further provision to cover our full investment of $3.95 million is likely to be necessary.
Valuation: $3,948,000
Valuation basis: Cost
Mountain Commerce Bancorp, Inc.
Mountain Commerce is a community bank serving individuals, professionals and small to mid sized businesses in East Tennessee, Western
North Carolina and Virginia (Knoxville, Ashville and Bristol). The bank opened for business in September 2006. It has five branches and a
loan production office in operation with a further five opening in next 12-18 months. Growth is exceeding budget as total assets have grown
to $268 million and profitability is forecast by Q1 2009. The delay in break-even is as a result of the costs of faster growth and branch
expansion. The bank is in the process of commencing another fundraising which is likely to deliver an uplift in value of both our common
stock and our warrants once the offering has closed in Q2/Q3.
Valuation: $2,300,000
Valuation basis: Cost
NHB Holdings, Inc.
Proficio Bank, a wholly owned subsidiary of NHB Holdings, is a nationally focused specialty bank, offering commercial lending,
specialised consumer lending and specialised residential lending services to the corporate relocation industry throughout the United States.
The bank opened for business in January 2007 and now has three loan production offices in operation. It has assets of $83 million and
expects to be profitable by Q2/Q3 2008.
Valuation: $4,000,000
Valuation basis: Cost
Atlanta Bancorporation, Inc.
Bank of Atlanta, a wholly owned subsidiary of Atlanta Bancorporation, is an Atlanta-based bank offering a broad range of lending,
deposit and other traditional banking services to individuals and businesses within the Atlanta metropolitan area. The bank opened for
business in April 2007. It currently has three loan production offices in operation, total assets of $203 million and aims to be profitable
by Q2 2008. The loan portfolio had grown to $148m by year end. Deposits have grown to $144m and there has been strong core deposit growth.
Valuation: $4,000,003
Valuation basis: Cost
Florida Capital Group, Inc
Florida Capital Group is a nationally chartered, state-wide bank committed to serving the business community of Florida. The bank opened
for business in March 2005. The total office count now comes to seventeen. The bank had total assets of $781 million at year end. The bank
has utilised its branch structure to capture $509m of retail deposits.
Write-offs in Q4 produced a loss for the year of $3.5 million and the challenging outlook in the Florida market is likely to continue in
2008.
Valuation: $3,450,000
Valuation basis: Valued at last fundraising price
First American Financial Holdings, Inc.
First American Financial Holdings, Inc, is a community bank headquartered in Nashville, Tennessee, focusing on real estate, middle
market lending and the entertainment industry. The bank completed its follow-on financing and opened for business in February 2007, when the
Company increased its investment to $4 million at $10 per share giving an uplift from the previous round at $7.50 per share Total assets
have grown to $168m million and Loans have increased to $95.8m. Deposits have increased to $99.1m, all of which are retail. The strong
growth in retail has been driven by a successful money market account advertising campaign. The bank now has four branches open for business
and plans to open a further two during 2008. Nashville has a large music industry which generates significant business opportunities, and
the bank benefits from having the Chairman of Sony BMG Nashville, the General Manager of Universal Music Nashville, and the former President
and Chairman of the Country Music Association on the board of directors.
The group aims to be profitable by Q3 2009.
Valuation: $4,000,000
Valuation basis: Valued at last fundraising price
TrustAtlantic Financial Corporation
TrustAtlantic Financial Corporation is a holding company which successfully acquired Millennia Community Bank with the proceeds of their
second round financing, and has set about executing their business plan to build a premier North Carolina bank offering full service banking
facilities to middle market companies in Raleigh-Durham, North Carolina. The Company invested a further $2.5 million in this round of
financing. Total Assets were circa $130 million at year end and loans had reached $103 million. At this early stage in the bank's
development, deposit funding is still primarily wholesale in nature, but momentum is building for non-wholesale deposit accounts as the
branch roll-out commences. The first stand alone branch is anticipated to open in March in Raleigh.
Valuation: $4,000,000
Valuation basis: Cost
FirstAtlantic Financial Holdings, Inc.
FirstAtlantic Financial Holdings, Inc. (FirstAtlantic Bank of Florida) is a holding company which successfully acquired Paramount Bank
with the proceeds of their second round financing and has set about executing its strategy to build a traditional community bank,
headquartered in Jacksonville, Florida and operating along the Northeast Florida coastline. The Company originally invested $0.5 million in
the seed round at $5 per share and then invested a further $3 million in the main fundraising at $10 per share creating an uplift of $0.5
million on our original investment. This mid-market bank will specialise in single family construction lending and SBA lending. The first
branch is set to open in late February, with the second and third branches following in March. Having only just opened for business, loans
stand at $7 million and deposits have reached $8 million, all of which are retail. It is anticipated that growth will be slower than
originally planned as a result of the current malaise in the Florida market.
Valuation: $4,000,000
Valuation basis: Valued at last fundraising price
Metropolitan Banc Group, Inc.
Metropolitan Banc Group, Inc. (Metropolitan Banc) is a holding company with a definitive agreement to acquire Banc of the South with the
proceeds of their second round financing, which is being led by Raymond James and is due to complete in Q2 2008. The strategy is to build a
bank offering full service banking facilities, to address the fragmented and underserved markets of Memphis, Tennessee and Jackson,
Mississippi.
The Company has committed to invest a further $3 million in the current funding round at an investment price of double the price of the
first round creating an uplift of $0.5 million on our initial investment.
Valuation: $500,000
Valuation basis: Cost
North Atlantic Value LLP
Investment Manager
23 June 2008
Income Statement
2007 2006
US$ US$
Income
Interest income 451,700 641,491
Net gain / (loss) on investments at fair value
through profit or loss 497,500 (1,510,500)
Total investment income 949,200 (869,009)
Expenses
Administration fees 121,214 113,659
Audit fees 20,451 38,913
Bank charges 3,691 3,727
Insurance 19,203 20,046
Custody fees 10,637 10,870
Listing fees 13,579 11,116
FT Prices fees 4,269 3,467
Directors' fees 157,899 113,531
Disbursements 2,096 2,739
Investment manager fees 438,615 460,388
Printing costs 8,620 10,340
Regulatory fees 6,167 5,516
Registrar fees 19,820 49,902
Travel costs 25,351 24,272
Broker fees 30,547 27,923
Legal fees 3,611 8,511
Total expenses 885,770 904,920
Profit / (loss) for the year attributable to
equity shareholders 63,430 (1,773,929)
Basic and diluted earnings per share US$0.017 US$(0.467)
All items in the above statement are derived from continuing operations.
Statement of Changes in Equity
2007 2006
US$ US$
Equity at 1 January 34,910,962 36,684,891
Profit / (loss) for the year attributable to 63,430 (1,773,929)
equity shareholders
Total recognised income and expenses 63,430 (1,773,929)
Equity at 31 December 34,974,392 34,910,962
Balance Sheet
2007 2006
US$ US$
Non-current assets
Investments at fair value through profit or loss 30,198,003 20,170,503
Current assets
Prepayments 11,692 10,129
Accrued interest receivable 18,892 20,097
Cash and cash equivalents 4,877,204 14,845,652
4,907,788 14,875,878
Total assets 35,105,791 35,046,381
Current liabilities
Creditors 131,399 135,419
131,399 135,419
Net assets 34,974,392 34,910,962
Shareholders equity
Share capital 38,000 38,000
Share premium - -
Distributable reserve 36,893,502 36,893,502
Accumulated deficit (1,957,110) (2,020,540)
Total equity 34,974,392 34,910,962
Net Asset Value per Share US$9.20 US$9.19
Cash Flow Statement
2007 2006
US$ US$
Operating Activities
Profit / (loss) for the year attributable to
equity shareholders 63,430 (1,773,929)
Unrealised (gains) /losses on investments (497,500) 1,510,500
(Increase) / decrease in receivables (358) 12,109
Decrease in payables (4,020) (88,521)
Cash flow from operating activities (438,448) (339,841)
Investing Activities
Purchases of investments (9,530,000) (16,122,503)
Cash flow from investing activities (9,530,000) (16,122,503)
Financing Activities
Shares issued - 19,000,000
Cash flow from financing activities - 19,000,000
Net (decrease) / increase in cash and cash (9,968,448) 2,537,656
equivalents
Cash and cash equivalents, at beginning of the 14,845,652 12,307,996
year
Cash and cash equivalents, at end of the year 4,877,204 14,845,652
Notes
North American Banks Fund Limited is a closed-ended investment company registered and incorporated in Guernsey. The Company has been
established to invest predominantly in start-up banks based in the US.
The functional currency of the Company is US dollars because that is the currency of the primary economic environment in which the Company
operates. These financial statements are presented in US Dollars.
The above results comprise an abridged version of the Company's full accounts for the year ended 31 December 2007. Copies of the
accounts will be sent to shareholders by 30 June 2008 and will be available on the Company's website www.northamericanbanksfund.co.uk and
from the Company's registered office at BNP Paribas House, 1 St Julian's Avenue, St Peter Port, Guernsey GY1 1WA.
The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"),
which comprise standards and interpretations approved by the International Accounting Standards Board (the "IASB"), and International
Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee
("IASC") that remain in effect, together with applicable legal and regulatory requirements of Guernsey Law.
The financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments.
The principal accounting policies are set out below. The preparation of financial statements in conformity with International Financial
Reporting Standards requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting year.
The basic and diluted earnings per share is based on the net income for the year of US$63,430 (2006 - net loss US$1,773,929) and a
weighted average number of Ordinary Shares in issue during the year of 3,800,000 (2006 - 3,800,000).
The net asset value per ordinary share is based on net assets at the year end and on 3,800,000 ordinary shares, being the number of
ordinary shares in issue at the year end.
The Directors do not propose the payment of a dividend for the year.
Enquiries:
Sara Radford
BNP Paribas Fund Services (Guernsey) Limited Tel: 01481 750858
Alastair Moreton
Arbuthnot Securities Limited Tel: 0207 012 2000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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