<PAGE>
United States Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the quarterly period ended March 31, 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
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(Address of Principal Executive Offices)
(410)285-1010
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Registrant's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of May 8, 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
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<S> <C> <C>
Item I. Financial Statements
Consolidated Statements of Financial Condition at March 31, 1998
and March 31, 1997 ........................................................ 2
Consolidated Statements of Income for the Nine and Three Month
Periods Ended March 31, 1998 and 1997 ..................................... 3
Consolidated Statements of Cash Flows for the Nine Month
Periods Ended March 31, 1998 and 1997 ..................................... 4
Notes to Consolidated Financial Statements .................................. 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...................................................... 7-17
<CAPTION>
Part II. Other Information
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<S> <C> <C>
Item 1. Legal Proceedings .......................................................... 18
Item 2. Changes in Securities ...................................................... 18
Item 3. Defaults Upon Senior Securities ............................................ 18
Item 4. Submission of Matters to a Vote of Security Holders ........................ 18
Item 5. Other Information .......................................................... 18
Item 6. Exhibits and Reports on Form 8-K .......................................... 18
Signatures .......................................................................... 19
</TABLE>
1
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Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Assets
------
Cash:
On hand and due from banks $ 849,669 161,895
Interest bearing deposits in other banks 376,866 3,698
Federal funds sold 6,634,567 4,947,594
Investment securities, at fair value 5,128,181 1,989,380
Mortgage-backed securities, at fair value -- 7,678,517
Loans receivable, net 75,371,472 66,236,126
Investment in securities required by law, at cost 675,650 622,050
Property and equipment, net 1,079,154 1,117,454
Deferred income taxes -- 236,000
Accrued interest, prepaid expenses and other assets 688,166 656,822
------------ ------------
Total assets $ 90,803,725 83,649,536
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings deposits:
Interest bearing deposits $ 67,115,068 66,214,826
Non interest bearing deposits 2,575,830 3,937,467
Borrowings 10,200,000 2,700,000
Accrued expenses and other liabilities 2,024,532 2,463,240
Accrued dividends payable 36,255 --
Deferred income taxes 15,663 --
------------ ------------
Total liabilities 81,967,348 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 (464,064) (464,064)
Contra equity - Management recognition plan (339,225) (423,724)
Retained income, substantially restricted 7,381,749 6,992,716
Unrealized net holding gains (losses) on available-for-sale
portfolios, net of taxes 4,566 (24,276)
------------ ------------
Total stockholders' equity 8,836,377 8,334,003
------------ ------------
Total liabilities and stockholders' equity $ 90,803,725 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 Operations
(unaudited)
<TABLE>
<CAPTION>
For Nine Months Ended For Three Months Ended
--------------------- ----------------------
March 31, March 31,
--------- ---------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 4,537,938 3,403,793 1,565,461 1,183,085
Mortgage-backed securities 103,517 414,055 0 121,000
Investment securities 324,730 154,413 83,840 36,311
Federal funds sold and other investments 255,012 357,806 110,780 126,215
----------- ----------- ----------- -----------
Total interest income 5,221,197 4,330,067 1,760,081 1,466,611
----------- ----------- ----------- -----------
Interest expense:
Savings deposits 2,130,388 2,019,077 705,337 657,605
Borrowings 448,535 -- 155,238 --
----------- ----------- ----------- -----------
Total interest expense 2,578,923 2,019,077 860,575 657,605
----------- ----------- ----------- -----------
Net interest income 2,642,274 2,310,990 899,506 809,006
Provision for losses on loans 180,000 180,000 60,000 60,000
----------- ----------- ----------- -----------
Net interest income after provision
for losses on loans 2,462,274 2,130,990 839,506 749,006
----------- ----------- ----------- -----------
Noninterest income:
Fees and service charges 186,032 152,125 60,382 45,771
Net gain (loss) on sales of securities 5,015 1,844 0 --
Other 13,849 11,408 2,849 3,154
----------- ----------- ----------- -----------
Total noninterest income 204,896 165,377 63,231 48,925
----------- ----------- ----------- -----------
Noninterest expenses:
Compensation and employee benefits 1,164,482 1,019,438 388,716 360,131
Insurance premiums 54,256 497,378 18,355 18,028
Professional fees 105,991 87,746 31,006 26,171
Equipment expense 88,642 83,119 26,245 29,988
Net occupancy costs 66,903 60,697 19,740 19,044
Advertising 34,827 32,419 9,782 11,607
Data processing 82,902 71,378 29,639 26,520
Other 278,487 230,278 93,781 78,880
----------- ----------- ----------- -----------
Total noninterest expense 1,876,490 2,082,453 617,264 570,369
----------- ----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes 790,680 213,914 285,473 227,562
Provision (benefit) for income taxes 292,881 (517,189) 106,938 87,885
----------- ----------- ----------- -----------
Net Income (loss) $ 497,799 731,103 178,535 139,677
============================================================================================================================
Net income per common share:
Basic $ 1.47 2.17 0.53 0.42
Fully diluted 1.47 2.17 0.53 0.42
============================================================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 497,799 731,103
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 89,403 89,384
Provision for losses on loans 180,000 180,000
Non-cash compensation under stock-based
benefit plans 84,499 --
Amortization of premiums and discounts, net 5,862 14,317
Deferred loan origination fees, net of costs 62,549 57,507
(Gain) loss on sales of mortgage-backed
securities and investment securities (5,015) (1,844)
Change in deferred income taxes (251,663) (640,000)
(Increase) decrease in accrued interest on
investments, prepaid expenses and other assets (31,344) 1,594
(Decrease) increase in accrued expenses and
other liabilities (403,453) 203,083
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Net cash provided by operating activities 228,637 635,144
----------- -----------
Cash flows from investing activities:
Loan principal disbursements, net of repayments (7,024,930) (6,506,651)
Purchase of loans (1,973,600) (2,617,655)
Purchase of property and equipment (51,103) (167,182)
Purchase of stock in Federal Home Loan Bank of Atlanta (49,300) --
Purchase of stock in Federal Reserve Bank of Richmond (4,300) (131,550)
Purchase of investment security available-for-sale (5,028,125) --
Principal repayment on mortgage-backed securities
available-for-sale 2,621,124 722,492
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 investing activities (4,446,817) (1,864,762)
Cash flows from financing activities:
Net increase (decrease) in deposits (461,395) 1,128,077
Purchase of common stock for stock-based benefits plans -- (423,724)
Dividends paid (72,510) --
Increase in borrowings 7,500,000 --
----------- -----------
Net cash provided by financing activities 6,966,095 704,353
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Net increase (decrease) in cash and cash equivalents $ 2,747,915 (525,265)
Cash and cash equivalents at beginning of period 5,113,187 7,424,465
----------- -----------
Cash and cash equivalents at end of period $ 7,861,102 10,243,643
=========== ===========
Supplemental information:
Interest paid on deposits and borrowed funds $ 2,578,673 2,018,159
Income taxes paid 395,000 151,900
=========== ===========
</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 nine and three months
ended March 31, 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.
5
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Note 5: Regulatory Capital Requirements
At March 31, 1998, the Bank met each of the three minimum regulatory capital
requirements. The following table summarizes the Bank's regulatory capital
position at March 31, 1998 (in thousands).
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------
Total Capital (to Risk
Weighted Assets) $8,629 16.48% $4,190 8.00% $5,238 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $8,104 15.47% $2,095 4.00% $3,143 6.00%
Tier 1 Capital (to
Average Assets) $8,104 9.04% $3,586 4.00% $4,483 5.00%
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. 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. The service bureau has advised the Company that
it expects to resolve this potential problem before the year 2000 by completing
all implementation procedures by December 31, 1998 to allow for testing to occur
in 1999. 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 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 March 31, 1998 and June 30, 1997
The Company's assets increased by $7.2 million or 8.6% to $90.8 million at
March 31, 1998 from $83.6 million at June 30, 1997. The Company's net loans
receivable increased by $9.2 million or 13.9% to $75.4 million at March 31, 1998
from $66.2 million at June 30, 1997. The increase in net loans receivable was
comprised of $2.3 million residential real estate loans, $1.7 million
construction loans, $2.4 million consumer loans, $2.1 million commercial real
estate loans and $700,000 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 March 31, 1998 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 $3.1 million or 150.0% to $5.1
million at March 31, 1998 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 of five years 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 $7.5 million or 277.8% to $10.2 million at March 31, 1998 from $2.7 million
at June 30, 1997. Deposits decreased by $461,000 or by 0.7% to $69.7 million at
March 31, 1998 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 $900,000 which was attributable to
interest crediting. Total stockholders' equity increased by $502,000 or 6.0% to
$8.8 million at March 31, 1998 from $8.3 million at June 30, 1997. The increase
in stockholders' equity was due primarily to $498,000 in net income, $85,000 of
earned compensation in stock-based benefit plans and a $29,000 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 $110,000
in dividends declared.
Comparison of Operating Results for the Quarters and Nine Months Ended March 31,
1998 and March 31, 1997
Net Income
- ----------
The Company's net income increased by $39,000 or 27.9% to $179,000 for the
quarter ended March 31, 1998 from $140,000 for the quarter ended March 31, 1997.
The increase was primarily due to a $91,000 increase in net interest income and
a $14,000 increase in noninterest
8
<PAGE>
income, offset in part by a $47,000 increase in noninterest expenses and a
$19,000 increase in provision for income taxes. The Company's net income for the
nine months ended March 31, 1998 was $498,000 as compared to $731,000 for the
nine months ended March 31, 1997. Net income for the nine months ended March 31,
1997 was significantly affected by a $600,000 reduction in income tax expense
and a $415,000 pretax deposit insurance premium expense. The $600,000 reduction
in income tax expense was a partial reversal of the $740,000 tax bad debt
reserve which was recorded in 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
$386,000 for the nine months ended March 31, 1997. On an adjusted basis, the
Company's net income would have increased by $112,000 or 29.0% for the nine
months ended March 31, 1998 as compared to the nine months ended March 31, 1997.
Interest Income
- ---------------
Total interest income increased by $293,000 or 19.5% to $1.8 million for
the quarter ended March 31, 1998 from $1.5 million for the quarter ended March
31, 1997. Total interest income increased by $891,000 or 20.7% to $5.2 million
for the nine months ended March 31, 1998 from $4.3 million for the nine months
ended March 31, 1997. The increase in the Company's total interest income for
the quarter ended March 31, 1998 as compared to the quarter ended March 31, 1997
was due to an increase of $8.9 million in the average balance of
interest-earning assets to $86.7 million from $77.8 million and an increase of
57 basis points in the average yield on interest-earning assets to 8.12% from
7.55%. The increase in the Company's total interest income for the nine months
ended March 31, 1998 as compared to the nine months ended March 31, 1997 was due
to an increase of $8.9 million in the average balance of interest-earning assets
to $86.3 million from $77.4 million and an increase of 61 basis points in the
average yield on interest-earning assets to 8.07% from 7.46%. The increases in
the average balance and average yield for the comparable three month and nine
month periods are primarily due to the growth in the Company's loan portfolio as
discussed below.
Interest income on loans receivable increased by $382,000 or 31.8% to $1.6
million for the quarter ended March 31, 1998 from $1.2 million for the quarter
ended March 31, 1997. Interest income on loans receivable increased by $1.1
million or 32.4% to $4.5 million for the nine months ended March 31, 1998 from
$3.4 million for the nine months ended March 31, 1997. The increase in interest
income on loans receivable during the three months and nine months periods is
primarily due to an increases in the average balance and average yield of loans
receivable. During the three months ended March 31, 1998 as compared to the same
period ended March 31, 1997 the average balance increased by $14.6 million or
24.7% to $73.8 million from $59.2 million and the average yield increased by 49
basis points to 8.48% from 7.99%. During the nine months ended March 31, 1998 as
compared to the same period ended March 31, 1997 the average balance of
increased by $14.9 million or 25.2% to $71.7 million from $56.8 million and the
average yield increased by 45 basis points to 8.44% from 7.99%.
9
<PAGE>
Interest income on mortgage-backed securities decreased by $121,000 or 100%
to $0 for the quarter ended March 31, 1998 from $121,000 for the quarter ended
March 31, 1997. Interest income on mortgage-backed securities decreased by
$310,000 or 74.9% to $104,000 for the nine months ended March 31, 1998 from
$414,000 for the nine months ended March 31, 1997. The decrease in interest
income on mortgage-backed securities during the three months ended March 31,
1998 as compared to the three months ended March 31, 1997 was primary
attributable to a decrease of $7.9 million in the average balance of
mortgage-backed securities to $0 from $7.9 million. The decrease in interest
income on mortgage-backed securities during the comparable nine month periods
was primarily due to the decrease of $6.5 million in the average balance of
mortgage-backed securities to $2.5 million from $9.0 million. During the three
and nine month periods ended March 31, 1998, 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 $48,000 or 133.3% to
$84,000 for the quarter ended March 31, 1998 from $36,000 for the quarter ended
March 31, 1997. Interest income on investment securities increased by $170,000
or 110.4% to $324,000 during the nine month ended March 31, 1998 from $154,000
during the nine months ended March 31, 1997. The increase in interest income
during the comparable quarters was primarily attributable to an increase of $3.1
million in the average balance of investment securities to $5.1 million from
$2.0 million offset slightly by a decrease of 86 basis points in the average
yield to 6.58% from 7.44%. The increase in interest income during the comparable
nine month periods was primary attributable to an increase of $3.0 million in
the average balance of investment securities to $6.2 million from $3.2 million
and an increase of 62 basis points in the average yield to 6.96% from 6.34%.
Interest income on federal funds sold and other investments decreased by
$15,000 or 11.9% to $111,000 for the quarter ended March 31, 1998 from $126,000
for the quarter ended March 31, 1997. Interest income on federal funds sold and
other investments decreased by $103,000 or 28.8% to $255,000 for the nine months
ended March 31, 1998 from $358,000 for the nine months ended March 31, 1997.
Other investments consists of investments in the FHLB and the Federal Reserve
Bank of Richmond. The decrease in interest income on federal funds sold and
other investments during the comparable quarters were largely due to the
decrease in the average balance and the average yield. The decreases in interest
income on federal funds sold and other investments during the comparable nine
month periods were primarily due to the decrease in the average balance offset
slightly by an increase in the average yield. During the comparable quarters the
average balance decreased by $900,000 to $7.7 million from $8.6 million and the
average yield decreased by 10 basis points to 5.73% from 5.83%. During the
comparable nine month periods the average balance decreased by $2.5 million to
$5.9 million from $8.4 million and the average yield increased by 11 basis
points to 5.81% from 5.70%.
Interest Expense
- ----------------
Total interest expense increased by $203,000 or 30.9% to $861,000 for the
quarter ended March 31, 1998 from $658,000 for the quarter ended March 31, 1997.
Total interest expense increased by $560,000 or 28.0% to $2.6 million for the
nine months ended March 31, 1998 from
10
<PAGE>
$2.0 million for the nine month period ended March 31, 1997. The increases in
interest expense were primarily 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 March 31, 1998 as compared to the quarter ended March 31, 1997
the average balance of interest-bearing liabilities increased by $13.7 million
to $77.0 million from $63.3 million and the average rate increased 31 basis
points to 4.47% from 4.16%. During the nine months ended March 31, 1998 as
compared to the nine months ended March 31, 1997 the average balance of
interest-bearing liabilities increased by $13.5 million to $76.5 million from
$63.0 million and the average rate increased 22 basis points to 4.49% from
4.27%.
Interest expense on deposits increased by $47,000 or 7.1% to $705,000 for
the quarter ended March 31, 1998 from $658,000 for the quarter ended March 31,
1997. Interest expense on deposits increased by $111,000 or 5.6% to $2.1 million
from $2.0 million for the nine months ended March 31, 1997. The increase in
interest expense on deposits during the comparable quarters was primarily
attributable to an increase of $3.4 million in the average balance of
interest-bearing deposits to $66.7 million from $63.3 million and an increase in
the average rate by 6 basis points to 4.22% from 4.16%. The increase in interest
expense on deposits during the comparable nine month periods was primarily due
to a $3.7 million increase in the average balance to $66.7 million from $63.0
million offset slightly by a decrease in the average rate to 4.26% from 4.27%.
The Company incurred $155,000 and $449,000 of interest expense on
borrowings during the quarter and nine months ended March 31, 1998,
respectively. The Company had no borrowings outstanding during the quarter and
nine months ended March 31, 1997 and therefore no expense. During the quarter
ended March 31, 1998, 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
March 31, 1998 was $10.3 million and 6.03%, respectively. The average balance
and average rate of borrowings outstanding during the nine months ended March
31, 1998 was $9.8 million and 6.10%, 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 $91,000 or 11.2% to $900,000
for the quarter ended March 31, 1998 from $809,000 for the quarter ended March
31, 1997. Net interest income increased by $331,000 or 14.4% to $2.6 million for
the nine months ended March 31, 1998 from $2.3 million during the nine months
ended March 31, 1997. The increase in net interest income during the comparable
quarters and nine month periods were primarily due to increases in the interest
rate spread (net yield on average interest-earning assets less the rate paid on
average interest-bearing liabilities). The interest rate spread increased by 27
basis points and 39 basis points to 3.66% and 3.58%, respectively during the
quarter and nine months ended March 31, 1998 from 3.39% and 3.19% during the
quarter and nine months ended March 31, 1997, respectively.
11
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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
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<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------------------
1998 1997
------------------------------------- ---------------------------------------
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) $73,806 1,565 8.48% $59,245 1,183 7.99%
Investment securities 5,106 84 6.58% 1,989 37 7.44%
Mortgage-backed securities -- -- -- 7,871 121 6.15%
Federal funds sold and other
interest-earning assets 7,742 111 5.73% 8,651 126 5.83%
------- ------- ------- ------- ------- ------
Total interest earning assets 86,654 1,760 8.12% 77,756 1,467 7.55%
------- ------- ------- ------- ------
Noninterest-earning assets 3,099 1,688
------- -------
Total assets $89,753 $79,444
======= =======
Interest-bearing liabilities:
Deposits (3) $66,748 705 4.22% $63,284 658 4.16%
Borrowings 10,290 155 6.03% -- -- --
------- ------- ------- -------- ------ ------
Total interest-bearing liabilities 77,038 860 4.47% 63,284 658 4.16%
------- ------- ------ ------
Noninterest-bearing liabilities 3,965 3,520
------- -------
Total liabilities 81,003 66,804
Stockholders' equity 8,750 12,640
------- -------
Total liabilities and stockholders' equity $89,753 $79,444
======= =======
Net interest income $ 900 $ 809
======= =======
Interest rate spread 3.66% 3.39%
======= ======
Net yield on interest-earning assets 4.15% 4.16%
======= ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 112.48% 122.87%
======= =======
</TABLE>
- ------------------------------------------------------
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended March 31,
--------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
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) $71,696 4,538 8.44% $56,772 $ 3,404 7.99%
Investment securities 6,228 325 6.96% 3,238 154 6.34%
Mortgage-backed securities 2,478 103 5.54% 8,966 414 6.16%
Federal funds sold and other
interest-earning assets 5,855 255 5.81% 8,372 358 5.70%
------- ------- ------- ------- ------- -------
Total interest earning assets 86,257 5,221 8.07% 77,348 4,330 7.46%
------- ------- ------- -------
Noninterest-earning assets 2,464 1,717
------- -------
Total assets $88,721 $79,065
======= =======
Interest-bearing liabilities:
Deposits (3) $66,721 2,130 4.26% $63,042 $ 2,019 4.27%
Borrowings 9,813 449 6.10% -- -- --
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 76,534 2,579 4.49% 63,042 2,019 4.27%
------- ------- ------- -------
Noninterest-bearing liabilities 3,597 3,425
------- -------
Total liabilities 80,131 66,467
Stockholders' equity 8,590 12,598
------- -------
Total liabilities and stockholders' equity $88,721 $79,065
======= =======
Net interest income $ 2,642 $ 2,311
======= =======
Interest rate spread 3.58% 3.19%
======= =======
Net yield on interest-earning assets 4.08% 3.98%
======= =======
Ratio of average interest-earning assets
to average interest-bearing liabilities 112.70% 122.69%
======= =======
</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 $180,000 and $60,000 for loan losses during each
of the nine month periods and quarters ended March 31, 1998 and March 31, 1997,
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 0.69% at March 31, 1998 from
0.56% at March 31, 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 $14,000 or 28.6% to $63,000 for the quarter
ended March 31, 1998 from $49,000 for the quarter ended March 31, 1997. Total
interest income increased by $40,000 or 24.2% to $205,000 during the nine months
ended March 31, 1998 from $165,000 during the nine months ended March 31, 1997.
The increase in total noninterest income during the comparable quarters and nine
month periods were primarily due to increases in fees and other service charges
primarily related to checking accounts.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by $47,000 or 8.2% to $617,000 for the
quarter ended March 31, 1998 from $570,000 for the quarter ended March 31, 1997.
Total noninterest expense decreased by $206,000 to $1.9 million during the nine
months ended March 31, 1998 from $2.1 million during the nine months ended March
31, 1997. As discussed earlier, the Company incurred a $415,000 one time deposit
insurance premium expense during the nine months ended March 31, 1997. Excluding
the one time deposit insurance premium, the Company's noninterest expenses for
the nine months ended March 31, 1998 would have increased by $209,000 or 12.3%,
from $1.7 million for the nine months ended March 31, 1997. Compensation and
employee benefits expense increased by $145,000 to $1.16 million for the nine
month period ended March 31, 1998 from $1.02 million for the nine months ended
March 31, 1997. 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 occupancy costs, advertising and data
processing expenses increased by $64,000 during the nine months ended March 31,
1998 as compared to the nine months ended March 31, 1997. The Company's
15
<PAGE>
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 $107,000 during the quarter
ended March 31, 1998 compared to $88,000 for the quarter ended March 31, 1997.
The Company's provision for income taxes was $293,000 during the nine months
ended March 31, 1998 compared to a tax benefit of $517,000 during the nine
months ended March 31, 1997. 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 nine months ended March 31, 1997. After
adjusting for those one time charges the Company's provision for income taxes
would have been $243,000 for the nine months ended March 31, 1998.
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 March 31, 1998, the Company's cash on hand, interest-bearing deposits and
Federal funds sold totaled $7.9 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 $1.9 million. Certificates of deposits
which are scheduled to mature in less than one year at March 31, 1998 totaled
$27.6 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.
16
<PAGE>
The Company's primary uses of cash in investing activities during the nine
months ended March 31, 1998 were loan principal disbursements and purchases, net
of repayments, of $7.0 million and the purchase of a $5.0 million investment
security. The Company's primary sources of cash provided from investing
activities during the nine months ended March 31, 1998 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 nine
months ended March 31, 1998 consisted of a $461,000 decrease in deposits. The
Company's primary source of cash provided by financing activities during the
nine months ended March 31, 1998 consisted primarily of a $7.5 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
- ----------------------------------
Disclosures about Segments of an Enterprise and Related Information. In
June 1997, the Financial Accounting Standards Board (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.
Statement on Employers Disclosures About Pensions and Other Postretirement
Benefits. In February 1998, the FASB issued SFAS 132 which standardizes
disclosure requirements for pensions and postretirement benefits. This Statement
is effective for fiscal years beginning after December 15, 1997. Management
believes the adoption of this Statement will not have a material effect on the
financial statements of the Company.
17
<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) On March 18, 1998 and subsequently amended on March 31, 1998, the
Registrant filed a Form 8-K and Form 8-K/A, respectively,
reporting the change in certifying accountants.
18
<PAGE>
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PATAPSCO BANCORP, INC.
Date: May 8, 1998 /s/ Joseph J. Bouffard
--------------------------------
Joseph J. Bouffard
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 8, 1998 /s/ Timothy C. King
--------------------------------
Timothy C. King
Vice President and Controller
(Principal Financial and Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PATAPSCO
BANCORP, INC. AND SUBSIDIARY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> JUL-01-1997 JUL-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 849,669 849,669
<INT-BEARING-DEPOSITS> 376,866 376,866
<FED-FUNDS-SOLD> 6,634,567 6,634,567
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 5,128,181 5,128,181
<INVESTMENTS-CARRYING> 5,128,181 5,128,181
<INVESTMENTS-MARKET> 5,128,181 5,128,181
<LOANS> 75,371,472 75,371,472
<ALLOWANCE> 525,362 525,362
<TOTAL-ASSETS> 90,803,725 90,803,725
<DEPOSITS> 69,690,898 69,690,898
<SHORT-TERM> 1,800,000 1,800,000
<LIABILITIES-OTHER> 2,076,450 2,076,450
<LONG-TERM> 8,400,000 8,400,000
0 0
0 0
<COMMON> 3,626 3,626
<OTHER-SE> 8,832,751 8,832,751
<TOTAL-LIABILITIES-AND-EQUITY> 90,803,725 90,803,725
<INTEREST-LOAN> 4,537,938 1,565,461
<INTEREST-INVEST> 428,247 83,840
<INTEREST-OTHER> 255,012 110,780
<INTEREST-TOTAL> 5,221,197 1,760,081
<INTEREST-DEPOSIT> 2,130,388 705,337
<INTEREST-EXPENSE> 2,578,923 860,575
<INTEREST-INCOME-NET> 2,642,274 899,506
<LOAN-LOSSES> 180,000 60,000
<SECURITIES-GAINS> 5,015 0
<EXPENSE-OTHER> 1,876,490 617,264
<INCOME-PRETAX> 790,680 285,473
<INCOME-PRE-EXTRAORDINARY> 790,680 285,473
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 497,799 178,535
<EPS-PRIMARY> 1.47 0.53
<EPS-DILUTED> 1.47 0.53
<YIELD-ACTUAL> 8.07 8.12
<LOANS-NON> 342,000 342,000
<LOANS-PAST> 342,000 342,000
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 397,012 495,309
<CHARGE-OFFS> 57,467 31,666
<RECOVERIES> 5,817 1,719
<ALLOWANCE-CLOSE> 525,362 525,362
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
