<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, 1998
_____ 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 November 10, 1998, 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>
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C>
Item I. Financial Statements
Consolidated Statements of Financial Condition at September 30, 1998
and June 30, 1998.................................................. 2
Consolidated Statements of Income for the Three Month
Periods Ended September 30, 1998 and 1997............................... 3
Consolidated Statements of Comprehensive Income for the Three Month
Periods Ended September 30, 1998 and 1997............................... 4
Consolidated Statements of Cash Flows for the Three Month
Periods Ended September 30, 1998 and 1997............................... 5
Notes to Consolidated Financial Statements............................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 8-16
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings................................................... 17
Item 2. Changes in Securities............................................... 17
Item 3. Defaults Upon Senior Securities..................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................. 17
Item 5. Other Information................................................... 17
Item 6. Exhibits and Reports on Form 8-K.................................... 17
SIGNATURES......................................................................... 18
</TABLE>
1
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---- ----
Assets
------
<S> <C> <C>
Cash:
On hand and due from banks $ 344,083 970,218
Interest bearing deposits in other banks 309,469 419,583
Federal funds sold 1,583,802 7,148,619
Investment securities, at fair value 5,140,795 5,118,910
Loans receivable, net 78,642,966 75,870,779
Investment in securities required by law, at cost 675,650 675,650
Property and equipment, net 1,081,356 1,095,621
Deferred income taxes 346,957 336,000
Accrued interest, prepaid expenses and other assets 763,998 735,576
----------- ----------
Total Assets $88,889,076 92,370,956
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings deposits:
Interest bearing deposits $66,026,951 67,736,810
Non-interest bearing deposits 2,577,599 2,590,571
Borrowings 9,400,000 10,200,000
Accrued expenses and other liabilities 1,701,295 2,720,735
----------- ----------
Total liabilities 79,705,845 83,248,116
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 2,330,681 2,330,681
Contra equity - Employee stock ownership plan (ESOP) (396,341) (396,341)
Contra equity - Restricted stock plans (375,391) (339,225)
Retained income, substantially restricted 7,639,858 7,525,501
Unrealized net holding losses on available-for-sale
portfolios, net of taxes (19,202) (1,402)
----------- ----------
Total stockholders' equity 9,183,231 9,122,840
----------- ----------
Total liabilities and stockholders' equity $88,889,076 92,370,956
=========== ==========
</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,
-------------
1998 1997
---- ----
<S> <C> <C>
Interest income:
Loans receivable $ 1,618,287 1,443,883
Mortgage-backed securities - 100,647
Investment securities 86,821 112,337
Federal funds sold and other investments 84,302 32,598
------------ -----------
Total interest income 1,789,410 1,689,465
------------ -----------
Interest expense:
Savings deposits 700,054 697,932
Borrowings 148,127 130,174
------------ -----------
Total interest expense 848,181 828,106
------------ -----------
Net interest income 941,229 861,359
Provision for losses on loans 60,000 60,000
------------ -----------
Net interest income after provisions
for losses on loans 881,229 801,359
------------ -----------
Noninterest income:
Fees and service charges 55,540 60,693
Net gain (loss) on sales of securities - (9,222)
Other 2,719 3,576
------------ -----------
Total noninterest income 58,259 55,047
------------ -----------
Noninterest expenses:
Compensation and employee benefits 438,181 409,028
Insurance premiums 17,801 17,358
Professional fees 30,060 34,434
Equipment expense 28,886 33,122
Net occupancy costs 24,210 23,414
Advertising 11,644 12,619
Data processing 30,780 26,259
Other 107,304 81,879
------------ -----------
Total noninterest expense 688,866 638,113
------------ -----------
Income before provision
for income taxes 250,622 218,293
Provision for income taxes 92,759 80,938
------------ -----------
Net income $ 157,863 137,355
============ ===========
Basic net income per share $ 0.48 0.40
============ ===========
Fully diluted net income per share $ 0.46 0.40
============ ===========
</TABLE>
See accompanying notes to financial statements.
3
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
----------------------
SEPTEMBER 30,
------------
1998 1997
---- ----
<S> <C> <C>
Net income $ 157,863 137,355
Other comprehensive income, net of tax:
Unrealized net holding losses on available-for-sale
portfolios (19,202) (1,402)
------------ -----------
Comprehensive income $ 138,661 135,953
============ ===========
</TABLE>
See accompanying notes to financial statements.
4
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 157,863 137,355
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 29,427 34,195
Provision for losses on loans 60,000 60,000
Amortization of premiums and discounts, net 509 9,009
Deferred loan origination fees, net of costs (20,646) 35,735
Loss on sales of mortgage-backed
securities and investment securities - 9,222
Change in deferred income taxes (10,957) (249,224)
Increase in accrued interest on investments,
prepaid expenses and other assets (28,422) (100,309)
Decrease in accrued expenses and
other liabilities (1,019,440) (1,080,847)
------------ ------------
Net cash used in operating activities (831,666) (1,144,864)
------------ ------------
Cash flows from investing activities:
Loan principal disbursements, net of repayments (2,128,986) (4,223,503)
Purchase of loans 730,000 (756,900)
Purchase of property and equipment (15,162) (19,726)
Purchase of stock in Federal Home Loan Bank of Atlanta - (9,500)
Purchase of investment security available-for-sale - (5,028,125)
Principal repayment on mortgage-backed securities
available-for-sale - 2,515,384
Sales of mortgage-backed securities available-for-sale - 2,989,690
------------ ------------
Net cash used in investing activities (2,874,148) (4,532,680)
Cash flows from financing activities:
Net decrease in deposits (1,722,831) (1,992,136)
Purchase of common stock for stock-based benefits plans (36,166) -
Dividends paid (36,255) -
(Decrease) increase in borrowings (800,000) 7,900,000
------------ ------------
Net cash (used in) provided by financing
activities (2,595,252) 5,907,864
------------ ------------
Net (decrease) increase in cash and cash equivalents $ (6,301,006) 230,320
Cash and cash equivalents at beginning of period 8,538,420 5,113,187
------------ ------------
Cash and cash equivalents at end of period $ 2,237,354 5,343,507
============ ============
Supplemental information:
Interest paid on deposits and borrowed funds $ 847,125 827,552
Income taxes paid 166,500 135,000
============ ============
</TABLE>
See accompanying notes to financial statements.
5
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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, 1998 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.
6
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NOTE 5: REGULATORY CAPITAL REQUIREMENTS
At September 30, 1998, the Bank met each of the three minimum regulatory capital
requirements. The following table summarizes the Bank's regulatory capital
position at September 30, 1998 (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>
Total Capital (to Risk
Weighted Assets) $9.134 16.44% $4,445 6.00% $5,557 10.00%
Tier 1 Capital (to Risk
Weighted Assets $8,551 15.39% $2,222 4.00% $3,334 6.00%
Tier 1 Capital (to average
Assets $8,551 9.55% $3,582 4.00% $4,478 5.00%
</TABLE>
7
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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.
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. Management closely
monitors the progress of the service bureau in resolving this potential problem
and reports the status of the service bureau's progress to the Company's Audit
Committee on a quarterly basis. This service bureau has advised the Company
that it expects to resolve this potential problem before the year 2000 by
completing all implementation and testing procedures by December 31, 1998.
However, if the service bureau is unable to resolve this potential problem in
time, the Company would seek to retain a replacement service bureau and would
likely experience significant data processing
8
<PAGE>
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.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND JUNE 30, 1998
The Company's assets decreased by $3.5 million or 3.8% to $88.9 million at
September 30, 1998 from $92.4 million at June 30, 1998. The decrease in the
Company's assets during the quarter ended September 30, 1998 was primarily due
to the Company utilizing low yielding cash to payoff $800,000 in borrowings and
$1.7 million in deposits outflows which generally had higher rates of interest.
The Company also paid $1.0 million in property taxes on behalf of its mortgage
customers. Company's net loans receivable increased by $2.7 million or 3.6% to
$78.6 million at September 30, 1998 from $75.9 million at June 30, 1998. The
increase in net loans receivable was comprised of $2.2 million commercial real
estate loans, $800,000 in consumer loans, $200,000 in residential real estate
loans, $200,000 in commercial loans and a decrease of $700,000 construction
loans. The Company's investment securities portfolio remained unchanged at $5.1
million at September 30, 1998 as compared to June 30, 1998.
The Company's borrowings decreased by $800,000 or 7.8% to $9.4 million at
September 30, 1998 from $10.2 million at June 30, 1998. Deposits decreased by
$1.7 million or by 2.4% to $68.6 million at September 30, 1998 from $70.3
million at June 30, 1998. The decrease in deposits was largely attributable to
the decrease in higher yielding certificate of deposit accounts with the Bank.
The Company's stockholders' equity increased by $60,000 to $9.2 million at
September 30, 1998 from $9.1 million at June 30, 1998. The increase in
stockholders' equity was due primarily to the $114,000 increase in retained
income partially offset by the purchase of Company stock to fund a stock based
benefit award and an $18,000 increase 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, 1998 AND
SEPTEMBER 30, 1997
Net Income
- ----------
The Company reported net income of $158,000 for the quarter ended September
30, 1998 as compared to net income of $137,000 for the quarter ended September
30, 1997. The $21,000 or 15.3% increase in net income was primarily
attributable to a $80,000 increase in net interest income slightly offset by a
$63,000 increase in noninterest expenses and provision for income taxes.
9
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Interest Income
- ---------------
Total interest income increased by $100,000 or 5.9% to $1.8 million for the
quarter ended September 30, 1998 from $1.7 million for the quarter ended
September 30, 1997. The increase in the Company's total interest income for the
quarter ended September 30, 1998 as compared to the quarter ended September 30,
1997 was due to an increase of $3.2 million in the average balance of interest-
earning assets to $88.1 million from $84.9 million and an increase of 16 basis
points in the average yield on interest-earning assets to 8.12% from 7.96%. The
increase in the average balance and average yield is primarily due to the growth
in the Company's loan portfolio, as previously discussed, and the decrease in
the Company's mortgage-backed securities and investment securities portfolios.
The Company increased its consumer loan and commercial loan portfolios which
generally have greater interest rate yields associated with them as compared to
residential real estate loans and mortgage-backed securities and investment
securities. The risk associated with consumer and commercial lending is
discussed later.
Interest income on loans receivable increased by $174,000 or 12.4% to $1.6
million for the quarter ended September 30, 1998 from $1.4 million for the
quarter ended September 30, 1997. The increase in interest income on loans
receivable is primarily due to an increase of $7.8 million, or 11.2% in the
average balance of loans receivable to $77.5 million from $69.7 million and an
increase of 6 basis points in the average yield on loans receivable to 8.35%
from 8.29%.
The Company had no mortgage-backed securities during the quarter ended
September 30, 1998 and therefore no interest income. During the quarter ended
September 30, 1997, the Company had $101,000 of interest income on mortgage-
backed securities with an average balance and yield of $6.5 million and 6.11%,
respectively.
Interest income on investment securities decreased by $25,000 or 22.3% to
$87,000 for the quarter ended September 30, 1998 from $112,000 for the quarter
ended September 30, 1997. The increase in interest income was primary
attributable to an decrease of $1.5 million in the average balance of
investment securities to $5.0 million from $6.5 million slightly offset by an
increase of 7 basis points in the average yield to 6.94% from 6.87%.
Interest income on federal funds sold and other investments increased by
$52,000 or 162.5% to $84,000 for the quarter ended September 30, 1998 from
$32,000 for the quarter ended September 30, 1997. Other investments consists of
investments in the FHLB and the Federal Reserve Bank. The increase in interest
income was largely due to the increase of $3.5 million in the average balance
of federal funds sold and other investments to $5.6 million from $2.1 million.
Interest Expense
- ----------------
Total interest expense increased by $20,000 or 2.4% to $848,000 for the
quarter ended September 30, 1998 from $828,000 for the quarter ended September
30, 1997. The increase in interest expense was primarily due to an increase of
$1.7 million in the average balance of
10
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interest-bearing liabilities to $76.7 million from $75.0 million. The average
rate paid on interest-bearing liabilities remained unchanged at 4.42% during
both quarters.
Interest expense on deposits increased by $2,000 or 0.3% to $700,000 for
the quarter ended September 30, 1998 from $698,000 for the quarter ended
September 30, 1997. The increase in interest expense on deposits was primarily
attributable to an increase of $600,000 in the average balance of interest-
bearing deposits to $67.0 million during the quarter ended September 30, 1998
from $66.4 million during the quarter ended September 30, 1997. The increase in
the average balance was offset slightly by a decrease of 2 basis points in the
average rate paid on interest-bearing deposits.
Interest expense on borrowings increased by $18,000 or 13.8% to $148,000
during the quarter ended September 30, 1998 from $130,000 for the quarter ended
September 30, 1997. The increase in interest expense was primarily due to an
increase of $1.2 million in the average balance of borrowings to $9.7 million
during the quarter ended September 30, 1998 from $5.5 million during the quarter
ended September 30, 1997. The Bank's borrowings are from the Federal Home Loan
Bank of Atlanta for terms ranging from one year to 5 years.
Net Interest Income
- -------------------
The Company's net interest income increased by $80,000 or 9.3% to $941,000
for the quarter ended September 30, 1998 from $861,000 for the quarter ended
September 30, 1997. The increase in net interest income was primarily due to an
increase of 15 basis points in the interest rate spread (net yield on average
interest-earning assets less the rate paid on average interest-bearing
liabilities) to 3.69% from 3.54% and by the increase in the ratio of average
interest-earning assets to average interest-bearing liabilities to 115.0% from
113.3%.
The Company has implemented 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.
11
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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.
12
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<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------
1998 1997
----------------------- ------------------------
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) $77,533 1,618 8.35% $69,711 1,444 8.29%
Investment securities 5,014 87 6.94% 6,524 112 6.87%
Mortgage-backed securities -- -- -- 6,545 100 6.11%
Federal funds sold and other
interest-earning assets 5,607 84 5.99% 2,147 33 6.15%
--------- ------ ------ -------- ------ ------
Total interest earning assets 88,154 1,789 8.12% 84,927 1,689 7.96%
------ ------ ------ -----
Noninterest-earning assets 1,783 1,979
--------- --------
Total assets $89,937 $86,906
========= ========
Interest-bearing liabilities:
Savings deposits (3) $67,000 700 4.18% $66,413 698 4.20%
Borrowings 9,671 148 6.12% 8,548 130 6.08%
--------- ------ ------ -------- ------ ------
Total interest-bearing liabilities 76,671 848 4.42% 74,961 828 4.42%
Noninterest-bearing liabilities 4,095 ------ ------ 3,541 ------ ------
--------- --------
Total liabilities 80,766 78,502
Stockholders' equity 9,171 8,404
--------- --------
Total liabilities and stockholders' $89,937 $86,906
========= ========
Net interest income $ 941 $ 861
======= =======
Interest rate spread 3.69% 3.54%
======= ======
Net yield on interest-earning assets 4.27% 4.06%
======= ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 114.98% 113.29%
======== ======
</TABLE>
___________________________________________________________
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
13
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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
three month periods ended September 30, 1998 and September 30, 1997,
respectively. The provision for loan losses were made due to the Company's
higher levels of consumer, commercial real estate 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 0.74% at September 30,
1998 from 0.72% at June 30, 1998 and from 0.64% at September 30, 1997.
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 $3,000 or 5.5% to $58,000 for the quarter ended
September 30, 1998 from $55,000 for the quarter ended September 30, 1997. The
increase in noninterest income is primarily due to a $9,200 loss from the sale
of mortgage-backed securities during the quarter ended September 30, 1997. Fees
and other service charges decreased $6,000 during the quarter ended September
30, 1998 as compared to the quarter ended September 30, 1997.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by $51,000 or 8.0% to $689,000 for the
quarter ended September 30, 1998 from $638,000 for the quarter ended September
30, 1997. The increase in noninterest expenses was primarily due to increases
in compensation and employee benefits expense. Compensation and employee
benefits expense increased by $29,000 or 7.1%, to $438,000 for the quarter ended
September 30, 1998 from $409,000 for the quarter ended September 30, 1997. The
increase was largely attributable to the hiring of additional personnel to
service the growth in the Company's loan portfolio. The Company's other
expenses, consisting primarily of professional fees, equipment expense, net
occupancy costs, advertising and data processing and other miscellaneous
expenses increased by $22,000 or 9.6% during the quarter ended September 30,
1998 as compared to the quarter ended September 30, 1997. The Company estimates
costs to comply with the year 2000 issue to be less than $10,000 based on
information currently available. It is anticipated that costs associated with
the year 2000 will be expensed as incurred.
14
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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 seeks to maintain a level of liquidity
which will enable the Company to retain flexibility in terms of investment
opportunities and deposit pricing. Because liquid assets generally provide
lower rates of return, a relatively high liquidity level will, to a certain
extent, result in lower returns on performance ratios such as return on average
assets and stockholders' equity.
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, investing, and financing activities during any given
period. At September 30, 1998, the Company's cash on hand, interest-bearing
deposits and Federal funds sold totaled $2.2 million. In addition, the Company
has approximately $5.1 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 $2.1 million. Certificates of deposits
which are scheduled to mature in less than one year at September 30, 1998
totaled $26.7 million. Historically, a high percentage of maturing deposits
have remained with the Company. The Company has the ability to borrow funds
from the Federal Home Loan Bank of Atlanta to meet liquidity levels deemed
appropriate by management.
The Company's primary sources of funds are deposits and proceeds from
maturing investment securities and principal and interest payments on loans.
Deposit flows and loan 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, 1998 were loans disbursements, net of repayments, of
$2.9 million and the repayment of a $800,000 in borrowings. The Company's
primary use of cash in financing activities during the quarter ended September
30, 1998 consisted of a $1.7 million decrease in deposits.
As discussed in Note 5 - Regulatory Capital Requirements, the Bank exceeded
all regulatory minimum capital requirements.
15
<PAGE>
Impact of New Accounting Standards
- ----------------------------------
Disclosures about Segments of an Enterprise and Related Information. In
June 1997, the FASB 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.
Employer's Disclosures About Pensions and Other Postretirement Benefits.
In February 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132, "Employer's Disclosures About Pensions and Other Postretirement
Benefits" (SFAS No. 132). This Statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable. The Statement, which is effective for fiscal years beginning after
December 15, 1997, will not affect the Company's financial position or its
results of operations.
Accounting for Derivatives Instruments and Hedging Activities. In June
1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities" (SFAS No. 133).
This Statement standardizes the accounting for derivative instruments including
certain derivative instruments embedded in other contracts, by requiring that an
entity recognize these items as assets or liabilities in the statement of
financial position and measure them at fair value. This Statement generally
provides for matching the timing of gain or loss recognition on the hedging
instrument with the recognition of the changes in the fair value of the hedged
assets or liability that are attributable to the hedged risk or the earnings
effect of the hedged forecasted transaction. The Statement, which is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999, will
not affect the Company's financial position or results of operations.
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 herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
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: November 10, 1998 /s/ Joseph J. Bouffard
--------------------------------------
Joseph J. Bouffard
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 1998 /s/ Timothy C. King
--------------------------------------
Timothy C. King
Vice President and Controller
(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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 344,083
<INT-BEARING-DEPOSITS> 309,469
<FED-FUNDS-SOLD> 1,583,802
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,140,795
<INVESTMENTS-CARRYING> 5,140,795
<INVESTMENTS-MARKET> 5,140,795
<LOANS> 78,642,966
<ALLOWANCE> 583,124
<TOTAL-ASSETS> 88,889,076
<DEPOSITS> 68,604,550
<SHORT-TERM> 1,000,000
<LIABILITIES-OTHER> 1,701,295
<LONG-TERM> 8,900,000
0
0
<COMMON> 3,626
<OTHER-SE> 9,179,605
<TOTAL-LIABILITIES-AND-EQUITY> 88,889,076
<INTEREST-LOAN> 1,618,287
<INTEREST-INVEST> 86,821
<INTEREST-OTHER> 84,302
<INTEREST-TOTAL> 1,789,410
<INTEREST-DEPOSIT> 700,054
<INTEREST-EXPENSE> 848,181
<INTEREST-INCOME-NET> 941,229
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 881,229
<EXPENSE-OTHER> 688,866
<INCOME-PRETAX> 250,622
<INCOME-PRE-EXTRAORDINARY> 250,622
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,863
<EPS-PRIMARY> .48
<EPS-DILUTED> .46
<YIELD-ACTUAL> 8.12
<LOANS-NON> 798,000
<LOANS-PAST> 798,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 553,513
<CHARGE-OFFS> 31,501
<RECOVERIES> 1,112
<ALLOWANCE-CLOSE> 583,124
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
