<PAGE>
United States Securities and Exchange Commission
Washington, D. C. 20549
FORM 10 - QSB
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
- ----------- Securities Exchange Act of 1934
For the quarterly period ended December 31, 1996
- ----------- 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: 0-28032
PATAPSCO BANCORP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Maryland 52-1951797
- ------------------------------ ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1301 Merritt Boulevard, Dundalk, Maryland 21222-2194
----------------------------------------------------
(Address of Principal Executive Offices)
(410)285-1010
-------------
Registrant's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act 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
--- ---
As of February 11, 1997, the issuer had 362,553 shares of Common
Stock issued and outstanding.
Traditional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
<TABLE>
<CAPTION>
Contents
--------
Part I. Financial Information Page
----
<S> <C>
Item I. Financial Statements
Consolidated Statements of Financial Condition at December 31,
1996 and June 30, 1996......................................... 2
Consolidated Statements of Operations for the Six and Three
Month Periods Ended December 31, 1996 and 1995 ................ 3
Consolidated Statements of Cash Flows for the Six Month Periods
Ended December 31, 1996 and 1995 .............................. 4-5
Notes to Consolidated Financial Statements .................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 8-16
Part II. Other Information
-----------------
Item 1. Legal Proceedings ...................................... 17
Item 2. Changes in Securities .................................. 17
Item 3. Defaults Upon Senior Securities ........................ 17
Item 4. Submission of Matters to a Vote of Security Holders .... 17
Item 5. Other Information ...................................... 17
Item 6. Exhibits and Reports on Form 8-K ...................... 17
Signatures ............................................................... 18
</TABLE>
1
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
---- ----
(unaudited)
<S> <C> <C>
Assets
------
Cash:
On hand and due from banks $ 1,004,787 400,286
Interest bearing deposits in other banks 6,641,005 229,290
Federal funds sold 2,597,851 6,794,889
Investment securities, at fair value 1,958,753 4,423,767
Mortgage-backed securities, at fair value 7,948,986 12,777,828
Loans receivable, net 56,568,797 52,031,297
Investment in securities required by law, at cost 592,050 490,500
Ground rents owned, at cost 41,200 41,200
Real estate acquired through foreclosure, net 31,081 31,081
Property and equipment, net 1,048,309 1,028,690
Deferred income taxes 1,903 --
Accrued interest, prepaid expenses and other assets 582,518 601,118
-------------- -------------
Total assets $ 79,017,240 78,849,946
============== =============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings deposits $ 65,073,634 64,156,888
Advance payments by borrowers for taxes,
insurance and grounds rents 633,556 1,189,735
Accrued expenses and other liabilities 672,782 605,180
Deferred income taxes -- 597,000
-------------- -------------
Total liabilities 66,379,972 66,548,803
Stockholders' equity:
Common stock $0.01 par value: authorized 4,000,000
shares: issued and outstanding 362,553 shares 3,626 3,626
Additional paid-in capital 6,754,240 6,754,240
Contra equity - Employee stock ownership plan (522,072) (522,072)
Contra equity - Management recognition plan (347,942) --
Retained income, substantially restricted 6,763,831 6,172,405
Unrealized net holding losses on available-for-sale
portfolios, net of taxes (14,415) (107,056)
-------------- -------------
Total stockholders' equity 12,637,268 12,301,143
-------------- -------------
Total liabilities and stockholders' equity $ 79,017,240 78,849,946
============== =============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For Six Months Ended For Three Months Ended
-------------------- ----------------------
December 31, December 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 2,220,708 1,636,950 1,123,234 816,907
Mortgage-backed securities 293,055 492,010 123,086 241,765
Investment securities 118,102 389,706 53,482 176,322
Federal funds sold and interest-bearing deposits 212,197 64,676 117,803 49,541
Dividends on securities required by law 19,394 17,927 10,438 8,964
----------- ------------- ----------- ------------
Total interest income 2,863,456 2,601,269 1,428,043 1,293,499
----------- ------------- ----------- ------------
Interest expense:
Savings deposits 1,361,472 1,438,037 679,999 727,600
Advances from Federal Home
Bank of Atlanta -- 153,361 -- 79,260
----------- ------------- ----------- ------------
Total interest expense 1,361,472 1,591,398 679,999 806,860
----------- ------------- ----------- ------------
Net interest income 1,501,984 1,009,871 748,044 486,639
Provision for losses on loans 120,000 62,000 60,000 59,000
----------- ------------- ----------- ------------
Net interest income after provision
for losses on loans 1,381,984 947,871 688,044 427,639
----------- ------------- ----------- ------------
Noninterest income:
Fees and service charges 106,354 51,899 59,996 26,003
Net gain (loss) on sales of securities
and loans 1,844 (71,857) -- (71,857)
Other 8,254 4,424 3,638 2,645
----------- ------------- ----------- ------------
Total noninterest income 116,452 (15,534) 63,634 (43,209)
----------- ------------- ----------- ------------
Noninterest expenses:
Compensation and employee benefits 659,307 579,661 360,264 297,742
Insurance premiums 479,350 96,356 11,227 46,859
Professional fees 61,575 58,053 34,575 29,314
Equipment expense 53,131 54,361 26,634 28,119
Net occupancy costs 41,653 38,970 20,129 18,081
Advertising 20,812 20,669 10,696 10,676
Data processing 44,858 36,792 22,994 15,665
Other 151,398 137,388 78,874 80,256
----------- ------------- ----------- ------------
Total noninterest expense 1,512,084 1,022,250 565,393 526,712
----------- ------------- ----------- ------------
Income (loss) before provision (benefit)
for income taxes (13,648) (89,913) 186,285 (142,282)
Provision (benefit) for income taxes (605,074) (35,111) 71,975 (56,694)
=========== ============= =========== ============
Net Income (loss) $ 591,426 (54,802) 114,310 (85,588)
=========== ============= =========== ============
Net income per share $ 1.76 n/a 0.34 n/a
=========== ============= =========== ============
Weighted average number of
shares outstanding 336,449 n/a 336,449 n/a
=========== ============= =========== ============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended December 31,
----------------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 591,426 (54,802)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 57,392 54,422
Provision for losses on loans 120,000 62,000
Amortization of premiums and discounts, net 9,724 (44,969)
Deferred loan origination fees, net of costs 48,062 29,145
(Gain) loss on sales of mortgage-backed
securities and investment securities (1,844) 71,436
Loss on sales of loans -- 2,544
Loans originated for sale, net -- (272,794)
Proceeds from sale of mortgage loans
originated for sale -- 270,250
Decrease in deferred income taxes (588,903) (20,889)
Decrease in taxes recoverable -- 204
Decrease in accrued interest on investments,
prepaid expenses and other assets 18,600 8,405
Increase in accrued expenses and other
liabilities 67,602 402,485
----------- -----------
Net cash provided by operating activities 322,059 507,437
----------- -----------
Cash flows from investing activities:
Loan principal disbursements (6,197,783) (4,343,124)
Loan principal repayments 3,267,282 2,698,452
Purchase of loan participations (390,500) (182,410)
Purchase of whole loans (1,441,005) (71,000)
Purchase of common stock for Management
Recognition Plan Trust (347,942) --
Purchase of capital stock in Federal Reserve
Bank of Richmond, required by law (101,550) --
Purchase of mortgage-backed securities
available-for-sale -- (2,895,020)
Proceeds from maturing:
Investment securities available-for-sale 2,500,000 1,000,000
Investment securities held-to-maturity -- 2,000,000
Purchase of property and equipment (77,011) (26,062)
Sale of mortgage-backed securities
available-for-sale 4,335,784 2,880,372
</TABLE>
continued
4
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended December 31,
----------------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Cash flows from investing activities (continued):
Principal repayments on:
Mortgage-backed securities
available-for-sale $ 599,277 $ 420,362
Mortgage-backed securities held-to maturity -- 1,268,790
----------- -----------
Net cash provided by investing activities 2,146,552 2,750,360
----------- -----------
Cash flows from financing activities:
Net increase in savings accounts 916,746 683,739
Increase in drafts payable -- 287,558
Decrease in advance payments by borrowers for
taxes, insurance and ground rents (566,179) (551,910)
Decrease in advances from Federal Home Loan
Bank of Atlanta -- (2,500,000)
----------- -----------
Net cash provided by (used in)
financing activities 350,567 (2,080,613)
Net increase in cash and cash equivalents $ 2,819,178 1,177,184
Cash and cash equivalents at beginning of
period 7,424,465 2,482,154
----------- -----------
Cash and cash equivalents at end of period $10,243,643 3,659,338
=========== ===========
Supplemental information:
Interest paid on savings deposits and
borrowed funds $ 1,363,106 1,455,849
Income taxes paid 49,400 --
Decrease in unrealized holding losses on
securities available-for-sale, net of
income tax effect 92,641 231,290
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Notes to Consolidated Financial Statements
(unaudited)
Note 1: Patapsco Bancorp, Inc.
Patapsco Bancorp, Inc. (the "Company") was incorporated under the laws of the
State of Maryland in November, 1995 for the purpose of serving as the holding
company of Patapsco Federal Savings and Loan Association ("Association") upon
its conversion from mutual to stock form ("Stock Conversion") and of The
Patapsco Bank (the "Bank") following the Association's conversion to a Maryland
chartered commercial bank ("Bank Conversion"). On April 1, 1996, the Company
completed its Stock Conversion and issued 362,553 shares of common stock, par
value $.01 per share for gross proceeds of $7.3 million and net proceeds of $6.8
million. In connection with the Stock Conversion, the Company purchased all of
the capital stock of the Association for $3.4 million or 50% of the net
proceeds. All references to the Company prior to April 1, 1996, except where
otherwise indicated are to the Association.
On September 30, 1996, the Association completed its conversion from a federally
chartered stock savings and loan association to a Maryland chartered commercial
bank known as The Patapsco Bank. The Bank is regulated by The Federal Reserve
Bank of Richmond ("Federal Reserve Bank") and The State of Maryland. The primary
business of the Bank is to attract deposits from individual and corporate
customers and to originate residential and commercial mortgage loans, consumer
loans and commercial business loans. The Bank competes with other financial and
mortgage institutions in attracting and retaining deposits and originating
loans. The Bank conducts operations through one office located at 1301 Merritt
Boulevard, Dundalk, Maryland 21222.
Note 2: Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with instructions for Form 10-QSB and therefore, do not include
all disclosures necessary for a complete presentation of the statements of
condition, statements of operations and statements of cash flows in conformity
with generally accepted accounting principles. However, all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
interim financial statements have been included. The results of operations for
the six and three months ended December 31, 1996 are not necessarily indicative
of the results that may be expected for the entire year.
6
<PAGE>
Note 3: Cash and Cash Equivalents
Cash equivalents include short-term investments which consists of Federal funds
sold. Cash equivalents and other liquidity and short-term investments are
carried at cost, which approximates market value.
Note 4: Net Income Per Share
Net income per share for the six and three months ended December 31, 1996 is
computed based on 336,449 weighted average shares of common stock outstanding.
Note 5: Regulatory Capital Requirements
At December 31, 1996, the Bank met each of the three minimum regulatory capital
requirements. The following table summarizes the Bank's regulatory capital
position at December 31, 1996:
Risk-based capital ratios
---------------------------------
Total Leverage
Tier 1 Capital Ratio
---------------------------------
Actual 25.88% 26.76% 13.23%
Minimum 4.00% 8.00% 4.00%
- --------------------------------------------------------------------------------
Excess 21.88% 18.67% 9.23%
- --------------------------------------------------------------------------------
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Impact on Results of Operations Based on Recently Enacted Federal Government
- --------------------------------------------------------------------------------
Legislation
- -----------
Reversal of Tax Bad Debt Recapture. On August 20 1996, Federal
legislation was enacted into law which provided that savings and loan
associations that convert to commercial banks will not be required to recapture
the portion of tax bad debt reserve accumulated prior to 1988. On September 30,
1996, the Association converted to a Bank and the Company reversed $600,000 of
the $740,000 tax expense previously recorded in fiscal 1995 when the
Association's Board of Directors made the determination to convert to a Bank.
The reversal of the tax bad debt reserve as described above was reflected as a
reduction of tax expense during the six months ended December 31, 1996.
Special Savings Association Insurance Fund ("SAIF") Assessment. On
September 30, 1996, Federal legislation was enacted and signed into law which
provides a resolution to the disparity in the Bank Insurance Fund ("BIF") and
the Savings Association Insurance Fund ("SAIF") premiums. In November 1995, the
SAIF-insured institutions, such as the Bank, paid a one-time assessment of 65.7
cents on every $100 of deposits held at March 31, 1995 or approximately
$415,000. The after-tax effect of this one-time charge to earnings totaled
approximately $255,000 and was recorded during the six months ended December 31,
1996. Beginning January 1, 1997, the deposit insurance premiums for highly rated
institutions, such as the bank, will be substantially reduced. The FDIC
assessment for SAIF insured institutions will be 6.48 cents per $100 of deposits
while BIF insured institutions will pay 1.30 cents per $100 of deposits until
the year 2000 when the assessment will be imposed at the same rate on all
Federal Deposit and Insurance Corporation ("FDIC") insured institutions.
Comparison of Financial Condition at December 31, 1996 and June 30, 1996
The Company's assets increased by $167,000 or 0.2% to $79.0 million at
December 31, 1996 from $78.8 million at June 30, 1996. During the six months
ended December 31, 1996, the Company continued to reconfigure its balance sheet
by emphasizing the origination of loans and reducing its investment in
investment securities and mortgage-backed securities. The Company's net loans
receivable increased by $4.5 million or 8.7% to $56.6 million at December 31,
1996 from $52.0 million at June 30, 1996. The Company's investment securities
decreased by $2.4 million or 55.7% to $2.0 million at December 31, 1996 from
$4.4 million at June 30, 1996 due to the maturity of a security. The Company's
mortgage-backed securities decreased by $4.8 million or 37.8 % to $8.0 million
at December 31, 1996 from $12.8 million at June 30, 1996, as a result of the
sale of $4.3 million of securities classified as available-for-sale. The
intended use of the proceeds from the sale of mortgage-backed securities is to
fund loan originations which are anticipated to have higher yields. Savings
deposits increased by $917,000 or 1.4% to $65.1 million at December 31, 1996
from $64.2 million at June 30, 1996. The increase in deposits was primarily the
result of interest credited. The Company's stockholders' equity increased by
8
<PAGE>
$336,000 or 2.7% to $12.6 million at December 31, 1996 from $12.3 million at
June 30, 1996. The increase in stockholders' equity was due primarily to the
$591,000 in net income and a $93,000 decrease in the unrealized net holding
losses on available-for-sale investment portfolios, net of taxes, partially
off-set by the $348,000 purchase of Company common stock by the Management
Recognition Plan Trust during the quarter ended December 31, 1996.
Comparison of Operating Results for the Quarter and Six Months Ended December
31, 1996 and December 31, 1995
Net Income
- ----------
The Company reported net income of $114,000 for the quarter ended
December 31, 1996 as compared to a net loss of $86,000 for the quarter ended
December 31, 1995. The $200,000 increase in net income was primarily due to a
$261,000 increase in net interest income and a $107,000 increase in noninterest
expense, offset slightly by an increase of $58,000 in provision for loan losses.
The Company's net income for the six months ended December 31, 1996 was $591,000
as compared to a net loss of $55,000 for the six months ended December 31, 1995.
Net income for the six months ended December 31, 1996 was significantly affected
by a $600,000 reduction in income tax expense and a $415,000 pretax deposit
insurance premium expense. The $600,000 reduction in income tax expense was a
partial reversal of the $740,000 tax bad debt reserve which was recorded in the
fourth quarter of fiscal 1995, as a result of the Company's decision to convert
its charter from a federal savings and loan to a state chartered commercial
bank. The $415,000 deposit insurance premium expense resulted from a one-time
assessment by the Federal Government to recapitalize SAIF. Excluding these
one-time charges, the Company would have earned approximately $246,000 for the
six months ended December 31, 1996. The $301,000 increase in net income, after
adjustments, was primarily attributable to the $492,000 increase in net interest
income during the six months ended December 31, 1996 and the $72,000 loss
incurred during the six months ended December 31, 1995.
Net income for the quarter and six months ended December 31, 1996, as
compared to the same periods ended December 31, 1995, also reflected the
utilization of proceeds from the Company's stock conversion which was completed
during the fourth quarter of fiscal 1996.
Interest Income
- ---------------
Total interest income increased by $135,000 or 10.4% to $1.4 million
for the quarter ended December 31, 1996 from $1.3 million for the quarter ended
December 31, 1995. Total interest income increased by $262,000 or 10.1% to $2.9
million for the six months ended December 31, 1996 from $2.6 million for the six
months ended December 31, 1995. The increase in the Company's total interest
income for the quarter ended December 31, 1996 as compared to the quarter ended
December 31, 1995 was due to an increase of $2.1 million in the average balance
of interest-earning assets to $77.0 million from $74.9 million and an increase
of 51 basis points in the average yield on interest-earning assets to 7.42% from
6.91%.
9
<PAGE>
The increase in the Company's total interest income for the six
months ended December 31, 1996 as compared to the six months ended December 31,
1995 was due to an increase of $2.4 million in the average balance of
interest-earning assets to $77.0 million from $74.6 million and an increase of
46 basis points in the average yield on interest-earning assets to 7.43% from
6.97%. The increase in the average balance is due to the proceeds from the
Company's stock conversion and the increase in the average yield is largely
attributable to the Company's efforts to transform its balance sheet from
investment and mortgage-backed securities to loans receivable. During the six
month period ended December 31, 1996, the Company sold certain investments which
has increased its balance of short-term interest-earning assets such as federal
funds sold. The intended use of this liquidity is to fund loan demand which will
increase the average yield on interest-earning assets.
Interest Expense
- ----------------
Total interest expense decreased by $127,000 or 15.7% to $680,000 for
the quarter ended December 31, 1996 from $807,000 for the quarter ended December
31, 1995. Total interest expense decreased by $230,000 or 14.5% to $1.4 million
for the six months ended December 31, 1996 from $1.6 million for the six months
ended December 31, 1995. The decrease in the Company's interest expense during
the quarter and six months ended December 31, 1996 as compared to the same
periods in 1995 were attributable to the repayment of $5.0 million of Federal
Home Loan Bank of Atlanta advances and the decrease in the average interest rate
paid on savings deposits. As a result, the average balance and average rate of
interest-bearing liabilities decreased by $5.3 million and 41 basis points to
$63.0 million and 4.32% during the quarter ended December 31, 1996 from $68.3
million and 4.73% during the same quarter in 1995, respectively. Comparing the
six months ended December 31, 1996 to the six months ended December 31, 1995,
the average balance and average rate of interest-bearing liabilities decreased
by $5.1 million and 35 basis points to $62.9 million and 4.33% from $68.0
million and 4.68%, respectively.
Interest expense on savings deposits decreased by $48,000 or 6.5% to
$680,000 for the quarter ended December 31, 1996 from $728,000 for the quarter
ended December 31, 1995. Interest expense on savings deposits decreased by
$77,000 or 5.3% to $1.4 million for the six months ended December 31, 1996 from
$1.4 million for the six months ended December 31, 1995. The decrease in
interest expense on savings deposits was primarily attributable to lower
interest rates during the quarter and six months ended December 31, 1996 as
compared to the same periods in 1995.
Net Interest Income
- -------------------
The Company's net interest income increased by $261,000 or 53.7% to
$748,000 for the quarter ended December 31, 1996 from $487,000 for the quarter
ended December 31, 1995. The increase in net interest income was primarily due
to an increase of 91 basis points in the interest
10
<PAGE>
rate spread (net yield on average interest-earning assets less the rate paid on
average interest-bearing liabilities) to 3.10% from 2.19% and an increase in the
ratio of average interest-earning assets to average interest bearing liabilities
to 122.2% from 109.6%.
The Company's net interest income increased by $492,000 or 48.7% to
$1.5 million for the six months ended December 31, 1996 from $1.0 million for
the six months ended December 31, 1995. The Company's net interest spread
increased 81 basis points during the comparable six months periods and the
Company's net yield on interest-earning assets increased 119 basis points to
3.90% for the six months ended December 31, 1996 from 2.71% during the same six
months in 1995. The proceeds from the Company's stock conversion was a major
influence in the increased net interest spread and net yield on interest-earning
assets.
During fiscal 1996, the Company began to implement a strategy to
improve the net interest spread by expanding its lending products to include
construction, consumer and commercial business loans. These loan products
generally earn higher yields than conventional single-family residential loans.
As previously discussed, the Company has also taken steps to reconfigure its
balance sheet by selling certain lower yielding investment and mortgage-backed
securities and funding loan demand with the proceeds.
Average Balance Sheet
The following tables sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
cost of liabilities for the years indicated and the average yields earned and
rates paid. Such yield and costs are derived by dividing income or expense by
the average balance of assets or liabilities, respectively, for the periods
presented. Average balances are derived from month-end balances. Management does
not believe that the use of month-end balances instead of daily balances has
caused any material differences in the information presented.
The tables also presents information for the periods indicated with
respect to the differences between the average yield earned on interest-earning
assets and average rate paid on interest-bearing liabilities, or "interest rate
spread", which banks have traditionally used as an indicator of profitability.
Another indicator of an institution's net interest income is its "net yield on
interest-earning assets," which is its net interest income divided by the
average balance of interest-earning assets. Net interest income is affected by
the interest rate spread and by the relative amounts of interest-earning assets
and interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive spread will generate net
interest income.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
-----------------------------------------------------------------------
1996 1995
------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (2) $ 56,443 $ 1,123 7.96% $ 43,393 $ 817 7.53%
Investment securities 3,239 54 6.67% 11,908 177 5.95%
Mortgage-backed securities 8,046 123 6.11% 15,429 241 6.25%
Federal funds sold and other
interest-earning assets 9,231 128 5.55% 4,174 59 5.65%
---------- --------- ---------- -----------
Total interest earning assets 76,959 1,428 7.42% 74,904 1,294 6.91%
Noninterest-earning assets 1,882 1,685
---------- ----------
Total assets $ 78,841 $ 76,589
========== ==========
Interest-bearing liabilities:
Savings deposits (3) $ 62,986 $ 680 4.32% $ 63,452 $ 728 4.59%
Borrowings -- -- -- 4,864 79 6.50%
---------- --------- ---------- -----------
Total interest-bearing liabilities 62,986 680 4.32% 68,316 807 4.73%
-------- --------
Noninterest-bearing liabilities 3,276 2,194
---------- ----------
Total liabilities 66,262 70,510
Stockholders' equity 12,579 6,079
---------- ----------
Total liabilities and stockholders' equity $ 78,841 $ 76,589
========== ==========
Net interest income $ 748 $ 487
========= ===========
Interest rate spread 3.10% 2.19%
======== ========
Net yield on interest-earning assets 3.89% 2.60%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 122.18% 109.64%
======== ========
</TABLE>
- -----------------------------------------------------
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
12
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------------------------------------------------
1996 1995
------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (2) $ 55,407 $ 2,221 8.02% $ 43,046 $ 1,637 7.61%
Investment securities 3,773 118 6.25% 13,380 390 5.83%
Mortgage-backed securities 9,444 293 6.20% 15,392 492 6.39%
Federal funds sold and other
interest-earning assets 8,421 231 5.49% 2,822 82 5.81%
--------- --------- ---------- ---------
Total interest earning assets 77,045 2,863 7.43% 74,640 2,601 6.97%
Noninterest-earning assets 1,796 0
--------- ----------
Total assets $ 78,841 $ 74,640
========= ==========
Interest-bearing liabilities:
Savings deposits (3) $ 62,890 $ 1,361 4.33% $ 63,111 $ 1,438 4.56%
Borrowings -- -- -- 4,931 153 6.21%
--------- --------- ---------- ---------
Total interest-bearing liabilities 62,890 1,361 4.33% 68,042 1,591 4.68%
--------- ---------
Noninterest-bearing liabilities 3,372 2,505
--------- ----------
Total liabilities 66,262 70,547
Stockholders' equity 12,579 6,081
--------- ----------
Total liabilities and stockholders' equity $ 78,841 $ 76,628
========= ==========
Net interest income $ 1,502 $ 1,010
========= =========
Interest rate spread 3.10% 2.29%
========= =========
Net yield on interest-earning assets 3.90% 2.71%
========= =========
Ratio of average interest-earning assets
to average interest-bearing liabilities 122.51% 109.70%
========= =========
</TABLE>
- -----------------------------------------------------
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
13
<PAGE>
Provision For Loan Losses
- -------------------------
Provisions for loan losses are charged to earnings to maintain the
total allowance for loan losses at a level considered adequate by management to
provide for probable loan losses, based on prior loss experience, volume and
type of collateral by the Company, industry standards and past due loans in the
Company's loan portfolio. The Company's management periodically monitors and
adjusts its allowance for loan losses based upon its analysis of the loan
portfolio. The Company increased its provision for loan losses to $60,000 and
$120,000 for the quarter ended December 31, 1996 from $59,000 and $62,000 for
the six months ended December 31, 1995. The increased provision for loan losses
for the quarter and six months ended December 31, 1996 was due to the Company's
higher levels of consumer and commercial loans, which generally entail a greater
risk than single-family residential loans. The Company's nonperforming loans as
a percentage of loans receivable was 1.01% and 0.91% at December 31, 1996 and
December 31, 1995, respectively. All of the nonperforming loans consisted of
single-family residential mortgage loans. The Company has increased its
allowance for loan losses as a percentage of total loans outstanding, net of
unearned origination fees to 0.55% at December 31, 1996 from 0.50% at December
31, 1995.
Noninterest Income
- ------------------
The Company's noninterest income consists of deposit fees, service
charges, late fees and gains and losses on sales of securities and loans. Total
noninterest income increased by $107,000 and $132,000 to $64,000 and $116,000
for the quarter and six months ended December 31, 1996, respectively from losses
of $43,000 and $16,000 for the quarter and six months ended December 31, 1995,
respectively. The increase in noninterest income was primarily due to a $72,000
loss from the sale of investment securities during the quarter and six months
ended December 31, 1995 and an increase in fees and service charges of $34,000
or 130.7% and $54,000 or 104.9% for the quarter and six months ended December
31, 1996, respectively as compared to the same periods in 1995. The increase in
fees and service charges are primarily related to commercial checking accounts.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by $39,000 or 7.3% to $565,000
for the quarter ended December 31, 1996 from $527,000 for the quarter ended
December 31, 1995. The increase in noninterest expenses was primarily due to
increases in compensation and employee benefits expense offset slightly by a
decrease in insurance premiums. Compensation and employee benefits expense
increased $63,000 or 21.0% to $360,000 for the quarter ended December 31, 1996
from $297,000 for the quarter ended December 31, 1995. The increase was largely
attributable to expenses related to the Company's Employee Stock Ownership Plan
("ESOP"), incentive compensation plan and Management Recognition Plan ("MRP").
Insurance premiums decreased $36,000 or 76.0% to $11,000 for the quarter ended
December 31, 1996 from $47,000 for the quarter ended December 31, 1995. The
decrease resulted from the refund of the
14
<PAGE>
Bank's $36,000 FDIC-SAIF deposit insurance premium for the quarter ended
December 31, 1996. Effective January 1, 1997, the Bank's FDIC after-tax
assessment costs was reduced by approximately $65,000 or 71.8% based upon a
September 30, 1996 assessment base.
Total noninterest expenses increased by $490,000 or 47.9% to $1.5
million for the six months ended December 31, 1996 from $1.0 million for the six
months ended December 31, 1995. As discussed earlier, the Company incurred a
$415,000 one-time deposit insurance premium expense during the six months ended
December 31, 1996 and a $74,000 one-time charge relating to the adoption of a
directors retirement plan during the six months ended December 31, 1995.
Excluding those one-time adjustments, the Company's noninterest expense would
have increased by $149,000 or 15.7% to $1.1 million for the six months ended
December 31, 1996 from $948,000 for the six months ended December 31, 1995. The
increase in noninterest expense is primarily related to a $154,000 or 30.4%
increase in compensation and employee benefits expense during the six months
ended December 31, 1996 as compared to the same period in 1995. The increase in
compensation and employee benefits expense is primarily due to expenses related
to the Company's ESOP, incentive compensation plan, MRP, normal salary increases
and those salaries associated with the hiring of additional lending personnel.
Liquidity and Capital Resources
- -------------------------------
An important component of the Company's asset/liability structure is
the level of liquidity available to meet the needs of customers and creditors.
Patapsco's Asset/Liability Management Committee has established general
guidelines for the maintenance of prudent levels of liquidity. The Committee
continually monitors the amount and source of available liquidity, the time to
acquire it and its cost. Management of the Company seeks to maintain a
relatively high level of liquidity in order to retain flexibility in terms of
investment opportunities and deposit pricing. Because liquid assets generally
provide lower rates of return, the Company's relatively high liquidity will, to
a certain extent, result in lower rates of return on assets.
The Company's most liquid assets are cash on hand, interest-bearing
deposits and Federal funds sold, which are short-term, highly liquid investments
with original maturities of less than three months that are readily convertible
to known amounts of cash. The levels of these assets are dependent on the
Company's operating, financing and investing activities during any given period.
At December 31, 1996, the Company's cash on hand, interest-bearing deposits and
Federal funds sold totaled $10.2 million.
The Company anticipates that it will have sufficient funds available
to meet its current loan commitments of $2.8 million. Certificates of deposit
which are scheduled to mature in less than one year at December 31, 1996 totaled
$23.3 million. Historically, a high percentage of maturing deposits have
remained with the Company.
The Company's primary sources of funds are deposits and proceeds from
maturing investment securities and mortgage-backed securities and principal and
interest payments on loans. While maturities and scheduled amortization of
mortgage-backed securities and loans are
15
<PAGE>
predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions, competition and other
factors.
The Company's primary uses of cash in investing activities during the
six months ended December 31, 1996, were the origination and purchase of $6.2
million and $1.8 million of loans, respectively. The Company's primary sources
of cash from investing activities during the six months ended December 31, 1996
were the sale of $4.3 million of mortgage-backed securities and the repayment of
$3.2 million, $2.5 million and $599,000 of loan principal, investment securities
and mortgage-backed securities, respectively.
The Company's primary use of cash in financing activities during the
six months ended December 31, 1996 consisted of $566,000 in net disbursements of
advance payments by borrowers for property taxes, insurance and ground rents.
The Company's primary sources of cash provided by financing activities during
the six months ended December 31, 1996 consisted primarily of a $917,000 net
increase in savings deposits.
As discussed in Note 5 - Regulatory Capital Requirements, the Bank
exceeded all regulatory minimum capital requirements.
Impact of New Accounting Standards
- ----------------------------------
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities (SFAS 125). SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively. This
Statement will require, among other things, that the Company record at fair
value, assets and liabilities resulting from a transfer of assets. The Company
adopted the provisions of SFAS 125 as of January 1, 1997, and the adoption of
SFAS 125 did not have a material effect on the Company's financial condition or
results of operation.
16
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
The following table sets forth matters which were voted
upon at the Company's Annual Meeting of Stockholders held
on October 10, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Matter Votes Votes
# For Withheld
------ ----- --------
1. Election of Directors
S. Robert Kinghorn 284,193 600
Douglas H. Ludwig 284,793 0
Theodore C. Patterson 284,793 0
Votes Votes Broker
For Against Abstentions Non-Votes
----- ------- ----------- ---------
2. Approve Stock Option and Incentive Plan 234,879 12,715 2,116 35,033
3. Approve Management Recognition Plan 228,820 13,140 7,300 35,483
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
(a) The following exhibit is filed as part of this Form 10-QSB:
Exhibit 27 Financial Data Schedule
(b) On October 11, 1996, the Registrant filed a Form 8-K reporting
stockholder approval of a stock-option plan and management
recognition plan and the completion of the conversion of the
Registrant's wholly owned subsidiary from federal savings and
loan association to a Maryland commercial bank.
17
<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATAPSCO BANCORP, INC.
/s/ Joseph J. Bouffard
Date: February 11, 1997 ------------------------------
Joseph J. Bouffard
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Timothy C. King
Date: February 11, 1997 ------------------------------
Timothy C. King
Controller and Treasurer
(Principal Financial and Accounting Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PATAPSCO
BANCORP, INC. AND SUBSIDIARY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> JUL-01-1996 OCT-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 1,004,787 1,004,787
<INT-BEARING-DEPOSITS> 6,641,005 6,641,005
<FED-FUNDS-SOLD> 2,597,851 2,597,851
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 9,907,739 9,907,739
<INVESTMENTS-MARKET> 9,907,739 9,907,739
<LOANS> 56,568,797 56,568,797
<ALLOWANCE> 313,743 313,743
<TOTAL-ASSETS> 79,017,240 79,017,240
<DEPOSITS> 65,073,634 65,073,634
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,306,338 1,306,338
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 3,626 3,626
<OTHER-SE> 12,633,642 12,633,642
<TOTAL-LIABILITIES-AND-EQUITY> 79,017,240 79,017,240
<INTEREST-LOAN> 2,220,708 1,123,234
<INTEREST-INVEST> 411,157 176,568
<INTEREST-OTHER> 231,591 128,241
<INTEREST-TOTAL> 2,863,456 1,428,043
<INTEREST-DEPOSIT> 1,361,472 679,999
<INTEREST-EXPENSE> 1,361,472 679,999
<INTEREST-INCOME-NET> 1,501,984 748,044
<LOAN-LOSSES> 120,000 60,000
<SECURITIES-GAINS> 1,844 0
<EXPENSE-OTHER> 1,512,084 565,393
<INCOME-PRETAX> (13,648) 186,285
<INCOME-PRE-EXTRAORDINARY> (13,648) 186,285
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 591,426 114,310
<EPS-PRIMARY> 1.76 0.34
<EPS-DILUTED> 1.76 0.34
<YIELD-ACTUAL> 7.43 7.42
<LOANS-NON> 579,000 579,000
<LOANS-PAST> 579,000 579,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 219,001 219,001
<CHARGE-OFFS> 26,146 10,973
<RECOVERIES> 888 250
<ALLOWANCE-CLOSE> 313,743 313,743
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
