<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, 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 February 10, 1998, the issuer had 362,553 shares of Common Stock
issued and outstanding.
Traditional Small Business Disclosure Format (check one):
Yes X No
----- -----
<PAGE>
CONTENTS
--------
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item I. Financial Statements
Consolidated Statements of Financial Condition at December 31,
1997 and June 30, 1997........................................... 2
Consolidated Statements of Income for the Six and Three Month
Periods Ended December 31, 1997 and 1996......................... 3
Consolidated Statements of Cash Flows for the Six Month
Periods Ended December 31, 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............................................ 7-18
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings ............................................... 19
Item 2. Changes in Securities ........................................... 19
Item 3. Defaults Upon Senior Securities ................................. 19
Item 4. Submission of Matters to a Vote of Security Holders ........... 19
Item 5. Other Information ............................................... 19
Item 6. Exhibits and Reports on Form 8-K ............................... 19
SIGNATURES................................................................ 20
1
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ----------
(unaudited)
<S> <C> <C>
Assets
------
Cash:
On hand and due from banks $ 1,074,587 161,895
Interest bearing deposits in other banks 5,390,814 3,698
Federal funds sold 1,371,385 4,947,594
Investment securities, at fair value 5,017,190 1,989,380
Mortgage-backed securities, at fair value -- 7,678,517
Loans receivable, net 74,017,499 66,236,126
Investment in securities required by law, at cost 635,850 622,050
Property and equipment, net 1,087,143 1,117,454
Deferred income taxes -- 236,000
Accrued interest, prepaid expenses and other assets 661,404 656,822
----------- ----------
Total assets $89,255,872 83,649,536
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings deposits:
Interest bearing deposits $66,607,334 66,214,826
Non interest bearing deposits 2,506,839 3,937,467
Borrowings 10,600,000 2,700,000
Accrued expenses and other liabilities 805,722 2,463,240
Accrued dividends payable 36,255 --
Deferred income taxes 11,131 --
----------- ----------
Total liabilities 80,567,281 75,315,533
Stockholders' equity:
Common stock $0.01 par value: authorized 4,000,000
shares: issued and outstanding 362,553 shares3626 3,626 3,626
Additional paid-in capital 2,249,725 2,249,725
Contra equity - Employee stock ownership plan (464,064) (464,064)
Contra equity - Management recognition plan (339,225) (423,724)
Retained income, substantially restricted 7,239,469 6,992,716
Unrealized net holding losses on available-for-sale
portfolios, net of taxes (940) (24,276)
----------- ----------
Total stockholders' equity 8,688,591 8,334,003
----------- ----------
Total liabilities and stockholders' equity $89,255,872 83,649,536
=========== ==========
</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,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $2,972,477 2,220,708 1,528,594 1,123,234
Mortgage-backed securities 103,517 293,055 2,870 123,086
Investment securities 240,890 118,102 128,553 53,482
Federal funds sold and other investments 144,232 231,591 111,634 128,241
---------- ---------- ---------- ----------
Total interest income 3,461,116 2,863,456 1,771,651 1,428,043
---------- ---------- ---------- ----------
Interest expense:
Savings deposits 1,425,051 1,361,472 727,119 679,999
Borrowings 293,297 -- 163,123 --
---------- ---------- ---------- ----------
Total interest expense 1,718,348 1,361,472 890,242 679,999
---------- ---------- ---------- ----------
Net interest income 1,742,768 1,501,984 881,409 748,044
Provision for losses on loans 120,000 120,000 60,000 60,000
---------- ---------- ---------- ----------
Net interest income after provision
for losses on loans 1,622,768 1,381,984 821,409 688,044
---------- ---------- ---------- ----------
Noninterest income:
Fees and service charges 125,650 106,354 64,957 59,996
Net gain (loss) on sales of securities 5,015 1,844 14,237 --
Other 11,000 8,254 7,424 3,638
---------- ---------- ---------- ----------
Total noninterest income 141,665 116,452 86,618 63,634
---------- ---------- ---------- ----------
Noninterest expenses:
Compensation and employee benefits 775,766 659,307 366,738 360,264
Insurance premiums 35,901 479,350 18,543 11,227
Professional fees 74,985 61,575 40,551 34,575
Equipment expense 62,397 53,131 29,275 26,634
Net occupancy costs 47,163 41,653 23,749 20,129
Advertising 25,045 20,812 12,426 10,696
Data processing 53,263 44,858 27,004 22,994
Other 184,706 151,398 102,827 78,874
---------- ---------- ---------- ----------
Total noninterest expense 1,259,226 1,512,084 621,113 565,393
---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes 505,207 (13,648) 286,914 186,285
Provision (benefit) for income taxes 185,943 (605,074) 105,005 71,975
---------- ---------- ---------- ----------
Net Income (loss) $ 319,264 591,426 181,909 114,310
========== ========== ========== ==========
Net income per share $ 0.94 1.76 0.54 0.34
========== ========== ========== ==========
Weighted average number of
shares outstanding 339,349 336,449 339,349 336,449
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 319,264 591,426
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 61,601 57,392
Provision for losses on loans 120,000 120,000
Non-cash compensation under stock-based
benefit plans 84,499 --
Amortization of premiums and discounts, net (2,346) 9,724
Deferred loan origination fees, net of costs 81,067 48,062
(Gain) loss on sales of mortgage-backed
securities and investment securities (5,015) (1,844)
Change in deferred income taxes (247,131) (588,903)
(Increase) decrease in accrued interest on
investments, prepaid expenses and other assets (4,582) 18,600
(Decrease) increase in accrued expenses and
other liabilities (1,621,263) 67,602
----------- -----------
Net cash (used in) provided by operating activities (1,213,906) 322,059
----------- -----------
Cash flows from investing activities:
Loan principal disbursements, net of repayments (5,852,446) (2,930,501)
Purchase of loans (1,647,000) (1,831,505)
Purchase of property and equipment (31,290) (77,011)
Purchase of stock in Federal Home Loan Bank of Atlanta (13,800) --
Purchase of stock in Federal Reserve Bank of Richmond -- (101,550)
Purchase of investment security available-for-sale (5,028,125) --
Principal repayment on mortgage-backed securities
available-for-sale 2,621,124 599,277
Maturities of investment securities available-for-sale 2,000,000 2,500,000
Sales of mortgage-backed securities available-for-sale 5,063,417 4,335,784
----------- -----------
Net cash (used in) provided by
investing activities (2,888,120) 2,494,494
Cash flows from financing activities:
Net increase (decrease) in deposits (1,038,120) 350,567
Purchase of common stock for stock-based benefits plans -- (347,942)
Dividends paid (36,255) --
Increase in borrowings 7,900,000 --
----------- -----------
Net cash provided by financing activities 6,825,625 2,625
----------- -----------
Net increase in cash and cash equivalents $ 2,723,599 2,819,178
Cash and cash equivalents at beginning of period 5,113,187 7,424,465
----------- -----------
Cash and cash equivalents at end of period $ 7,836,786 10,243,643
=========== ===========
Supplemental information:
Interest paid on deposits and borrowed funds $ 1,425,813 1,363,106
Income taxes paid 295,000 49,400
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
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
six and three months ended December 31, 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
<PAGE>
NOTE 5: REGULATORY CAPITAL REQUIREMENTS
At December 31, 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 December 31, 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) $8,690 17.39% $3,997 8.00% $4,996 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $9,185 18.39% $1,998 4.00% $2,997 6.00%
Tier 1 Capital (to Avergae
Assets) $9,185 11.27% $3,579 4.00% $4,473 5.00%
The Patapsco Bancorp:
Total Capital (to Risk
Weighted Assets) $7,926 15.87% $3,997 8.00% $4,995 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $8,421 16.86% $1,997 4.00% $2,997 6.00%
Tier 1 Capital (to Avergae
Assets) $8,421 9.41% $3,578 4.00% $4,473 5.00%
</TABLE>
6
<PAGE>
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 phrases "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.
POSSIBLE YEAR 2000 COMPUTER PROGRAM PROBLEMS
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000. Many computer programs that can
only distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to the operations of the Company. Data
processing is also essential to most other financial institutions and many other
companies.
All of the material data processing of the Company that could be
affected by this problem is provided by a third party service bureau. The
service bureau of the Company has advised the Company that it expects to resolve
this potential problem before the year 2000. However, if the service bureau is
unable to resolve this potential problem in time, the Company would likely
experience significant data processing delays, mistakes or failures. These
delays, mistakes or failures could have a significant adverse impact on the
financial condition and results of operation of the Company.
7
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND JUNE 30, 1997
The Company's assets increased by $5.6 million or 6.7% to $89.3 million
at December 31, 1997 from $83.6 million at June 30, 1997. The Company's net
loans receivable increased by $7.8 million or 11.8% to $74.0 million at December
31, 1997 from $66.2 million at June 30, 1997. The increase in net loans
receivable was comprised of $3.2 million residential real estate loans, $1.6
million construction loans, $2.0 million consumer loans, $500,000 commercial
real estate loans and $500,000 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 $7.7 million or 100% to $0 at December 31, 1997 from $7.7 million
at June 30, 1997, as a result of the sale of $5.1 million of securities
classified as available-for-sale and principal repayment of $2.6 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 $3.0 million or 150.0% to
$5.0 million at December 31, 1997 from $2.0 million at June 30, 1997. During the
first quarter of fiscal 1998, 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. During the second quarter of fiscal 1998, the
Company received a $2.0 million repayment of an investment security.
The Company's borrowings, all of which consist of FHLB advances,
increased by $7.9 million or 292.6% to $10.6 million at December 31, 1997 from
$2.7 million at June 30, 1997. Deposits decreased by $1.1 million or by 1.6% to
$69.1 million at December 31, 1997 from $70.2 million at June 30, 1997. The
decrease in savings deposits was largely attributable to the $1.4 million
decrease in noninterest-bearing deposits resulting from a $1.6 million decrease
in the Company's checking account with the Bank which was established at fiscal
year-end 1997 to pay the return of capital distribution to shareholders.
Interest-bearing deposits increased by $393,000 which was attributable to
interest crediting. Total stockholders' equity increased by $355,000 or 4.3% to
$8.7 million at December 31, 1997 from $8.3 million at June 30, 1997. The
increase in stockholders' equity was due primarily to $319,000 in net income,
$85,000 of earned compensation in stock-based benefit plans and a $23,000
increase in the unrealized net holding losses on available-for-sale investment
portfolio, net of taxes. Those increases in stockholders' equity were partially
offset by $72,000 in dividends declared.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS AND SIX MONTHS ENDED
DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net Income
- ----------
The Company's net income increased by $68,000 or 59.6% to $182,000 for
the quarter ended December 31, 1997 from $114,000 for the quarter ended December
31, 1996. The increase was primarily due to a $133,000 increase in net interest
income and a $23,000 increase in noninterest income, offset slightly by a
$56,000 increase in noninterest expenses and a
8
<PAGE>
$33,000 increase in provision for income taxes. The Company's net income for the
six months ended December 31, 1997 was $319,000 as compared to $591,000 for the
six months ended December 31, 1996. 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 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 charges, the Company would have earned
approximately $246,000 for the six months ended December 31, 1996. On an
adjusted basis, the Company's net income would have increased by $73,000 or
29.7% for the six months ended December 31, 1997 as compared to the six months
ended December 31, 1996.
Interest Income
- ---------------
Total interest income increased by $344,000 or 24.6% to $1.8 million for
the quarter ended December 31, 1997 from $1.4 million for the quarter ended
December 31, 1996. Total interest income increased by $598,000 or 20.6% to
$3.5 million for the six months ended December 31, 1997 from $2.9 million for
the six months ended December 31, 1996. The increase in the Company's
interest income for the quarter ended December 31, 1997 as compared to the
quarter ended December 31, 1996 was due to an increase of $10.1 million in the
average balance of interest-earning assets to $87.1 million from $77.0 million
and an increase of 71 basis points in the average yield on interest-earning
assets to 8.13% from 7.42%. The increase in the Company's total interest
income for the six months ended December 31, 1997 as compared to the six months
ended December 31, 1996 was due to an increase of $9.0 million in the average
balance of interest-earning assets to $86.1 million from $77.1 million and an
increase of 61 basis points in the average yield on interest-earning assets to
8.04% from 7.43%. The increases in the average balance and average yield for the
comparable three month and six month periods are primarily due to the growth in
the Company's loan portfolio as discussed below.
Interest income on loans receivable increased by $405,000 or 36.8% to
$1.5 million for the quarter ended December 31, 1997 from $1.1 million for the
quarter ended December 31, 1996. Interest income on loans receivable increased
by $752,000 or 34.2% to $3.0 million for the six months ended December 31, 1997
from $2.2 million for the six months ended December 31, 1996. The increase in
interest income on loans receivable during the three months and six months
periods is primarily due to an increases in the average balance and average
yield of loans receivable. During the three months ended December 31, 1997 as
compared to the same period ended December 31, 1996 the average balance
increased by $19.9 million or 35.2% to $72.3 million from $56.4 million and the
average yield increased by 50 basis points to 8.46% from 7.96%. During the six
months ended December 31, 1997 as compared to the same period ended December 31,
1996 the average balance of increased by $14.7 million or 26.5% to $70.6 million
from $55.4 million and the average yield increased by 39 basis points to 8.41%
from 8.02%.
9
<PAGE>
Interest income on mortgage-backed securities decreased by $120,000 or
97.6% to $3,000 for the quarter ended December 31, 1997 from $123,000 for the
quarter ended December 31, 1996. Interest income on mortgage-backed securities
decreased by $189,000 or 64.5% to $104,000 for the six months ended December 31,
1997 from $293,000 for the six months ended December 31, 1996. The decrease in
interest income on mortgage-backed securities during the three months ended
December 31, 1997 as comparable to the three months ended December 31, 1996 was
primary attributable to a decrease of $7.8 million in the average balance of
mortgage-backed securities to $200,000 from $8.0 million. The decrease in
interest income on mortgage-backed securities during the comparable six month
periods was primarily due to the decrease of $5.7 million in the average balance
of mortgage-backed securities to $3.7 million from $9.4 million. During the
three and six months periods ended December 31, 1997, the Company sold $3.0
million and $5.0 million of mortgage-backed securities, respectively to fund
loan demand.
Interest income on investment securities increased by $75,000 or
$129,000 for the quarter ended December 31, 1997 from $54,000 for the quarter
ended December 31, 1996. Interest income on investment securities increased by
$123,000 or 104.2% to $241,000 during the six month ended December 31, 1997 from
$118,000 during the six months ended December 31, 1996. The increase in interest
income during the comparable quarters was primarily attributable to an increase
of $3.8 million in the average balance of investment securities to $7.0 million
from $3.2 million and an increase of 60 basis points in the average yield to
7.37% from 6.67%. The increase in interest income during the comparable six
month periods was primary attributable to an increase of $3.0 million in the
average balance of investment securities to $6.8 million from $3.8 million and
an increase of 85 basis points in the average yield to 7.10% from 6.25%.
Interest income on federal funds sold and other investments decreased by
$16,000 or 12.5% to $112,000 for the quarter ended December 31, 1997 from
$128,000 for the quarter ended December 31, 1996. Interest income on federal
funds sold and other investments decreased by $87,000 or 37.7% to $144,000 for
the six months ended December 31, 1997 from $231,000 for the six months ended
December 31, 1996. Other investments consists of investments in the FHLB and the
Federal Reserve Bank of Richmond. The decreases in interest income during the
comparable quarters and six months periods were largely due to the decreases in
the average balance of federal funds sold and other investments offset slightly
by increases in the average yields. During the comparable quarters the average
balance decreased by $1.5 million to $7.7 million from $9.2 million and the
average yield increased 25 basis points to 5.80% from 5.55%. During the
comparable six month periods the average balance decreased by $3.5 million to
$4.9 million from $8.4 million and the average yield increased 37 basis points
to 5.86% from 5.49%.
Interest Expense
- ----------------
Total interest expense increased by $210,000 or 30.9% to $890,000 for
the quarter ended December 31, 1997 from $680,000 for the quarter ended December
31, 1996. Total interest expense increased by $357,000 or 25.5% to $1.7 million
for the six months ended December 31, 1997 from 1.4 million at December 31,
1996. The increases in interest expense were primarily
10
<PAGE>
due to the increases in the average balance and average yield of interest-
bearing liabilities during the comparable periods largely attributable to an
increase in borrowings to fund loan demand. During the quarter ended December
31, 1997 as compared to the quarter ended December 31, 1996 the average balance
of interest-bearing liabilities increased by $14.6 million to $77.6 million from
$63.0 million and the average rate increased 27 basis points to 4.59% from
4.32%. During the six months ended December 31, 1997 as compared to the six
months ended December 31, 1996 the average balance of interest-bearing
liabilities increased by $13.4 million to $76.3 million from $62.9 million and
the average rate increased 17 basis points to 4.50% from 4.33%.
Interest expense on deposits increased by $47,000 or 6.9% to $727,000
for the quarter ended December 31, 1997 from $680,000 for the quarter ended
December 31, 1996. Interest expense on deposits increased by $64,000 or 4.7% to
$1.43 million from $1.36 million for the six months ended December 31, 1996. The
increase in interest expense on deposits during the comparable quarters was
primarily attributable to an increase of $4.0 million in the average balance of
interest-bearing deposits to $67.0 million from $63.0 million and an increase in
the average rate by 2 basis points to 4.34% from 4.32%. The increase in interest
expense on deposits during the comparable six month periods was primarily due to
a $3.8 million increase in the average balance to $66.7 million from $62.9
million offset slightly by a decrease in the average rate to 4.27% from 4.33%.
The Company incurred $163,000 and $293,000 of interest expense on
borrowings during the quarter and six months ended December 31, 1997,
respectively. The Company had no borrowings outstanding during the quarter and
six months ended December 31, 1996 and therefore no expense. During the quarter
ended September 30, 1997, the Company borrowed $10.6 million from the FHLB and
paid off a $2.7 million borrowing from another financial institution. The
average balance and average rate of borrowings outstanding during the quarter
ended December 31, 1997 was $10.6 million and 6.15%, respectively. The average
balance and average rate of borrowings outstanding during the six months ended
December 31, 1997 was $9.6 million and 6.12%, respectively. 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 $133,000 or 17.8% to
$881,000 for the quarter ended December 31, 1997 from $748,000 for the quarter
ended December 31, 1996. Net interest income increased by $241,000 or 16.1% to
$1.7 million for the six months ended December 31, 1997 from $1.5 million during
the six months ended December 31, 1996. The increase in net interest income
during the comparable quarters and six month periods were primarily due to an
increase in each case 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%.
11
<PAGE>
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 periods 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 daily balances.
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.
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended December 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) $ 72,275 1,528 8.46% $ 56,443 1,123 7.96%
Investment securities 6,950 128 7.37% 3,239 54 6.67%
Mortgage-backed securities 196 3 6.12% 8,046 123 6.11%
Federal funds sold and other
interest-earning assets 7,723 112 5.80% 9,231 128 5.55%
-------- -------- -------- -------- -------- --------
Total interest earning assets 87,144 1,771 8.13% 76,959 1,428 7.42%
-------- -------- -------- --------
Noninterest-earning assets 2,324 2,101
-------- --------
Total assets $ 89,468 $ 79,060
======== ========
Interest-bearing liabilities:
Deposits (3) $ 66,995 727 4.34% $ 62,986 680 4.32%
Borrowings 10,600 163 6.15% -- -- --
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 77,595 890 4.59% 62,986 680 4.32%
-------- -------- -------- --------
Noninterest-bearing liabilities 3,303 3,350
-------- --------
Total liabilities 80,898 66,336
Stockholders' equity 8,570 12,724
-------- --------
Total liabilities and stockholders' equity $ 89,468 $ 79,060
======== ========
Net interest income $ 881 $ 748
======== ========
Interest rate spread 3.54% 3.10%
======== ========
Net yield on interest-earning assets 4.04% 3.89%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 112.31% 122.18%
======== ========
</TABLE>
- ----------------------------------------------------------
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
13
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended December 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) $ 70,641 $ 2,972 8.41% $ 55,407 $ 2,221 8.02%
Investment securities 6,789 241 7.10% 3,773 118 6.25%
Mortgage-backed securities 3,717 104 5.60% 9,444 293 6.20%
Federal funds sold and other
interest-earning assets 4,911 144 5.86% 8,421 231 5.49%
-------- -------- -------- -------- -------- --------
Total interest earning assets 86,058 3,461 8.04% 77,045 2,863 7.43%
-------- -------- -------- --------
Noninterest-earning assets 2,666 1,796
-------- --------
Total assets $ 88,724 $ 78,841
======== ========
Interest-bearing liabilities:
Deposits (3) $ 66,709 $ 1,425 4.27% $ 62,890 $ 1,361 4.33%
Borrowings 9,574 293 6.12% -- -- --
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 76,283 1,718 4.50% 62,890 1,361 4.33%
-------- -------- -------- --------
Noninterest-bearing liabilities 3,412 3,372
-------- --------
Total liabilities 79,695 66,262
Stockholders' equity 8,510 12,579
-------- --------
Total liabilities and stockholders' equity $ 88,205 $ 78,841
======== ========
Net interest income $ 1,743 $ 1,502
======== ========
Interest rate spread 3.54% 3.10%
======== ========
Net yield on interest-earning assets 4.05% 3.90%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 112.81% 122.51%
======== ========
</TABLE>
- ----------------------------------------------------------
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
14
<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 provided $120,000 and $60,000 for loan losses during each
of the six month periods and quarters ended December 31, 1997 and December 31,
1996, respectively. 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 0.67% at December 31, 1997 from
0.55% at December 31, 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 $23,000 or 35.9% to $87,000 for the quarter
ended December 31, 1997 from $64,000 for the quarter ended December 31, 1996.
Total interest income increased by $25,000 or 21.6% to $142,000 during the six
months ended December 31, 1997 from $116,000 during the six months ended
December 31, 1996. The increase in noninterest income during the comparable
quarters is primarily due to a $14,000 gain from the sale of mortgage-backed
securities. The increase in total noninterest income during the comparable six
month periods was primarily due to a $19,000 increase in fees and other service
charges primarily related to checking accounts and a $5,000 net gain from the
sales of mortgage-backed securities.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by $56,000 or 9.9% to $621,000 for
the quarter ended December 31, 1997 from $565,000 for the quarter ended December
31, 1996. Total noninterest expense decreased by $253,000 to $1.3 million during
the six months ended December 31, 1997 from $1.5 million during the six months
ended December 31, 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 for the six months ended December 31, 1997 would have
increased by $162,000 or 14.7%, from $1.1 million for the six months ended
December 31, 1996. Compensation and employee benefits expense increased by
$117,000 to $776,000 for the six month period ended December 31, 1997 from
$659,000 for the six months ended December 31, 1996. The increase was largely
attributable to expenses related to the Company's stock based benefit plans and
expenses relating to the hiring of additional personnel. The Company's other
expenses, consisting primarily of professional fees, equipment expense, net
15
<PAGE>
occupancy costs, advertising and data processing expenses increased by $75,000
during the six months ended December 31, 1997 as compared to the six months
ended December 31, 1996. The Company's insurance premiums decreased by $28,000,
after adjusting for the $415,000 one time deposit insurance premium, as a result
of a lower premium assessment rate.
Income Taxes
- ------------
The Company's provision for income taxes was $105,000 during the quarter
ended December 31, 1997 compared to $72,000 for the quarter ended December 31,
1996. The Company's provision for income taxes was $186,000 during the six
months ended December 31, 1997 compared to a tax benefit of $605,000 during the
six months ended December 31, 1996. As discussed earlier, the Company reversed
$600,000 of income tax expense and recorded a $160,000 tax benefit from the one
time insurance premium of $415,000 during the quarter ended September 30, 1996.
After adjusting for those one time charges the Company's provision for income
taxes would have been $165,000 for the six months ended December 31, 1997.
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 December 31, 1997, the Company's cash on hand, interest-bearing
deposits and Federal funds sold totaled $7.8 million. In addition, the Company
has approximately $5.0 million of investment securities classified as available-
for-sale.
The Company anticipates that it will have sufficient funds available to
meet its current loan commitments of $1.7 million. Certificates of deposits
which are scheduled to mature in less than one year at December 31, 1997 totaled
$28.8 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
16
<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, 1997 were loan principal disbursements and
purchases, net of repayments, of $7.5 million and the purchase of a $5.0 million
investment security. The Company's primary sources of cash provided from
investing activities during the six months ended December 31, 1997 were the
sales and repayment of $5.0 million and $2.6 million of mortgage-backed
securities, respectively and $2.0 million from a matured investment security.
The Company's primary use of cash in financing activities during the six
months ended December 31, 1997 consisted of a $1.0 million decrease in deposits.
The Company's primary source of cash provided by financing activities during the
six months ended December 31, 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
17
<PAGE>
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.
18
<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 23,
1997:
<TABLE>
<CAPTION>
Votes Votes Votes
For Against Witheld
------- ------- -------
<S> <C> <C> <C>
Elections of Directors:
Joseph J. Bouffard 300,757 0 115
Nicole N. Kantorski 300,682 0 190
</TABLE>
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 December 31, 1997.
19
<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: February 10, 1998 /s/ Joseph J. Bouffard
--------------------------------------------
Joseph J. Bouffard
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 10, 1998 /s/ Timothy C. King
--------------------------------------------
Timothy C. King
Vice President and Controller
(Principal Financial and Accounting Officer)
20
<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-30-1998 JUN-30-1998
<PERIOD-START> JUL-01-1997 JUL-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 1,074,587 1,074,587
<INT-BEARING-DEPOSITS> 5,390,814 5,390,814
<FED-FUNDS-SOLD> 1,371,385 1,371,385
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 5,017,190 5,017,190
<INVESTMENTS-CARRYING> 5,017,190 5,017,190
<INVESTMENTS-MARKET> 5,017,190 5,017,190
<LOANS> 74,017,499 74,017,499
<ALLOWANCE> 495,309 495,309
<TOTAL-ASSETS> 89,255,872 89,255,872
<DEPOSITS> 69,114,173 69,114,173
<SHORT-TERM> 1,200,000 1,200,000
<LIABILITIES-OTHER> 853,108 853,108
<LONG-TERM> 9,400,000 9,400,000
0 0
0 0
<COMMON> 3,626 3,626
<OTHER-SE> 8,684,965 8,684,965
<TOTAL-LIABILITIES-AND-EQUITY> 89,255,872 89,255,872
<INTEREST-LOAN> 2,972,477 1,528,594
<INTEREST-INVEST> 344,407 131,423
<INTEREST-OTHER> 144,232 111,634
<INTEREST-TOTAL> 3,461,116 1,771,651
<INTEREST-DEPOSIT> 1,425,051 727,119
<INTEREST-EXPENSE> 1,718,348 890,242
<INTEREST-INCOME-NET> 1,742,768 881,409
<LOAN-LOSSES> 120,000 60,000
<SECURITIES-GAINS> 5,015 14,237
<EXPENSE-OTHER> 1,259,226 621,113
<INCOME-PRETAX> 505,207 286,914
<INCOME-PRE-EXTRAORDINARY> 505,207 286,914
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 319,264 181,909
<EPS-PRIMARY> 0.94 0.54
<EPS-DILUTED> 0.94 0.54
<YIELD-ACTUAL> 8.13 8.04
<LOANS-NON> 173,000 173,000
<LOANS-PAST> 173,000 173,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 397,012 457,405
<CHARGE-OFFS> 25,801 40,605
<RECOVERIES> 4,098 2,701
<ALLOWANCE-CLOSE> 495,309 495,309
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
