<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 March 31, 1997
[ ] 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 May 9, 1997, the issuer had 362,553 shares of Common Stock issued
and outstanding.
Traditional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
CONTENTS
--------
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item I. Financial Statements
Consolidated Statements of Financial Condition at March 31,
1997 and June 30, 1996 ........................................... 2
Consolidated Statements of Operations for the Nine and Three Month
Periods Ended March 31, 1997 and 1996 ............................ 3
Consolidated Statements of Cash Flows for the Nine Month
Periods Ended March 31, 1997 and 1996 ............................ 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
1
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- -----------
<S> <C> <C>
Assets
------
Cash:
On hand and due from banks $ 174,978 400,286
Interest bearing deposits in other banks 52,052 229,290
Federal funds sold 6,672,170 6,794,889
Investment securities, at fair value 1,950,736 4,423,767
Mortgage-backed securities, at fair value 7,722,353 12,777,828
Loans receivable, net 60,902,913 52,031,297
Investment in securities required by law, at cost 622,050 490,500
Property and equipment, net 1,106,488 1,028,690
Deferred income taxes 43,000 --
Accrued interest, prepaid expenses and other assets 671,970 673,399
----------- -----------
Total assets $79,918,710 78,849,946
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings deposits $65,497,890 64,156,888
Advance payments by borrowers for taxes
insurance and grounds rents 976,810 1,189,735
Accrued expenses and other liabilities 808,428 605,180
Deferred income taxes -- 597,000
----------- -----------
Total liabilities 67,283,128 66,548,803
Stockholders' equity:
Common stock $0.01 par value: authorized 4,000,000
shares: issued and outstanding 362,55 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 (423,724) --
Retained income, substantially restricted 6,903,507 6,172,405
Unrealized net holding losses on available-for-sale
portfolios, net of taxes (79,995) (107,056)
----------- -----------
Total stockholders' equity 12,635,582 12,301,143
----------- -----------
Total liabilities and
stockholders' equity $79,918,710 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 Nine Months Ended For Three Months Ended
March 31, March 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 3,403,793 2,524,464 1,183,085 887,514
Mortgage-backed securities 414,055 753,281 121,000 261,271
Investment securities 154,413 517,262 36,311 127,556
Federal funds sold and other interest-earning assets 357,806 131,557 126,215 48,954
------------ ------------ ------------ ------------
Total interest income 4,330,067 3,926,564 1,466,611 1,325,295
------------ ------------ ------------ ------------
Interest expense:
Savings deposits 2,019,077 2,166,606 657,605 728,569
Advances from Federal Home Loan Bank of Atlanta -- 179,584 -- 26,223
------------ ------------ ------------ ------------
Total interest expense 2,019,077 2,346,190 657,605 754,792
------------ ------------ ------------ ------------
Net interest income 2,310,990 1,580,374 809,006 570,503
Provision for losses on loans 180,000 65,000 60,000 3,000
------------ ------------ ------------ ------------
Net interest income after provision
for losses on loans 2,130,990 1,515,374 749,006 567,503
------------ ------------ ------------ ------------
Noninterest income:
Fees and service charges 152,125 77,468 45,771 25,569
Net gain (loss) on sales of securities and loans 1,844 (71,857) -- --
Other 11,408 6,313 3,154 1,889
------------ ------------ ------------ ------------
Total noninterest income 165,377 11,924 48,925 27,458
------------ ------------ ------------ ------------
Noninterest expenses:
Compensation and employee benefits 1,019,438 834,933 360,131 255,272
Insurance premiums 497,378 144,345 18,028 47,989
Professional fees 87,746 92,110 26,171 34,057
Equipment expense 83,119 82,589 29,988 28,228
Net occupancy costs 60,697 59,349 19,044 20,379
Advertising 32,419 28,622 11,607 7,953
Data processing 71,378 67,794 26,520 31,002
Other 230,278 197,395 78,880 60,007
------------ ------------ ------------ ------------
Total noninterest expense 2,082,453 1,507,137 570,369 484,887
------------ ------------ ------------ ------------
Income before provision (benefit)
for income taxes 213,914 20,161 227,562 110,074
Provision (benefit) for income taxes (517,189) 7,400 87,885 42,511
------------ ------------ ------------ ------------
Net Income $ 731,103 12,761 139,677 67,563
============ ============ ============ ============
Net income per share $ 2.17 n/a 0.42 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
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1997 1996
------------ ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 731,103 12,761
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 89,384 82,079
Provision for losses on loans 180,000 65,000
Amortization of premiums and discounts, net 14,317 (50,517)
Deferred loan origination fees, net of costs 57,507 50,968
(Gain) loss on sales of mortgage-backed
securities and investment securities (1,844) 71,436
Loss on sales of loans -- 421
Loans originated for sale, net -- (270,671)
Proceeds from sale of mortgage loans
originated for sale -- 270,250
Decrease in deferred income taxes (640,000) (73,091)
Decrease in taxes recoverable -- 204
Decrease (increase) in accrued interest on
investments, prepaid expenses and other assets 1,594 (272,220)
Increase in accrued expenses and other liabilities 203,083 211,482
------------ ----------
Net cash provided by operating activities 635,144 98,102
Cash flows from investing activities:
Loan principal disbursements (12,527,596) (8,642,000)
Loan principal repayments 6,020,945 4,263,474
Purchase of loan participations (390,500) (676,263)
Purchase of whole loans 2,227,155) (443,823)
Purchase of common stock for the Patapsco Bancorp, Inc.
Management Recognition Plan Trust (423,724) --
Purchase of capital stock, required by law (131,550) --
Purchase of mortgage-backed securities available-for-sale -- (2,895,020)
Proceeds from maturing:
Investment securities available-for-sale 2,500,000 2,000,000
Investment securities held-to-maturity -- 2,000,000
Purchase of property and equipment (167,182) (34,828)
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
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
-----------------------------
1997 1996
------------- -----------
<S> <C> <C>
Cash flows from investing activities (continued):
Principal repayments on:
Mortgage-backed securities available-for-sale $ 722,492 1,248,318
Mortgage-backed securities held-to-maturity -- 1,268,790
----------- ----------
Net cash (used in) provided by investing activities (2,288,486) 969,020
Cash flows from financing activities:
Net increase in savings accounts 1,341,002 2,136,104
Decrease in advance payments by borrowers
for taxes, insurance and ground rents (212,925) (223,638)
Subscriptions received for the purchase of
common stock in Patapsco Bancorp, Inc. -- 4,430,406
Decrease in advances from Federal Home Loan
Bank of Atlanta -- (3,500,000)
----------- ----------
Net cash provided by financing activities 1,128,077 2,842,872
----------- ----------
Net (decrease) increase in cash and cash equivalents $ (525,265) 3,909,994
Cash and cash equivalents at beginning of period 7,424,465 2,482,154
----------- ----------
Cash and cash equivalents at end of period $ 6,899,200 6,392,148
=========== ==========
Supplemental information:
Interest paid on savings deposits and
borrowed funds $ 2,018,159 2,345,935
Income taxes paid 151,900 --
(Decrease) increase in unrealized holding losses on
securities available-for-sale, net of income tax effect (27,061) 70,023
</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 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,
in the opinion of management, are necessary for the fair presentation of the
interim financial statements have been included. Such adjustments were of a
normal recurring nature. The results of operations for the nine and three months
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the entire year.
6
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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: REGULATORY CAPITAL REQUIREMENTS
At March 31, 1997, the Bank met each of the three minimum regulatory capital
requirements. The following table summarizes the Bank's regulatory capital
position at March 31, 1997:
<TABLE>
<CAPTION>
Risk-based capital ratios
Total Leverage
Tier 1 Capital Ratio
---------------------------------------
<S> <C> <C> <C>
Actual 24.12% 24.93% 13.22%
Minimum 4.00% 8.00% 4.00%
- --------------------------------------------------------------------------
Excess 20.12% 16.93% 9.22%
- --------------------------------------------------------------------------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND JUNE 30, 1996
The Company's assets increased by $1.1 million or 1.4% to $79.9 million at
March 31, 1997 from $78.8 million at June 30, 1996. During the nine months ended
March 31, 1997, the Company continued to reconfigure its balance sheet by
emphasizing the origination of loans and reducing its level of investments in
investment securities and mortgage-backed securities. The Company's net loans
receivable increased by $8.9 million or 17.1% to $60.9 million at March 31, 1997
from $52.0 million at June 30, 1996. The $8.9 million increase in net loans
receivable was comprised of $4.1 million residential real estate loans, $1.9
million consumer loans, $1.7 million commercial loans and $1.2 million
commercial real estate loans. The Company's investment securities decreased by
$2.5 million or 56.8% to $1.9 million at March 31, 1997 from $4.4 million at
June 30, 1996 due to the maturity of a security. The Company's mortgage-backed
securities decreased by $5.1 million or 39.8 % to $7.7 million at March 31, 1997
from $12.8 million at June 30, 1996, as a result of the sale and principal
repayment of $4.3 million and $723,000, respectively of mortgage-backed
securities classified as available-for-sale. The intended use of the proceeds
from the sale and principal repayment of mortgage-backed securities is to fund
loan originations which are anticipated to have higher yields. Savings deposits
increased by $1.3 million or 2.0% to $65.5 million at March 31, 1997 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 $334,000 or
2.7% to $12.6 million at March 31, 1997 from $12.3 million at June 30, 1996. The
increase in stockholders' equity was due primarily to the $731,000 in net income
and a $27,000 decrease in the unrealized net holding losses on available-for-
sale investment portfolios, net of taxes, partially off-set by the $424,000
purchase of 14,502 shares of Company common stock by the Company's Management
Recognition Plan Trust.
COMPARISON OF OPERATING RESULTS FOR THE QUARTER AND NINE MONTHS ENDED
MARCH 31, 1997 AND MARCH 31, 1996
Net Income
- ----------
The Company reported net income of $140,000 for the quarter ended March 31,
1997 as compared to $68,000 for the quarter ended March 31, 1996. The $72,000
increase in net income was primarily due to higher net interest income, offset
slightly by increases in noninterest expenses and provision for loan losses. The
Company's net income for the nine months ended March 31, 1997 was $731,000 as
compared to $13,000 for the nine months ended March 31, 1996. Net income for the
nine months ended March 31, 1997 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
8
<PAGE>
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
the Savings Association Insurance Fund ("SAIF"). Excluding these one-time
charges, the Company would have generated net income of approximately $386,000
for the nine months ended March 31, 1997. The $373,000 increase in net income,
after adjustments, was primarily attributable to higher net interest income
partially offset by a higher provision for loan losses during the nine months
ended March 31, 1997. Also, results for the nine months ended March 31, 1996
were adversely effected by losses from the sale of investment securities.
Net income for the quarter and nine months ended March 31, 1997, as compared
to the same periods ended March 31, 1996, 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 $141,000 or 10.8% to $1.5 million for the
quarter ended March 31, 1997 from $1.3 million for the quarter ended March 31,
1996. Total interest income increased by $404,000 or 10.4% to $4.3 million for
the nine months ended March 31, 1997 from $3.9 million for the nine months ended
March 31, 1996. The increase in the Company's total interest income for the
quarter ended March 31, 1997 as compared to the quarter ended March 31, 1996 was
due to an increase of $3.7 million in the average balance of interest-earning
assets to $77.8 million from $74.1 million and an increase of 40 basis points in
the average yield on interest-earning assets to 7.55% from 7.15%.
The increase in the Company's total interest income for the nine months ended
March 31, 1997 as compared to the nine months ended March 31, 1996 was due to an
increase of $2.6 million in the average balance of interest-earning assets to
$77.3 million from $74.7 million and an increase of 45 basis points in the
average yield on interest-earning assets to 7.46% from 7.01%. 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 securities and mortgage-
backed securities to loans receivable.
Interest Expense
- ----------------
Total interest expense decreased by $97,000 or 12.8% to $658,000 for the
quarter ended March 31, 1997 from $755,000 for the quarter ended March 31,
1996. Total interest expense decreased by $327,000 or 14.2% to $2.0 million for
the nine months ended March 31, 1997 from $2.3 million for the nine months
ended March 31, 1996. The decrease in the Company's interest expense during the
quarter and nine months ended March 31, 1997 as compared to the same periods
ended March 31, 1996 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
9
<PAGE>
savings deposits. As a result, the average balance and average rate of interest-
bearing liabilities decreased by $3.9 million and 33 basis points to $63.3
million and 4.16% during the quarter ended March 31, 1997 from $67.2 million
and 4.49% during the same quarter in 1996, respectively. Comparing the nine
months ended March 31, 1997 to the nine months ended March 31, 1996, the
average balance and average rate of interest-bearing liabilities decreased by
$4.9 million and 34 basis points to $63.0 million and 4.27% from $67.9 million
and 4.61%, respectively.
Net Interest Income
- -------------------
The Company's net interest income increased by $238,000 or 41.7% to $809,000
for the quarter ended March 31, 1997 from $571,000 for the quarter ended March
31, 1996. The increase in net interest income was primarily due to an increase
of 74 basis points in the interest rate spread (yield on average interest-
earning assets less the rate paid on average interest-bearing liabilities) to
3.39% from 2.65% and an increase in the ratio of average interest-earning assets
to average interest bearing liabilities to 122.9% from 110.3%.
The Company's net interest income increased by $731,000 or 45.7% to $2.3
million for the nine months ended March 31, 1997 from $1.6 million for the nine
months ended March 31, 1996. The Company's interest rate spread increased 79
basis points during the comparable nine months periods and the Company's yield
on interest-earning assets increased 116 basis points to 3.98% for the nine
months ended March 31, 1997 from 2.82% during the same nine months in 1996. The
proceeds from the Company's stock conversion was a major influence in the
increased interest rate spread and 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 but carry
greater credit risk.
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
10
<PAGE>
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 March 31,
--------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
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) $59,245 1,183 7.99% $45,364 887 7.82%
Investment securities 1,989 37 7.44% 8,717 128 5.87%
Mortgage-backed securities 7,871 121 6.15% 16,523 261 6.32%
Federal funds sold and other
interest-earning assets 8,651 126 5.83% 3,533 49 5.55%
------- -------- -------- ------- -------- --------
Total interest earning assets 77,756 1,467 7.55% 74,137 1,325 7.15%
-------- -------- -------- --------
Noninterest-earning assets 1,688 2,063
------- -------
Total assets $79,444 $76,200
======= =======
Interest-bearing liabilities:
Savings deposits (3) $63,284 658 4.16% $65,108 729 4.48%
Borrowings -- -- -- 2,093 26 4.97%
------- -------- -------- ------- -------- --------
Total interest-bearing liabilities 63,284 658 4.16% 76,201 755 4.49%
-------- -------- -------- --------
Noninterest-bearing liabilities 3,520 2,972
------- -------
Total liabilities 66,804 70,173
Stockholders' equity 12,640 6,027
------- -------
Total liabilities and stockholders' $79,444 $76,200
======= =======
Net interest income $809 $570
======== ========
Interest rate spread 3.39% 2.65%
======== ========
Net yield on interest-earning assets 4.16% 3.08%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 122.87% 110.32%
======== ========
</TABLE>
- --------------------------------------------------
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
12
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended March 31,
------------------------------------------------------
1997 1996
-------------------------- --------------------------
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) $56,772 3,404 7.99% $43,790 2,524 7.69%
Investment securities 3,238 154 6.34% 12,121 517 5.69%
Mortgage-backed securities 8,966 414 6.16% 15,728 753 6.38%
Federal funds sold and other
interest-earning assets 8,372 358 5.70% 3,057 132 5.76%
------- ----- ------ ------- ------ ------
Total interest earning assets 77,348 4,330 7.46% 74,696 3,926 7.01%
Noninterest-earning assets 1,717 1,785
------- -------
Total assets $79,065 $76,481
======= =======
Interest-bearing liabilities:
Savings deposits (3) $63,042 2,019 4.27% $63,747 2,167 4.53%
Borrowings -- -- -- 4,133 179 5.77%
------- ------ ------ ------- ------ ------
Total interest-bearing liabilities 63,042 2,019 4.27% 67,880 2,346 4.61%
------ ------
Noninterest-bearing liabilities 3,425 2,537
------- -------
Total liabilities 66,467 70,417
Stockholders' equity 12,598 6,064
------- -------
Total liabilities and stockholders' equity $79,065 $76,481
======= =======
Net interest income $2,311 $1,580
====== ======
Interest rate spread 3.19% 2.40%
====== ======
Net yield on interest-earning assets 3.98% 2.82%
====== ======
Ratio of average interest-bearing liabilities
to average interest-bearing liabilities 122.69% 110.04%
</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
$180,000 for the quarter and nine month periods ended March 31, 1997,
respectively from $3,000 and $65,000 for the quarter and nine month periods
ended March 31, 1996, respectively. The increased provisions for loan losses for
the quarter and nine months ended March 31, 1997 were 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 0.63% and 0.46% at March 31, 1997 and June
30, 1996, 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 0.56% at March 31, 1997 from 0.42% at June 30, 1996.
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 $22,000 to $49,000 for the quarter ended March
31, 1997 from $27,000 for the quarter ended March 31, 1996. Total noninterest
income increased by $153,000 to $165,000 for the nine months ended March 31,
1997 from $12,000 for the nine months ended March 31, 1996. The increases in
noninterest income were primarily due to increases in fees and service charges
of $20,000 and $75,000 during the quarter and nine months ended March 31, 1997,
respectively as compared to the same periods ended March 31, 1996, and a $72,000
loss from the sale of investment securities during the nine months ended March
31, 1996. The increases in fees and service charges were primarily related to
commercial checking accounts.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by $85,000 or 17.5% to $570,000 for the
quarter ended March 31, 1997 from $485,000 for the quarter ended March 31, 1996.
The increase in noninterest expenses was primarily due to an increase in
compensation and employee benefits expense offset slightly by a decrease in
insurance premiums. Compensation and employee benefits expense increased by
$105,000 or 41.2% to $360,000 for the quarter ended March 31, 1997 from $255,000
for the quarter ended March 31, 1996. 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 $30,000 or 62.5% to $18,000 for the quarter ended March 31,
1997 from $48,000 for the same quarter in 1996 as a result of lower FDIC deposit
insurance premiums previously discussed.
14
<PAGE>
Total noninterest expenses increased by $575,000 or 38.3% to $2.1 million for
the nine months ended March 31, 1997 from $1.5 million for the nine months ended
March 31, 1996. As discussed earlier, the Company incurred a $415,000 one-time
deposit insurance premium expense during the nine months ended March 31, 1997
and a $74,000 one-time charge relating to the adoption of a directors retirement
plan during the nine months ended March 31, 1996. Excluding those one-time
adjustments, the Company's noninterest expense would have increased by $234,000
or 16.7% to $1.7 million for the nine months ended March 31, 1997 from $1.4
million for the nine months ended March 31, 1996. The increase in noninterest
expense is primarily related to a $185,000 or 22.1% increase in compensation and
employee benefits expense during the nine months ended March 31, 1997 as
compared to the same period in 1996. 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 March
31, 1997, the Company's cash on hand, interest-bearing deposits and Federal
funds sold totaled $6.9 million.
The Company anticipates that it will have sufficient funds available to meet
its current loan origination, unused lines-of-credit and undisbursed
construction loans-in-process commitments of approximately $3.5 million,
$580,000 and $422,000, respectively. Certificates of deposit which are scheduled
to mature in less than one year at March 31, 1997 totaled $26.4 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 predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, competition and other factors.
15
<PAGE>
The Company's primary uses of cash in investing activities during the nine
months ended March 31, 1997, were the origination and purchase of $12.5 million
and $2.6 million of loans, respectively. The Company's primary sources of cash
from investing activities during the nine months ended March 31, 1997 were the
sale of $4.3 million of mortgage-backed securities and the principal repayment
of $6.0 million, $2.5 million and $722,000 of loans, investment securities and
mortgage-backed securities, respectively.
The Company's primary use of cash in financing activities during the nine
months ended March 31, 1997 consisted of $213,000 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 nine months ended March 31, 1997 consisted primarily of a $1.3 million net
increase in savings deposits.
As discussed in Note 4 - 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
requires, 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.
In March 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, Earnings Per Share (SFAS 128). SFAS 128 is effective for periods ending
after December 15, 1997. Management does not believe the adoption of this
statement will 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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as part of this
Form 10-QSB:
Exhibit 27 - Financial Data Schedule
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.
Date: May 9, 1997 /s/ Joseph J. Bouffard
--------------------------------------
Joseph J. Bouffard
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 1997 /s/ Timothy C. King
-------------------------------------
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> 9-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> JUL-01-1996 JAN-01-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 174,978 174,978
<INT-BEARING-DEPOSITS> 52,052 52,052
<FED-FUNDS-SOLD> 6,672,170 6,672,170
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 9,673,089 9,673,089
<INVESTMENTS-MARKET> 9,673,089 9,673,089
<LOANS> 60,902,913 60,902,913
<ALLOWANCE> 347,157 347,157
<TOTAL-ASSETS> 79,918,710 79,918,710
<DEPOSITS> 65,497,890 65,497,890
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,785,238 1,785,238
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 3,626 3,626
<OTHER-SE> 12,631,956 12,631,956
<TOTAL-LIABILITIES-AND-EQUITY> 79,918,710 79,918,710
<INTEREST-LOAN> 3,403,793 1,183,085
<INTEREST-INVEST> 568,468 157,311
<INTEREST-OTHER> 357,806 126,215
<INTEREST-TOTAL> 4,330,067 1,466,611
<INTEREST-DEPOSIT> 2,019,077 657,605
<INTEREST-EXPENSE> 2,019,077 657,605
<INTEREST-INCOME-NET> 2,310,990 809,006
<LOAN-LOSSES> 180,000 60,000
<SECURITIES-GAINS> 1,844 0
<EXPENSE-OTHER> 2,082,453 570,369
<INCOME-PRETAX> 213,914 227,562
<INCOME-PRE-EXTRAORDINARY> 213,914 227,562
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 731,103 139,677
<EPS-PRIMARY> 2.17 0.42
<EPS-DILUTED> 2.17 0.42
<YIELD-ACTUAL> 7.46 7.55
<LOANS-NON> 390,000 390,000
<LOANS-PAST> 390,000 390,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 219,001 313,743
<CHARGE-OFFS> 53,443 27,297
<RECOVERIES> 1,599 711
<ALLOWANCE-CLOSE> 347,157 347,157
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
