<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 September 30, 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
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(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 November 10, 1997, the issuer had 362,553 shares of Common Stock
issued and outstanding.
Traditional Small Business Disclosure Format (check one):
Yes No X
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CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
---------------------
Item I. Financial Statements
Consolidated Statements of Financial Condition at September
30, 1997 and June 30, 1997 ...................................... 2
Consolidated Statements of Income for the Three Month
Periods Ended September 30, 1997 and 1996 ....................... 3
Consolidated Statements of Cash Flows for the Three Month
Periods Ended September 30, 1997 and 1996 ....................... 4
Notes to Consolidated Financial Statements ...................... 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................ 7-14
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings ................................................ 15
Item 2. Changes in Securities ............................................ 15
Item 3. Defaults Upon Senior Securities .................................. 15
Item 4. Submission of Matters to a Vote of Security Holders .............. 15
Item 5. Other Information ................................................ 15
Item 6. Exhibits and Reports on Form 8-K ................................ 15
SIGNATURES ................................................................ 16
</TABLE>
1
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PATAPSCO BANCORP, iNC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- ---------
<S> <C> <C>
Assets
------
Cash:
On hand and due from banks $ 704,293 161,895
Interest bearing deposits in other banks 113,113 3,698
Federal funds sold 4,526,101 4,947,594
Investment securities, at fair value 7,007,810 1,989,380
Mortgage-backed securities, at fair value 2,217,565 7,678,517
Loans receivable, net 71,556,989 66,236,126
Investment in securities required by law, at cost 631,550 622,050
Property and equipment, net 1,102,985 1,117,454
Deferred income taxes -- 236,000
Accrued interest, prepaid expenses and other assets 757,131 656,822
============ ===========
Total assets $ 88,617,537 83,649,536
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings deposits:
Interest bearing deposits $ 66,285,240 66,214,826
Non-interest bearing deposits 1,874,917 3,937,467
Borrowings 10,600,000 2,700,000
Accrued expenses and other liabilities 1,346,138 2,463,240
Accrued dividends payable 36,255 --
Deferred income taxes 13,224 --
------------ ----------
Total liabilities 80,155,774 75,315,533
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 2,249,725 2,249,725
Contra equity - Employee stock ownership plan (ESOP) (464,064) (464,064)
Contra equity - Management recognition plan (MRP) (423,724) (423,724)
Retained income, substantially restricted 7,093,815 6,992,716
Unrealized net holding gains (losses) on available-for-sale
portfolios, net of taxes 2,385 (24,276)
------------ ----------
Total stockholders' equity 8,461,763 8,334,003
============ ==========
Total liabilities and stockholders' equity $ 88,617,537 83,649,536
============ ==========
</TABLE>
See accompanying notes to financial statements.
2
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For Three Months Ended
September 30,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
Interest income:
Loans receivable $ 1,443,883 1,097,474
Mortgage-backed securities 100,647 169,969
Investment securities 112,337 64,620
Federal funds sold and other investments 32,598 103,350
------------ -----------
Total interest income 1,689,465 1,435,413
------------ -----------
Interest expense:
Savings Deposits 697,932 681,473
Borrowings 130,174 --
------------ -----------
Total interest expense 828,106 681,473
------------ -----------
Net interest income 861,359 753,940
Provision for losses on loans 60,000 60,000
------------ -----------
Net interest income after provision
for losses on loans 801,359 693,940
------------ -----------
Noninterest income:
Fees and service charges 60,693 46,358
Net gain (loss) on sales of securities (9,222) 1,844
Other 3,576 4,616
------------ -----------
Total noninterest income 55,047 52,818
------------ -----------
Noninterest expenses:
Compensation and employee benefits 409,028 299,043
Insurance premiums 17,358 468,123
Professional fees 34,434 27,000
Equipment expense 33,122 26,497
Net occupancy costs 23,414 21,524
Advertising 12,619 10,116
Data processing 26,259 21,864
Other 81,879 72,524
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Total noninterest expense 638,113 946,691
------------ -----------
Income (loss) before provision (benefit)
for income taxes 218,293 (199,933)
Provision (benefit) for income taxes 80,938 (677,049)
============ ===========
Net income $ 137,355 477,116
============ ===========
Primary net income per share $ 0.40 1.42
============ ===========
Weighted average number of
shares outstanding 339,349 336,449
============ ===========
</TABLE>
See accompanying notes to financial statements.
3
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 137,355 477,116
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 34,195 28,285
Provision for losses on loans 60,000 60,000
Amortization of premiums and discounts, net 9,009 5,029
Deferred loan origination fees, net of costs 35,735 20,492
(Gain) loss on sales of mortgage-backed
securities and investment securities 9,222 (1,844)
Change in deferred income taxes (249,224) (631,000)
Increase in accrued interest on investments,
prepaid expenses and other assets (100,309) (20,034)
Increase in accrued expenses and other liabilities (1,080,847) (481,802)
----------- -----------
Net cash used in operating activities (1,144,864) (543,758)
----------- -----------
Cash flows from investing activities:
Loan principal disbursements, net of repayments (4,242,503) (1,404,657)
Purchase of loans (756,900) (1,831,505)
Purchase of stock in Federal Home Loan Bank of Atlanta 9,500 --
Purchase of stock in Federal Reserve Bank of Richmond -- (101,550)
Purchase of investment securities available-for-sale (5,028,125) --
Principal repayment on mortgage-backed securities
available-for-sale 2,515,384 306,825
Purchase of property and equipment (19,726) (59,751)
Sale of mortgage-backed securities available-for-sale 2,989,690 4,335,784
----------- -----------
Net cash (used in) provided by
investing activities (4,532,680) 1,245,146
Cash flows from financing activities:
Net increase (decrease) in deposits (1,992,136) 710,803
Increase in borrowings 7,900,000 --
----------- -----------
Net cash provided by financing activities 5,907,864 710,803
----------- -----------
Net increase in cash and cash equivalents $ 230,320 1,412,191
Cash and cash equivalents at beginning of period 5,113,187 7,424,465
----------- -----------
Cash and cash equivalents at end of period $ 5,343,507 8,836,656
=========== ===========
Supplemental information:
Interest paid on deposits and borrowed funds $ 827,552 683,107
Income taxes paid 135,000 5,400
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Patapsco Bancorp,
Inc. ("the Company") and its wholly-owned subsidiary, The Patapsco Bank ("the
Bank"). All intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements.
NOTE 2: THE PATAPSCO BANK
The Bank is regulated by The Federal Reserve Bank of Richmond ("the 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 3: 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. Such adjustments were of a
normal recurring nature. The results of operations for the three months ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the entire year.
NOTE 4: 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.
5
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NOTE 5: REGULATORY CAPITAL REQUIREMENTS
At September 30, 1997, the Company and the Bank met each of the three minimum
regulatory capital requirements. The following table summarizes the Company's
and Bank's regulatory capital position at September 30, 1997 (in thousands).
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Patapsco Bancorp, Inc.:
Total Capital (to Risk
Weighted Assets) $ 8,459 17.15% $ 3,988 8.00% $ 4,985 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $ 8,916 17.88% $ 1,994 4.00% $ 2,991 6.00%
Tier 1 Capital (to Average
Assets) $ 8,916 10.20% $ 3,496 4.00% $ 4,375 5.00%
The Patapsco Bank:
Total Capital (to Risk
Weighted Assets) $ 7,960 16.13% $ 3,948 8.00% $ 4,935 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $ 8,417 17.05% $ 1,974 4.00% $ 2,961 6.00%
Tier 1 Capital (to Average
Assets) $ 8,417 9.68% $ 3,476 4.00% $ 4,345 5.00%
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in this Form 10-QSB, the words or phases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company' market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation,
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND JUNE 30, 1997
The Company's assets increased by $5.0 million or 6.0% to $88.6 million at
September 30, 1997 from $83.6 million at June 30, 1997. The Company's net loans
receivable increased by $5.3 million or 8.0% to $71.6 million at September 30,
1997 from $66.2 million at June 30, 1997. The increase in net loans receivable
was comprised of $2.5 million residential real estate loans, $1.2 million
construction loans, $1.0 million consumer loans, $300,000 commercial real estate
loans and $300,000 in commercial loans. The growth of the loan portfolio was
primarily funded through the use of borrowings from the Federal Home Loan Bank
of Atlanta ("FHLB") The Company's mortgage-backed securities decreased by $5.5
million or 71.4 % to $2.2 million at September 30, 1997 from $7.7 million at
June 30, 1997, as a result of the sale of $3.0 million of securities classified
as available-for-sale and principal repayment of $2.5 million. 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. The Company's
investment securities portfolio increased by $5.0 million or 250.0% to $7.0
million at September 30, 1997 from $2.0 million at June 30, 1997. The Company
purchased a $5.0 million investment security through a leveraged transaction
which was funded from a $5.0 million borrowing from the FHLB having similar
maturities and a net interest rate spread of approximately 93 basis points.
7
<PAGE>
The Company's borrowings increased by $7.9 million or 292.6% to $10.6
million at September 30, 1997 from $2.7 million at June 30, 1997. Deposits
decreased by $2.0 million or by 2.8% to $68.2 million at September 30, 1997 from
$70.2 million at June 30, 1997. The decrease in deposits was largely
attributable to the $1.6 million decrease in the Company's checking account with
the Bank which was established at year-end to pay the return of capital
distribution to shareholders. Also contributing to the decrease in deposits was
the payment of $1.0 million in property tax assessments paid from borrower's
escrow accounts. Excluding the return of capital and property tax payments, the
Company's deposits would have increased by approximately $600,000 during the
quarter ended September 30, 1997 which is largely attributable to interest
crediting. The increase in stockholders' equity was due primarily to the
$101,000 increase in retained income and an increase of $27,000 in the
unrealized net holding losses on available-for-sale investment portfolios, net
of taxes.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1996
Net Income
- ----------
The Company reported net income of $137,000 for the quarter ended September
30, 1997 as compared to net income of $477,000 for the quarter ended September
30, 1996. Net income for the quarter ended September 30, 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 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 the Savings Association Insurance Fund
of the Federal Deposit Insurance Corporation. Excluding these one-time events,
the Company's net income would have increased by $5,000, or 3.8%, during the
quarter ended September 30, 1997 as compared to $132,000 for the quarter ended
September 30, 1996.
Interest Income
- ---------------
Total interest income increased by $254,000 or 18.1% to $1.7 million for
the quarter ended September 30, 1997 from $1.4 million for the quarter ended
September 30, 1996. The increase in the Company's total interest income for the
quarter ended September 30, 1997 as compared to the quarter ended September 30,
1996 was due to an increase of $7.7 million in the average balance of interest-
earning assets to $84.9 million from $77.2 million and an increase of 52 basis
points in the average yield on interest-earning assets to 7.96% from 7.44%. The
increase in the average balance and average yield is primarily due to the growth
in the Company's loan portfolio as discussed below.
8
<PAGE>
Interest income on loans receivable increased by $346,000 or 31.5% to $1.4
million for the quarter ended September 30, 1997 from $1.1 million for the
quarter ended September 30, 1996. The increase in interest income on loans
receivable is primarily due to an increase of $16.0 million, or 28.1% in the
average balance of loans receivable to $69.7 million from $54.4 million and an
increase of 23 basis points in the average yield on loans receivable to 8.29%
from 8.06%.
Interest income on mortgage-backed securities decreased by $69,000 or 40.6%
to $101,000 for the quarter ended September 30, 1997 from $170,000 for the
quarter ended September 30, 1996. The decrease in interest income was primary
attributable to a decrease of $4.0 million in the average balance of mortgage-
backed securities to $6.5 million from $10.5 million and a decrease of 35 basis
points in the average yield to 6.11% from 6.46%.
Interest income on investment securities increased by $47,000 or 72.3% to
$112,000 for the quarter ended September 30, 1997 from $65,000 for the quarter
ended September 30, 1996. The increase in interest income was primary
attributable to an increase of $2.0 million in the average balance of
investment securities to $6.5 million from $4.5 million and an increase of 108
basis points in the average yield to 6.87% from 5.79%.
Interest income on federal funds sold and other investments decreased by
$70,000 or 68.0% to $33,000 for the quarter ended September 30, 1997 from
$103,000 for the quarter ended September 30, 1996. Other investments consists
of investments in the FHLB and the Federal Reserve Bank. The decrease in
interest income was largely due to the decrease of $5.7 million in the average
balance of federal funds sold and other investments to $2.1 million from $7.8
million.
INTEREST EXPENSE
- ----------------
Total interest expense increased by $147,000 or 21.6% to $828,000 for the
quarter ended September 30, 1997 from $682,000 for the quarter ended September
30, 1996. The increase in interest expense was primarily due to an increase of
$12.2 million in the average balance of interest-bearing liabilities to $75.0
million from $62.8 million and an increase of 8 basis points in the average rate
paid to 4.42% from 4.34%.
Interest expense on deposits increased by $17,000 or 2.5% to $698,000 for
the quarter ended September 30, 1997 from $681,000 for the quarter ended
September 30, 1996. The increase in interest expense on deposits was primarily
attributable to an increase of $3.6 million in the average balance of interest-
bearing deposits to $66.4 million during the quarter ended September 30, 1997
from $62.8 million during the quarter ended September 30, 1996. The increase in
the average balance was offset slightly by a decrease of 14 basis points in the
average rate paid on interest-bearing deposits.
The Company incurred $130,000 of interest expense on borrowings during the
quarter ended September 30, 1997. The Company had no borrowings during the
quarter ended September 30, 1996 and therefore no expense. During the quarter
ended September 30, 1997, the
9
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Company borrowed $10.6 million from the FHLB and paid off a $2.7 million
borrowing from another financial institution. The average balance of borrowings
outstanding during the quarter ended September 30, 1997 was $8.5 million with an
average rate of 6.08%. The borrowings were used to fund loan growth and the
purchase of a $5.0 million investment security.
Net Interest Income
- -------------------
The Company's net interest income increased by $107,000 or 14.2% to
$861,000 for the quarter ended September 30, 1997 from $754,000 for the quarter
ended September 30, 1996. The increase in net interest income was primarily due
to an increase of 44 basis points in the interest rate spread (net yield on
average interest-earning assets less the rate paid on average interest-bearing
liabilities) to 3.54% from 3.10% offset slightly by the decrease in the ratio of
average interest-earning assets to average interest-bearing liabilities to
113.3% from 122.9%.
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 table 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 table 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.
10
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<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------
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) $69,711 $ 1,444 8.29% $54,448 $ 1,097 8.06%
Investment securities 6,524 112 6.87% 4,487 65 5.79%
Mortgage-backed securities 6,545 100 6.11% 10,527 170 6.46%
Federal funds sold and other
interest-earning assets 2,147 33 6.15% 7,730 103 5.33%
------- -------- -------- ------- -------- --------
Total interest earning assets 84,927 1,689 7.96% 77,192 1,435 7.44%
-------- -------- -------- --------
Noninterest-earning assets 1,979 1,809
------- -------
Total assets $86,906 $79,001
======= =======
Interest-bearing liabilities:
Deposits (3) $66,413 $ 698 4.20% $62,807 $ 681 4.34%
Borrowings 8,548 130 6.08% -- -- --
------- -------- -------- ------- -------- --------
Total interest-bearing liabilities 74,961 828 4.42% 62,807 681 4.34%
-------- -------- -------- --------
Noninterest-bearing liabilities 3,541 3,373
------- -------
Total liabilities 78,502 66,180
Stockholders' equity 8,404 12,821
------- -------
Total liabilities and stockholders' equity $86,906 $79,001
======= =======
Net interest income $ 861 $ 754
======== ========
Interest rate spread 3.54% 3.10%
======== ========
Net yield on interest-earning assets 4.06% 3.91%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 113.29% 122.90%
======== ========
</TABLE>
- ------------------------------------
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
11
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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 provided $60,000 for loan losses during each of the
quarters ended September 30, 1997 and September 30, 1996. The provision for
loan losses were made due to the Company's higher levels of consumer,
construction and commercial loans, which generally entail a greater risk than
single-family residential loans. The Company has increased its allowance for
loan losses as a percentage of total loans outstanding, net of unearned
origination fees to 0.64% at September 30, 1997 from 0.47% at September 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 $2,000 or 3.8% to $55,000 for the quarter ended
September 30, 1997 from $53,000 for the quarter ended September 30, 1996. The
increase in noninterest income is primarily due to a $13,000 increase in fees
and other service charges primarily related to checking accounts. Noninterest
income also included a $9,200 loss during the quarter ended September 30, 1997
and an $1,800 gain from the sale of mortgage-backed securities during the
quarter ended September 30, 1996.
Noninterest Expenses
- --------------------
Total noninterest expenses decreased by $309,000 to $638,000 for the
quarter ended September 30, 1997 from $947,000 for the quarter ended September
30, 1996. As discussed earlier, the Company incurred a $415,000 one time
deposit insurance premium expense during the quarter ended September 30, 1996.
Excluding the one time deposit insurance premium, the Company's noninterest
expenses would have increased by $106,000 or 19.9%, from $532,000 for the
quarter ended September 30, 1996. The increase in noninterest expenses was
primarily due to increases in compensation and employee benefits expense.
Compensation and employee benefits expense increased by $110,000 or 36.8%, to
$409,000 for the quarter ended September 30, 1997 from $299,000 for the quarter
ended September 30, 1996. The increase was largely attributable to expenses
related to the Company's MRP, ESOP and incentive compensation plan. The
Company's other expenses, consisting primarily of professional fees, equipment
expense, net occupancy costs, advertising and data processing expenses increased
by $32,000 during the quarter ended September 30, 1997 as compared to the
quarter ended September 30, 1996. The Company's insurance premiums decreased by
$36,000, after adjusting for the $415,000 one time deposit insurance premium, as
a result of a lower premium assessment rate.
12
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Income Taxes
- ------------
The Company's provision for income taxes was $81,000 during the quarter
ended September 30, 1997. During the quarter ended September 30, 1996, the
Company had a tax benefit of $677,000. As discussed earlier, the Company
reversed $600,000 of income tax expense during the quarter ended September 30,
1996 and recorded a $160,000 tax benefit from the one time insurance premium of
$415,000. After adjusting for those one time charges the Company's provision
for income taxes would have been $83,000 for the quarter ended September 30,
1996.
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. The
Company'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 September 30, 1997, the Company's cash on hand, interest-bearing deposits and
Federal funds sold totaled $5.3 million. In addition, the Company has
approximately $9.2 million of investment securities and mortgage-backed
securities classified as available-for-sale.
The Company anticipates that it will have sufficient funds available to
meet its current loan commitments of $2.5 million. Certificates of deposits
which are scheduled to mature in less than one year at September 30, 1997
totaled $28.6 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.
The Company's primary uses of cash in investing activities during the
quarter ended September 30, 1997 were loans disbursements, net of repayments, of
$5.0 million and the purchase of a $5.0 million investment security. The
Company's primary sources of cash
13
<PAGE>
provided from investing activities during the quarter ended September 30, 1997
were the sale and repayment of $3.0 million and $2.5 million of mortgage-backed
securities, respectively.
The Company's primary use of cash in financing activities during the
quarter ended September 30, 1997 consisted of a $2.0 million decrease in
deposits. The Company's primary source of cash provided by financing activities
during the quarter ended September 30, 1997 consisted primarily of a $7.9
million increase in borrowings.
As discussed in Note 5 - Regulatory Capital Requirements, the Company and
the Bank exceeded all regulatory minimum capital requirements.
Impact of New Accounting Standards
- ----------------------------------
Earnings per Share. In February 1997, the FASB issued SFAS No 128,
"Earnings per Share," which is effective for the financial statements issued for
the periods ending after December 15, 1997. SFAS No. 128 establishes standards
for computing and presenting earnings per share ("EPS") and replaces the
presentation of primary EPS with a presentation of basic EPS. It requires dual
presentation of basic and diluted EPS on the face of the consolidated statement
of income and the reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS computation.
Earlier application is not permitted but disclosure of pro forma EPS amounts
computed using the standards established by SFAS No. 128 is permitted in the
notes to financial statements for periods ending prior to the effective date.
Management believes the adoption of the provisions of this statement will not
have a significant effect on the Company's EPS.
Reporting Comprehensive Income. In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. It does not, however,
specify when to recognize or how to measure items that make up comprehensive
income. SFAS No. 130 is effective for both interim and annual periods beginning
after December 31, 1997. Earlier application is permitted. Comparative
financial statements provided for earlier periods are required to be
reclassified to reflect the provisions of this statement. Management has not
determined when it will adopt the provisions of SFAS No. 130 but believes that
it will not have a material effect on the financial condition or results of
operations of the Company.
Disclosures about Segments of an Enterprise and Related Information. In
June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. Earlier
application is encouraged. Management has not determined when it will adopt the
provisions of SFAS No. 131 but believes that it will not have a material effect
on the financial condition or results of operations of the Company.
14
<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 herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
15
<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: November 10, 1997 ----------------------------------------------
Joseph J. Bouffard
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Timothy C. King
Date: November 10, 1997 ----------------------------------------------
Timothy C. King
Vice President and Controller
(Principal Financial and Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PATAPSCO
BANCORP, INC. AND SUBSIDIARY FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 704,293
<INT-BEARING-DEPOSITS> 113,113
<FED-FUNDS-SOLD> 4,526,101
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 9,225,375
<INVESTMENTS-MARKET> 9,225,375
<LOANS> 71,556,989
<ALLOWANCE> 457,405
<TOTAL-ASSETS> 88,617,537
<DEPOSITS> 68,160,157
<SHORT-TERM> 1,200,000
<LIABILITIES-OTHER> 1,395,617
<LONG-TERM> 9,400,000
0
0
<COMMON> 3,626
<OTHER-SE> 8,458,137
<TOTAL-LIABILITIES-AND-EQUITY> 88,617,537
<INTEREST-LOAN> 1,443,883
<INTEREST-INVEST> 212,984
<INTEREST-OTHER> 32,598
<INTEREST-TOTAL> 1,689,465
<INTEREST-DEPOSIT> 697,932
<INTEREST-EXPENSE> 828,359
<INTEREST-INCOME-NET> 861,359
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> (9,222)
<EXPENSE-OTHER> 638,113
<INCOME-PRETAX> 218,293
<INCOME-PRE-EXTRAORDINARY> 218,293
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,355
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 7.96
<LOANS-NON> 155,000
<LOANS-PAST> 155,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 397,012
<CHARGE-OFFS> 1,004
<RECOVERIES> 1,397
<ALLOWANCE-CLOSE> 457,405
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
