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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, 1999
[ ] 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 No X The issuer has not been subject to such
--- --- filing requirements for the past 90 days.
As of May 14, 1999, the issuer had 344,426 shares of Common
Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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CONTENTS
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PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1999 and June 30, 1998 3
Consolidated Statements of Income for the
Nine and Three-Month Periods Ended
March 31, 1999 and 1998 4
Consolidated Statements of Comprehensive
Income for the Nine and Three-Month
Periods Ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows
for the Nine-Month Periods Ended
March 31, 1999 and 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security-Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, JUNE 31,
Assets 1999 1998
------ --------------- --------------
(Unaudited)
<S> <C> <C>
Cash:
On hand and due from banks $ 496,850 $ 970,218
Interest bearing deposits in other banks 1,229,646 419,583
Federal funds sold 4,493,449 7,148,619
Investment securities, at fair value 1,300,214 5,118,910
Loans receivable, net 79,528,880 75,870,779
Investment in securities required by law, at cost 675,650 675,650
Property and equipment, net 1,053,510 1,095,621
Deferred income taxes 352,510 336,000
Accrued interest, prepaid expenses and other assets 969,723 735,576
----------- ------------
Total assets $90,100,432 $ 92,370,956
=========== ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings deposits:
Interest bearing deposits $66,866,397 $ 67,736,810
Non interest bearing deposits 3,139,416 2,590,571
Borrowings 8,900,000 10,200,000
Accrued expenses and other liabilities 2,112,187 2,720,735
----------- ------------
Total liabilities 81,018,000 83,248,116
Stockholders' equity:
Common stock $0.01 par value: authorized 4,000,000
shares: issued and outstanding 344,426 and
362,553 shares, respectively 3,444 3,626
Additional paid-in capital 1,807,483 2,330,681
Contra equity - Employee stock ownership plan (396,341) (396,341)
Contra equity - Management recognition plan (257,095) (339,225)
Retained income, substantially restricted 7,952,968 7,525,501
Unrealized net holding losses on available-for-sale
portfolios, net of taxes (28,027) (1,402)
----------- ------------
Total stockholders' equity 9,082,432 9,122,840
----------- ------------
Total liabilities and stockholders' equity $ 90,100,432 $ 92,370,956
=========== ============
</TABLE>
See accompanying notes to financial statements.
3<PAGE>
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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,
---------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $4,997,609 $4,537,938 $1,684,066 $1,565,461
Mortgage-backed securities -- 103,517 -- --
Investment securities 188,357 324,730 29,599 83,840
Federal funds sold and other
investments 193,593 255,012 66,954 110,780
---------- ---------- ---------- ----------
Total interest income 5,379,559 5,221,197 1,780,619 1,760,081
---------- ---------- ---------- ----------
Interest expense:
Savings deposits 2,043,305 2,130,388 658,755 705,337
Borrowings 433,827 448,535 134,651 155,238
---------- ---------- ---------- ----------
Total interest expense 2,477,132 2,578,923 793,406 860,575
---------- ---------- ---------- ----------
Net interest income 2,902,427 2,642,274 987,213 899,506
Provision for losses on loans 170,000 180,000 60,000 60,000
---------- ---------- ---------- ----------
Net interest income after
provision for losses
on loans 2,732,427 2,462,274 927,213 839,506
Noninterest income:
Fees and service charges 168,044 186,032 58,468 60,382
Net gain (loss) on sales of
securities -- 5,015 -- --
Other 13,378 13,849 8,293 2,849
---------- ---------- ---------- ----------
Total noninterest income 181,422 204,896 66,761 63,231
---------- ---------- ---------- ----------
Noninterest expenses:
Compensation and employee
benefits 1,301,352 1,164,482 440,815 388,716
Insurance premiums 51,021 54,256 16,556 18,355
Professional fees 87,191 105,991 22,865 31,006
Equipment expense 82,726 88,642 28,588 26,245
Net occupancy costs 63,080 66,903 17,750 19,740
Advertising 31,144 34,827 10,242 9,782
Data processing 85,716 82,902 24,458 29,639
Other 323,099 278,487 103,074 93,781
---------- ---------- ---------- ----------
Total noninterest expense 2,025,329 1,876,490 664,348 617,264
---------- ---------- ---------- ----------
Income before provision
for income taxes 888,520 790,680 329,626 285,473
Provision for income taxes 333,711 292,881 125,541 106,938
----------- ---------- ---------- ----------
Net Income $ 554,809 $ 497,799 $ 204,085 $ 178,535
=========== ========== ========== ==========
Basic earnings per share $ 1.69 $ 1.47 $ 0.63 $ 0.53
=========== ========== ========== ==========
Diluted earnings per share 1.62 1.47 0.60 0.53
</TABLE>
See accompanying notes to financial statements.
4<PAGE>
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED FOR THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 554,809 $ 497,799 $ 204,085 $178,535
Other comprehensive income,
net of tax:
Unrealized net holding
(losses)/gains on
available-for-sale
portfolios (26,625) 28,842 (6,793) 5,506
--------- ---------- --------- ---------
Comprehensive income $ 528,184 $ 526,641 $ 197,292 $184,041
========= ========== ========= ========
</TABLE>
See accompanying notes to financial statements.
5
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PATAPSCO BANCORP, INC. AND SUBSIDIARY
DUNDALK, MARYLAND
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
FOR NINE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
------- -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 554,809 $ 497,799
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 88,657 89,403
Provision for losses on loans 170,000 180,000
Non-cash compensation under stock-based benefit plans 82,130 84,499
Amortization of premiums and discounts, net 12,196 5,862
Deferred loan origination fees, net of costs 86,730 62,549
Gain on sales of mortgage-backed securities
and investment securities -- (5,015)
Change in deferred income taxes -- (251,663)
(Increase) in accrued interest on investments,
prepaid expenses and other assets (234,147) (31,344)
Decrease in accrued expenses and other liabilities (608,548) (403,453)
----------- ----------
Net cash used in operating activities 151,827 228,637
----------- ----------
Cash flows from investing activities:
Loan principal disbursements, net of repayments (2,120,034) (7,024,930)
Purchase of loans (1,794,554) (1,973,600)
Purchase of property and equipment (46,546) (51,103)
Purchase of stock in Federal Home Loan Bank of Atlanta -- (49,300)
Purchase of stock in Federal Reserve Bank of Richmond -- (4,300)
Purchase of investment security available-for-sale (204,173) (5,028,125)
Principal repayment on mortgage-backed securities
available-for-sale -- 2,621,124
Principal repayment on investment securities
available-for-sale 3,967,295 --
Maturities of investment securities available-for-sale -- 2,000,000
Sales of mortgage-backed securities available-for-sale -- 5,063,417
---------- ----------
Net cash used in investing activities (198,012) (4,446,817)
Cash flows from financing activities:
Net decrease in deposits (321,568) (461,395)
Stock repurchase (523,380) --
Dividends paid (127,342) (72,510)
(Decrease) increase in borrowings (1,300,000) 7,500,000
---------- ----------
Net cash (used in) provided by financing activities (2,272,290) 6,966,095
---------- ----------
Net (decrease) increase in cash and cash equivalents $(2,318,475) $2,747,915
Cash and cash equivalents at beginning of period 8,538,420 5,113,187
---------- ----------
Cash and cash equivalents end of period $6,219,945 $7,861,102
========== ==========
Supplemental information:
Interest paid on deposits and borrowed funds 2,480,797 2,578,673
Income taxes paid 627,750 395,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
6
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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. In October, 1998 the Bank created a leasing
company called Prime Business Leasing, Inc. 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, 1999 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.
7
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Note 5: Regulatory Capital Requirements
At March 31, 1999, the Bank met each of the three minimum
regulatory capital requirements. The following table summarizes
the Bank's regulatory capital position at March 31, 1999 (in
thousands).
<TABLE>
<CAPTION>
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
----------------- ------------------- ------------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk
Weighted Assets) $8,933 14.91% $4,793 8.00% $5,992 10%
Tier 1 Capital (to Risk
Weighted Assets) $8,281 13.82% $2,397 4.00% $3,595 6%
Tier 1 Capital (to
Average Assets) $8,281 9.23% $3,590 4.00% $4,487 5%
</TABLE>
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's 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.
YEAR 2000 READINESS DISCLOSURE
The following information constitutes "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness
Disclosure Act.
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 testing of internal mission-critical
systems was substantially complete as of December 31, 1998 and
it is currently developing and testing contingency plans.
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
8<PAGE>
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operation of the Company. Our contingency plan will address
alternative methods to provide basic services to our customers.
The Company estimates costs related to the year 2000 are less
than $10,000.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND JUNE 30,
1998
The Company's assets decreased by $2.3 million or 2.5% to $90.1
million at March 31, 1999 from $92.4 million at June 30, 1998.
The decrease in the Company's assets during the nine months
ended March 31, 1999 was primarily due to the Company utilizing
low yielding cash to fund $300,000 in deposits outflows and
payoff $1,300,000 in borrowings from the Federal Home Loan Bank
of Atlanta ("FHLB") which generally had higher rates of
interest. The Company's net loans receivable increased by $3.7
million or 4.8% to $79.5 million at March 31, 1999 from $75.9
million at June 30, 1998. The increase in net loans receivable
was comprised of $3.8 million in commercial real estate loans,
$1.6 million in consumer loans, $2.4 million in commercial loans
and a decrease of $4.1 million in residential real estate loans.
The Company's investment securities portfolio decreased by $3.8
million or 75.0% to $1.3 million at March 31, 1999 from $5.1
million at June 30, 1998 due to prepayments.
The Company's borrowings decreased by $1,300,000 or 12.8% to
$8.9 million at March 31, 1999 from $10.2 million at June 30,
1998. Deposits decreased by $300,000 or by 0.4% to $70.0 million
at March 31, 1999 from $70.3 million at June 30, 1998. The
decrease in deposits was largely attributable to the decrease of
$900,000 in interest-bearing deposits consisting of primarily
higher yielding certificate of deposit accounts.
Noninterest-bearing deposits increased by $600,000 during the
nine months ended March 31, 1999.
The Company's stockholders' equity decreased by $40,000 to
$9.1 million at March 31, 1999 from $9.1 million at June 30,
1998. In November, 1998 the Company initiated a 5% (18,127
shares) stock repurchase program of which all shares had been
repurchased as of March 31, 1999 at a cost of $523,000.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS AND NINE MONTHS
ENDED MARCH 31, 1999 AND MARCH 31, 1998
Net Income
- ----------
The Company's net income increased by $26,000 or 14.6% to
$204,000 for the quarter ended March 31, 1999 from $178,000 for
the quarter ended March 31, 1998. The Company's net income
increased by $57,000 or 11.4% to $555,000 for the nine months
ended March 31, 1999 from $498,000 for the nine months ended
March 31, 1998. The increases in the Company's net income during
the comparable three and nine month periods was primarily due to
$87,000 and $260,000 increases in net interest income partially
offset by $47,000 and $149,000 increases in noninterest
expenses, respectively.
Interest Income
- ---------------
Total interest income increased by $20,000 or 1.1% to
$1.78 million for the quarter ended March 31, 1999 from $1.76
million for the quarter ended March 31, 1998. Total interest
income increased by $158,000 or 3.0% to $5.4 million for the
nine months ended March 31, 1999 from $5.2 million for the nine
months ended March 31, 1998. The increases in interest income
resulted primarily from the growth in the Company's loan
portfolio which was funded with principal repayments from the
investment securities and mortgage-backed securities portfolios
as well as cash from lower yielding investments in overnight
federal funds. The Company's average yield on assets increased
by 6 basis points and 12 basis points to 8.18% and 8.19% during
the three and nine month periods ended March 31, 1999,
respectively as compared to the 8.12% and 8.07% for the three
and nine month periods ended March 31, 1998, respectively. The
Company's average balance of interest-earning assets decreased
by $467,000 during the comparable three month periods and
increased by $1.3 million during the comparable nine month
periods.
Interest income on loans receivable increased by $119,000
or 7.6% to $1.7 million for the quarter ended March 31, 1999
from $1.6 million for the quarter ended March 31, 1998. Interest
income on loans receivable increased by $460,000 or 10.1% to
$5.0 million for the nine months ended March 31, 1999 from $4.5
million for the nine months ended March 31, 1998. The increase
in interest income on loans receivable during the three month
period is primarily due to an increase in the average balance of
loans receivable. The increase in interest income on loans
9<PAGE>
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receivable during the nine month period is primarily due to an
increases in the average balance and average yield of loans
receivable. The Company has emphasized commercial and consumer
lending to compliment it's existing residential mortgage
portfolio. Commercial and consumer loans generally have higher
yields associated with them. During the three months ended March
31, 1999 as compared to the same period ended March 31, 1998 the
average loans receivable balance increased by $5.9 million or
7.7% to $79.7 million from $73.8 million and the average yield
decreased by 3 basis points to 8.45% from 8.48%. During the nine
months ended March 31, 1999 as compared to the same period ended
March 31, 1998 the average balance of loans receivable increased
by $7.1 million or 9.8% to $78.7 million from $71.7 million and
the average yield increased by 2 basis points to 8.46% from
8.44%.
The Company had no mortgage-backed securities outstanding
during the three and nine month periods ended March 31, 1999 and
therefore no interest income. The Company did however, have
$103,000 in interest income on mortgage-backed securities during
the nine month period ended March 31, 1998.
Interest income on investment securities decreased by
$54,000 or 64.7% to $30,000 for the quarter ended March 31, 1999
from $84,000 for the quarter ended March 31, 1998. Interest
income on investment securities decreased by $137,000 or 42.0%
to $188,000 during the nine month ended March 31, 1999 from
$325,000 during the nine months ended March 31, 1998. The
decrease in interest income during the comparable quarters was
primarily attributable to a decrease of $3.2 million in the
average balance of investment securities to $1.9 million from
$5.1 million and a decrease of 24 basis points in the average
yield to 6.34% from 6.58%. The decrease in interest income
during the comparable nine month periods was primary
attributable to a decrease of $2.6 million in the average
balance of investment securities to $3.6 million from $6.2
million and a decrease of 6 basis points in the average yield to
6.90% from 6.96%.
Interest income on federal funds sold and other investments
decreased by $44,000 or 39.6% to $67,000 for the quarter ended
March 31, 1999 from $111,000 for the quarter ended March 31,
1998. Interest income on federal funds sold and other
investments decreased by $61,000 or 23.9% to $194,000 for the
nine months ended March 31, 1999 from $255,000 for the nine
months ended March 31, 1998. Other investments consists of
investments in the FHLB and the Federal Reserve Bank of
Richmond. During the comparable quarters the average balance
decreased by $2.2 million to $5.6 million from $7.8 million and
the average yield decreased 90 basis points to 4.83% from 5.73%.
During the comparable nine month periods the average balance
decreased by $694,000 to $5.2 million from $5.9 million and the
average yield decreased 80 basis points to 5.01% from 5.81%.
Interest Expense
- ----------------
Total interest expense decreased by $67,000 or 7.8% to
$793,000 for the quarter ended March 31, 1999 from $861,000 for
the quarter ended March 31, 1998. Total interest expense
decreased by $102,000 or 4.0% to $2.48 million for the nine
months ended March 31, 1999 from $2.58 million at March 31,
1998. The decreases in interest expense during the comparable
quarters were primarily due to decreases in the average balance
and average cost of interest-bearing liabilities. During the
quarter ended March 31, 1999 as compared to the quarter ended
March 31, 1998 the average balance of interest-bearing
liabilities decreased by $1.1 million to $75.9 million from
$77.0 million and the average rate decreased 29 basis points to
4.18% from 4.47%. During the nine months ended March 31, 1999 as
compared to the nine months ended March 31, 1998 the average
balance of interest-bearing liabilities decreased by $433,000 to
$76.1 million from $76.5 million and the average rate decreased
15 basis points to 4.34% from 4.49%.
Interest expense on deposits decreased by $46,000 or 6.5%
to $659,000 for the quarter ended March 31, 1999 from $705,000
for the quarter ended March 31, 1998. Interest expense on
deposits decreased by $87,000 or 4.1% to $2.04 million from
$2.13 million for the nine months ended March 31, 1998. The
decrease in interest expense on deposits during the comparable
quarters was primarily attributable to a decrease in the average
rate by 27 basis points to 3.95% from 4.22%. The decrease in
interest expense on deposits during the comparable nine month
periods was primarily due to a $100,000 decrease in the average
balance to $66.6 million from $66.7 million and a decrease in
the average rate to 4.09% from 4.26%. The Company has directed
it's marketing effort towards attracting lower interest-bearing
transaction type deposits and noninterest-bearing deposits while
allowing higher priced deposits to mature rather than pay above
market rates.
10
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Interest expense on borrowings decreased by $20,000 or 13.0% to
$135,000 for the quarter ended March 31, 1999 from $155,000 for
the quarter ended March 31, 1998. Interest expense on borrowings
decreased by $15,000 or 3.3% to $433,000 during the nine months
ended March 31, 1999 from $448,000 during the nine months ended
March 31, 1998. The decrease for the comparable quarters was
primarily attributable to a decrease of $1.1 million in the
average balance and a decrease of 13 basis points in the average
rate. For the nine month comparable periods the decrease was
attributable to a $300,000 decrease in the average balance. The
average rate remained unchanged.
Net Interest Income
- -------------------
The Company's net interest income increased by $88,000 or 9.8%
to $987,000 for the quarter ended March 31, 1999 from $899,000
for the quarter ended March 31, 1998. Net interest income
increased by $260,000 or 9.8% to $2.9 million for the nine
months ended March 31, 1999 from $2.6 million during the nine
months ended March 31, 1998. The increase in net interest income
during the comparable quarters and nine month periods were
primarily due to an increase of 35 basis points and 27 basis
points the interest rate spread (net yield on average interest-
earning assets less the rate paid on average interest-bearing
liabilities) to 4.00% and 3.85% from 3.65% and 3.58%,
respectively.
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.
11
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<TABLE>
<CAPTION>
Nine Months Ended March 31,
----------------------------------------------------------------------
1999 1998
--------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (2) $78,747 $4,998 8.46% $71,696 $4,538 8.44%
Investment securities 3,631 188 6.90 6,228 325 6.96
Mortgage-backed securities -- -- -- 2,478 103 5.54
Federal funds sold and other
interest-earning assets 5,161 194 5.01 5,855 255 5.81
------- ----- ------- -----
Total interest earning assets 87,539 5,380 8.19 86,257 5,221 8.07
----- ----- ----
Noninterest-earning assets 2,157 2,464
------- -------
Total assets $89,696 $88,721
======= =======
Interest-bearing liabilities:
Savings deposits (3) 66,621 2,043 4.09 $66,721 2,130 4.26
Borrowings 9,480 434 6.10 9,813 449 6.10
------- ------ ------- ------
Total interest-bearing liabilities 76,101 2,477 4.34 76,534 2,579 4.49
------ ---- ------ ----
Noninterest-bearing liabilities 4,319 3,597
------- -------
Total liabilities 80,420 80,131
Stockholders' equity 9,276 8,590
------- -------
Total liabilities and stockholders'
equity $89,696 $88,721
======= =======
Net interest income $2,903 $2,642
====== ======
Interest rate spread 3.85% 3.58
====== ======
Net yield on interest-earning assets 4.42% 4.08
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 115.03% 112.70
====== ======
<FN>
___________
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
</FN>
</TABLE>
12<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------
1999 1998
--------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (2) $79,674 $1,684 8.45% $73,806 $1,565 8.48%
Investment securities 1,894 30 6.34 5,106 84 6.58
Mortgage-backed securities -- -- -- -- -- --
Federal funds sold and other
interest-earning assets 5,553 67 4.83 7,742 111 5.73
-------- ------ ------- -----
Total interest earning assets 87,121 1,781 8.18 86,654 1,760 8.12
------ -----
Noninterest-earning assets 2,407 3,099
-------- -------
Total assets $89,528 $89,753
======== =======
Interest-bearing liabilities:
Savings deposits (3) $66,766 659 3.95 $66,748 705 4.22
Borrowings 9,150 135 5.90 10,290 155 6.03
------- ----- ------- -----
Total interest-bearing liabilities 75,916 794 4.18 77,038 860 4.47
----- ---- ----- ----
Noninterest-bearing liabilities 4,333 3,965
------- -------
Total liabilities 80,249 81,003
Stockholders' equity 9,279 8,750
------- ------
Total liabilities and stockholders'
equity $89,528 $89,753
======= =======
Net interest income $ 987 $ 900
===== =====
Interest rate spread 4.00% 3.65%
====== ======
Net yield on interest-earning assets 4.53% 4.15%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 114.76% 112.48%
====== ======
<FN>
___________
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
</FN>
</TABLE>
Provision For Loan Losses
- -------------------------
Provisions for loan losses are charged to earnings to
maintain the total allowance for loan losses at a level
considered adequate by management to provide for probable loan
losses, based on prior loss experience, volume and type of
collateral by the Company, industry standards and past due loans
in the Company's loan portfolio. The Company's management
periodically monitors and adjusts its allowance for loan losses
based upon its analysis of the loan portfolio. The Company
provided $60,000 for loan losses during each of the quarters
ended March 31, 1999 and March 31, 1998, respectively. The
Company provided $170,000 and $180,000 for loan losses during
each of the nine month periods ended March 31, 1999 and March
31, 1998. 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 0.81% at March 31, 1999 from 0.69%
at March 31, 1998. The Company's ratio of net charge-offs to
average loans outstanding was 0.08% for the quarter ended March
31, 1999 on an annualized basis.
13<PAGE>
<PAGE>
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
$3,500 or 5.6% to $67,000 for the quarter ended March 31, 1999
from $63,000 for the quarter ended March 31, 1998. Total
noninterest income decreased by $24,000 or 11.7% to $181,000
during the nine months ended March 31, 1999 from $205,000 during
the nine months ended March 31, 1998. The decrease in
noninterest income during the nine month period was primarily
attributable to a $5,000 gain from the sales of mortgage-backed
securities during the nine months ended March 31, 1998 and the
absence of fees generated from one former commercial deposit
customer.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by $47,000 or 7.6% to
$664,000 for the quarter ended March 31, 1999 from $617,000 for
the quarter ended March 31, 1998. Total noninterest expense
increased by $149,000 to $2.0 million during the nine months
ended March 31, 1999 from $1.9 million during the nine months
ended March 31, 1998. Compensation and employee benefits expense
increased by $52,000 or 13.4% and $137,000 or 11.8% to $441,000
and $1.3 million for the quarter and nine month periods ended
March 31, 1999 from $389,000 and $1.2 million for the quarter
and nine months ended March 31, 1998, respectively. The increase
was largely attributable to 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 decreased by
$5,000 during the quarter ended March 31, 1999 as compared to
the quarter ended March 31, 1998. The Company's other expense
increased by $12,000 or 1.7% during the nine months ended March
31, 1999 as compared to 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, 1999, the Company's cash on hand,
interest-bearing deposits and Federal funds sold totaled $6.2
million. In addition, the Company has approximately $1.3 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 $3.1 million.
Certificates of deposits which are scheduled to mature in less
than one year at March 31, 1999 totaled $27.9 million.
Historically, a high percentage of maturing deposits have
remained with the Company.
The Company's primary sources of funds are deposits and proceeds
from maturing investment securities and mortgage-backed
securities and principal and interest payments on loans. While
maturities and scheduled amortization of mortgage-backed
securities and loans are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and other
factors.
The Company's primary uses of cash in investing activities
during the nine months ended March 31, 1999 were loan principal
disbursements and purchases, net of repayments, of $3.9 million.
The Company's primary sources of cash provided from investing
activities during the nine months ended March 31, 1999 was the
repayment of $4.0 million of an investment security.
The Company's primary use of cash in financing activities
during the nine months ended March 31, 1999 consisted
14<PAGE>
<PAGE>
of a $1.3 million decrease in borrowings, $300,000 decrease in
deposits and the repurchase of stock and payment of cash
dividends of $651,000.
As discussed in Note 5 - Regulatory Capital Requirements,
the Company and the Bank exceeded all regulatory minimum capital
requirements.
Impact of New Accounting Standards
- ----------------------------------
Statement of position (SOP) 98-5 "Reporting on the Costs of
Start-up Activities". This Statement provides guidance on the
financial reporting of start-up cost and organizational cost.
It required costs of start-up activities and organization costs
to be expensed as incurred. The "SOP" also requires the initial
application to be reported as a cumulative effect of a change in
accounting principal. This "SOP" which is effective for fiscal
years beginning after December 15, 1998 will not affect the
Company's financial position or 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.
15
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and use of proceeds.
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 March 31, 1999.
16
<PAGE>
<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 14, 1999 /s/ Joseph J. Bouffard
---------------------------
Joseph J. Bouffard
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1999 /s/ Michael J. Dee
---------------------------
Michael J. Dee
Chief Financial Officer & Controller
(Principal Financial Officer)
17
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 496,850
<INT-BEARING-DEPOSITS> 1,229,646
<FED-FUNDS-SOLD> 4,493,449
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,300,214
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 80,181,306
<ALLOWANCE> 652,426
<TOTAL-ASSETS> 90,100,432
<DEPOSITS> 70,005,813
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,112,187
<LONG-TERM> 8,900,000
0
0
<COMMON> 3,444
<OTHER-SE> 9,078,988
<TOTAL-LIABILITIES-AND-EQUITY> 90,100,432
<INTEREST-LOAN> 4,997,609
<INTEREST-INVEST> 188,357
<INTEREST-OTHER> 193,593
<INTEREST-TOTAL> 5,379,559
<INTEREST-DEPOSIT> 2,043,305
<INTEREST-EXPENSE> 2,477,132
<INTEREST-INCOME-NET> 2,902,427
<LOAN-LOSSES> 170,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,025,329
<INCOME-PRETAX> 888,520
<INCOME-PRE-EXTRAORDINARY> 888,520
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554,809
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.62
<YIELD-ACTUAL> 4.42
<LOANS-NON> 393
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 553,513
<CHARGE-OFFS> 75,018
<RECOVERIES> 3,931
<ALLOWANCE-CLOSE> 652,426
<ALLOWANCE-DOMESTIC> 652,426
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
