<PAGE>
United States Securities and Exchange Commission
Washington, D. C. 20549
FORM 10 - QSB
<TABLE>
<CAPTION>
(Mark One)
<S> <C>
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
- ---------
For the quarterly period ended December 31, 1998
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
- ---------
For the transition period from __________ to ___________
</TABLE>
Commission File Number: 0-28032
PATAPSCO BANCORP, INC.
----------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Maryland 52-1951797
- ------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1301 Merritt Boulevard, Dundalk, Maryland 21222-2194
----------------------------------------------------
(Address of Principal Executive Offices)
(410)285-1010
-------------
Registrant's Telephone Number, Including Area Code
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
- -
As of February 10, 1999 the issuer had 351,839 shares of Common Stock
issued and outstanding.
Traditional Small Business Disclosure Format (check one):
Yes No X
- -
<PAGE>
Contents
--------
Part I. Financial Information Page
--------------------- ----
Item I. Financial Statements
Consolidated Statements of Financial Condition at December 31,
1998 and June 30, 1998........................................ 2
Consolidated Statements of Income for the Six and Three Month
Periods Ended December 31, 1998 and 1997...................... 3
Consolidated Statements of Comprehensive Income for the Six and
Three Month Periods Ended December 31, 1998 and 1997.......... 4
Consolidated Statements of Cash Flows for the Six Month
Periods Ended December 31, 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......................................... 8-17
Part II. Other Information
-----------------
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
1
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
---- ----
(unaudited)
<S> <C> <C>
Assets
------
Cash:
On hand and due from banks $ 1,108,956 970,218
Interest bearing deposits in other banks 264,914 419,583
Federal funds sold 4,146,260 7,148,619
Investment securities, at fair value 2,857,365 5,118,910
Loans receivable, net 78,697,742 75,870,779
Investment in securities required by law, at cost 675,650 675,650
Property and equipment, net 1,067,412 1,095,621
Deferred income taxes 348,235 336,000
Accrued interest, prepaid expenses and other assets 760,195 735,576
----------- -----------
Total assets $ 89,926,729 92,370,956
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings deposits:
Interest bearing deposits $ 66,390,156 67,736,810
Non interest bearing deposits 2,708,000 2,590,571
Borrowings 9,900,000 10,200,000
Accrued expenses and other liabilities 1,712,522 2,720,735
----------- -----------
Total liabilities 80,710,678 83,248,116
Stockholders' equity:
Common stock $0.01 par value: authorized 4,000,000
shares: issued and outstanding 354,203 and
362,553 shares, respectively 3,542 3,626
Additional paid-in capital 2,096,965 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 7,790,214 7,525,501
Unrealized net holding losses on available-for-sale
portfolios, net of taxes (21,234) (1,402)
----------- -----------
Total stockholders' equity 9,216,051 9,122,840
----------- -----------
Total liabilities and stockholders' equity $ 89,926,729 92,370,956
=========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For Six Months Ended For Three Months Ended
-------------------- ----------------------
December 31, December 31,
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $ 3,313,543 2,972,477 1,695,256 1,528,594
Mortgage-backed securities - 103,517 0 2,870
Investment securities 158,758 240,890 71,937 128,553
Federal funds sold and other investments 126,639 144,232 42,337 111,634
---------- ---------- ---------- ----------
Total interest income 3,598,940 3,461,116 1,809,530 1,771,651
---------- ---------- ---------- ----------
Interest expense:
Savings deposits 1,384,550 1,425,051 684,496 727,119
Borrowings 299,176 293,297 151,049 163,123
---------- ---------- ---------- ----------
Total interest expense 1,683,726 1,718,348 835,545 890,242
---------- ---------- ---------- ----------
Net interest income 1,915,214 1,742,768 973,985 881,409
Provision for losses on loans 110,000 120,000 50,000 60,000
---------- ---------- ---------- ----------
Net interest income after provision
for losses on loans 1,805,214 1,622,768 923,985 821,409
---------- ---------- ---------- ----------
Noninterest income:
Fees and service charges 109,576 125,650 54,036 64,957
Net gain (loss) on sales of securities 0 5,015 0 14,237
Other 5,085 11,000 2,366 7,424
---------- ---------- ---------- ----------
Total noninterest income 114,661 141,665 56,402 86,618
---------- ---------- ---------- ----------
Noninterest expenses:
Compensation and employee benefits 860,537 775,766 422,356 366,738
Insurance premiums 34,465 35,901 16,664 18,543
Professional fees 64,326 74,985 34,266 40,551
Equipment expense 54,138 62,397 25,252 29,275
Net occupancy costs 45,330 47,163 21,120 23,749
Advertising 20,902 25,045 9,258 12,426
Data processing 61,258 53,263 30,478 27,004
Other 220,025 184,706 112,721 102,827
---------- ---------- ---------- ----------
Total noninterest expense 1,360,981 1,259,226 672,115 621,113
---------- ---------- ---------- ----------
Income before provision
for income taxes 558,894 505,207 308,272 286,914
Provision for income taxes 208,170 185,943 115,411 105,005
---------- ---------- ---------- ----------
Net Income $ 350,724 319,264 l92,861 181,909
========== ========== ========== ==========
Basic net income per share $ 1.06 0.94 0.58 0.54
========== ========== ========== ==========
Fully diluted net income per share 1.04 0.93 0.57 0.53
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Comprehensive Income
(unaudited)
<TABLE>
<CAPTION>
For Six Months Ended For Three Months Ended
-------------------- ----------------------
December 31, December 31,
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 350,724 319,264 $ 192,861 181,909
Other comprehensive income, net of tax:
Unrealized net holding losses on available-for-sale
portfolios (19,202) (1,402) (19,202) (1,402)
--------- --------- --------- ---------
Comprehensive income $ 331,522 317,862 $ 173,659 180,507
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Patapsco Bancorp, Inc. and Subsidiary
Dundalk, Maryland
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 350,724 319,264
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 59,144 61,601
Provision for losses on loans 110,000 120,000
Non-cash compensation under stock-based
benefit plans 82,130 84,499
Amortization of premiums and discounts, net 7,427 (2,346)
Deferred loan origination fees, net of costs (41,823) 81,067
Gain on sales of mortgage-backed
securities and investment securities -- (5,015)
Change in deferred income taxes (12,235) (247,131)
Decrease (increase) in accrued interest on
investments, prepaid expenses and other assets 3,590 (4,582)
Decrease in accrued expenses and
other liabilities (1,008,213) (1,621,263)
-------------- --------------
Net cash used in operating activities (449,256) (1,213,906)
-------------- --------------
Cash flows from investing activities:
Loan principal disbursements, net of repayments (2,268,557) (5,852,446)
Purchase of loans (730,000) (1,647,000)
Purchase of property and equipment (30,935) (31,290)
Purchase of stock in Federal Home Loan Bank of Atlanta -- (13,800)
Purchase of investment security available-for-sale -- (5,028,125)
Principal repayment on mortgage-backed securities
available-for-sale -- 2,621,124
Principal repayment on investment securities
available-for-sale 2,339,441 --
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 (690,051) (2,888,120)
Cash flows from financing activities:
Net decrease in deposits (1,229,225) (1,038,120)
Purchase of common stock for stock-based benefits plans (36,166) --
Stock repurchase (233,800) --
Dividends paid (79,792) (36,255)
(Decrease) increase in borrowings (300,000) 7,900,000
-------------- --------------
Net cash (used in) provided by
financing activities (1,878,983) 6,825,625
-------------- --------------
Net (decrease) increase in cash and cash equivalents $ (3,018,290) 2,723,599
Cash and cash equivalents at beginning of period 8,538,420 5,113,187
-------------- --------------
Cash and cash equivalents end of period $ 5,520,130 7,836,786
============== ==============
Supplemental information:
Interest paid on deposits and borrowed funds $ 1,679,425 1,425,813
Income taxes paid 500,500 295,000
============== ==============
</TABLE>
See accompanying notes to financial statements.
5
<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. 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 six and three months
ended December 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.
6
<PAGE>
Note 5: Regulatory Capital Requirements
At December 31, 1998, the Bank met each of the three minimum regulatory capital
requirements. The following table summarizes the Bank's regulatory capital
position at December 31, 1998 (in thousands).
<TABLE>
<CAPTION>
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) $8,730 15.52% $4,499 8.00% $5,624 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $8,112 14.42% $2,250 4.00% $3,375 6.00%
Tier 1 Capital (to Average
Assets) $8,112 9.12% $3,557 4.00% $4,446 5.00%
</TABLE>
7
<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'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.
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 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 operation
of the Company. The Company estimates costs related to the year 2000 are less
than $10,000.
8
<PAGE>
Comparison of Financial Condition at December 31, 1998 and June 30, 1998
The Company's assets decreased by $2.5 million or 2.7% to $89.9 million
at December 31, 1998 from $92.4 million at June 30, 1998. The decrease in the
Company's assets during the six months ended December 31, 1998 was primarily due
to the Company utilizing low yielding cash to fund $1.2 million in deposits
outflows and payoff $300,000 in borrowings from the Federal Home Loan Bank of
Atlanta ("FHLB") which generally had higher rates of interest. The Company also
paid $1.0 million in property taxes on behalf of its mortgage customers. The
Company's net loans receivable increased by $2.8 million or 3.7% to $78.7
million at December 31, 1998 from $75.9 million at June 30, 1998. The increase
in net loans receivable was comprised of $2.6 million in commercial real estate
loans, $1.5 million in consumer loans, $800,000 in commercial loans and a
decrease of $2.1 million in residential real estate loans. The Company's
investment securities portfolio decreased by $2.3 million or 45.1% to $2.8
million at December 31, 1998 from $5.1 million at June 30, 1998.
The Company's borrowings decreased by $300,000 or 2.9% to $9.9 million
at December 31, 1998 from $10.2 million at June 30, 1998. Deposits decreased by
$1.2 million or by 1.7% to $69.1 million at December 31, 1998 from $70.3 million
at June 30, 1998. The decrease in deposits was largely attributable to the
decrease of $1.3 million in interest-bearing deposits consisting of primarily
higher yielding certificate of deposit accounts. Noninterest-bearing deposits
increased by $100,000 during the six months ended December 31, 1998.
The Company's stockholders' equity increased by $93,000 to $9.2 million
at December 31, 1998 from $9.1 million at June 30, 1998. The increase in
stockholders' equity was due primarily to the $265,000 increase in retained
income and an $82,000 in compensation under stock based benefit plans. Those
increases were partially offset by a $20,000 increase in the unrealized net
holding losses on available-for-sale investment portfolios, net of taxes. In
November, 1998 the Company initiated a 5% (18,100 shares) stock repurchase
program of which 8,350 shares had been repurchased as of December 31, 1998 at a
cost of $234,000.
Comparison of Operating Results for the Quarters and Six Months Ended December
31, 1998 and December 31, 1997
Net Income
- ----------
The Company's net income increased by $11,000 or 6.0% to $193,000 for
the quarter ended December 31, 1998 from $182,000 for the quarter ended December
31, 1997. The Company's net income increased by $32,000 or 10.0% to $351,000 for
the six months ended December 31, 1998 from $319,000 for the six months ended
December 31, 1997. The increases in the Company's net income during the
comparable three and six month periods was primarily due to $93,000 and $172,000
increases in net interest income partially offset by $30,000 and $27,000
decreases in noninterest income and $51,000 and $102,000 increases in
noninterest expenses, respectively.
9
<PAGE>
Interest Income
- ---------------
Total interest income increased by $38,000 or 2.1% to $1.81 million for
the quarter ended December 31, 1998 from $1.77 million for the quarter ended
December 31, 1997. Total interest income increased by $138,000 or 3.9% to $3.6
million for the six months ended December 31, 1998 from $3.5 million for the six
months ended December 31, 1997. 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 21
basis points and 17 basis points to 8.32% and 8.21% during the three and six
month periods ended December 31, 1998, respectively as compared to the 8.13% and
8.04% for the three and six month periods ended December 31, 1997, respectively.
The Company's average balance of interest-earning assets decreased by $120,000
during the comparable three month periods and increased by $1.6 million during
the comparable six month periods.
Interest income on loans receivable increased by $167,000 or 11.1% to
$1.7 million for the quarter ended December 31, 1998 from $1.5 million for the
quarter ended December 31, 1997. Interest income on loans receivable increased
by $341,000 or 11.4% to $3.3 million for the six months ended December 31, 1998
from $3.0 million for the six months ended December 31, 1997. The increase in
interest income on loans receivable during the three months and six months
periods is primarily due to an increases in the average balance and average
yield of loans receivable. 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 December 31, 1998 as compared to the same period ended
December 31, 1997 the average loans receivable balance increased by $7.0 million
or 9.6% to $79.3 million from $72.3 million and the average yield increased by 9
basis points to 8.55% from 8.46%. During the six months ended December 31, 1998
as compared to the same period ended December 31, 1997 the average balance of
loans receivable increased by $7.7 million or 10.9% to $78.3 million from $70.6
million and the average yield increased by 6 basis points to 8.47% from 8.41%.
The Company had no mortgage-backed securities outstanding during the
three and six month periods ended December 31, 1998 and therefore no interest
income. The Company did however, have $3,000 and $104,000 in interest income on
mortgage-backed securities during the three and six months periods ended
December 31, 1997, respectively.
Interest income on investment securities decreased by $57,000 or 44.2%
to $72,000 for the quarter ended December 31, 1998 from $129,000 for the quarter
ended December 31, 1997. Interest income on investment securities decreased by
$82,000 or 34.0% to $159,000 during the six month ended December 31, 1998 from
$241,000 during the six months ended December 31, 1997. The decrease in interest
income during the comparable quarters was primarily attributable to a decrease
of $2.5 million in the average balance of investment securities to $4.5 million
from $7.0 million and a decrease of 96 basis points in the average yield to
6.41% from 7.37%. The decrease in interest income during the comparable six
month periods was primary attributable to
10
<PAGE>
an decrease of $2.0 million in the average balance of investment securities to
$4.8 million from $6.8 million and a decrease of 41 basis points in the average
yield to 6.69% from 7.10%.
Interest income on federal funds sold and other investments decreased by
$69,000 or 62.2% to $42,000 for the quarter ended December 31, 1998 from
$111,000 for the quarter ended December 31, 1997. Interest income on federal
funds sold and other investments decreased by $17,000 or 12.5% to $127,000 for
the six months ended December 31, 1998 from $144,000 for the six months ended
December 31, 1997. Other investments consists of investments in the FHLB and the
Federal Reserve Bank of Richmond. During the comparable quarters the average
balance decreased by $4.5 million to $3.2 million from $7.7 million and the
average yield decreased 47 basis points to 5.33% from 5.80%. During the
comparable six month periods the average balance decreased by $252,000 to $4.7
million from $4.9 million and the average yield decreased 41 basis points to
5.45% from 5.86%.
Interest Expense
- ----------------
Total interest expense increased by $54,000 or 6.1% to $836,000 for the
quarter ended December 31, 1998 from $890,000 for the quarter ended December 31,
1997. Total interest expense decreased by $34,000 or 2.0% to $1.68 million for
the six months ended December 31, 1998 from 1.72 million at December 31, 1997.
The decreases in interest expense during the comparable quarters were primarily
due to decreases in the average balance and average yield paid on interest-
bearing liabilities. During the quarter ended December 31, 1998 as compared to
the quarter ended December 31, 1997 the average balance of interest-bearing
liabilities increased by $1.7 million to $75.9 million from $77.6 million and
the average rate decreased 18 basis points to 4.41% from 4.59%. During the six
months ended December 31, 1998 as compared to the six months ended December 31,
1997 the average balance of interest-bearing liabilities decreased by $19,000 to
$76.26 million from $76.28 million and the average rate decreased 8 basis points
to 4.42% from 4.50%.
Interest expense on deposits decreased by $43,000 or 5.9% to $684,000
for the quarter ended December 31, 1998 from $727,000 for the quarter ended
December 31, 1997. Interest expense on deposits decreased by $41,000 or 2.9% to
$1.38 million from $1.43 million for the six months ended December 31, 1997. The
increase in interest expense on deposits during the comparable quarters was
primarily attributable to a decrease of $1.0 million in the average balance of
interest-bearing deposits to $66.0 million from $67.0 million and a decrease in
the average rate by 19 basis points to 4.15% from 4.34%. The decrease in
interest expense on deposits during the comparable six month periods was
primarily due to a $200,000 decrease in the average balance to $66.5 million
from $66.7 million and a decrease in the average rate to 4.17% from 4.27%. 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.
11
<PAGE>
Interest expense on borrowings decreased by $12,000 or 7.4% to $151,000
for the quarter ended December 31, 1998 from $163,000 for the quarter ended
December 31, 1997. Interest expense on borrowings increased by $6,000 or 2.0% to
$299,000 during the six months ended December 31, 1998 from $293,000 during the
six months ended December 31, 1997. The decrease for the comparable quarters was
primarily attributable to a decrease of $700,000 in the average balance and a
decrease of 5 basis points in the average rate. For the six month comparable
periods the increase was attributable to a $200,000 increase in the average
balance partially offset by a one basis point decrease in the average rate.
Net Interest Income
- -------------------
The Company's net interest income increased by $93,000 or 10.6% to
$974,000 for the quarter ended December 31, 1998 from $881,000 for the quarter
ended December 31, 1997. Net interest income increased by $172,000 or 9.9% to
$1.9 million for the six months ended December 31, 1998 from $1.7 million during
the six months ended December 31, 1997. The increase in net interest income
during the comparable quarters and six month periods were primarily due to an
increase of 26 basis points and 44 basis points the interest rate spread (net
yield on average interest-earning assets less the rate paid on average interest-
bearing liabilities) to 3.80% and 3.91% from 3.54% and 3.54%, 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.
12
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------------------------------------------------------------------
1998 1997
------------------------------------------- --------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans receivable (2) $ 79,301 1,695 8.55% $ 72,275 1,528 8.46%
Investment securities 4,492 72 6.41% 6,950 128 7.37%
Mortgage-backed securities -- -- -- 196 3 6.12%
Federal funds sold and other
interest-earning assets 3,230 43 5.33% 7,723 112 5.80%
--------- ------- -------- --------- -------- --------
Total interest earning assets 87,023 1,810 8.32% 87,144 1,771 8.13%
------- -------- --------
Noninterest-earning assets 2,358 2,324
--------- ---------
Total assets $ 89,381 $ 89,468
========= =========
Interest-bearing liabilities:
Savings deposits (3) $ 65,982 685 4.15% $ 66,995 727 4.34%
Borrowings 9,900 151 6.10% 10,600 163 6.15%
--------- -------- -------- --------- ------- --------
Total interest-bearing
liabilities 75,882 836 4.41% 77,595 890 4.59%
-------- -------- ------- --------
Noninterest-bearing liabilities 4,203 3,303
--------- ---------
Total liabilities 80,085 80,898
Stockholders' equity 9,296 8,570
--------- ---------
Total liabilities and
stockholders' equity $ 89,381 $ 89,468
========= =========
Net interest income $ 974 $ 881
======== =======
Interest rate spread 3.91% 3.54%
======== ========
Net yield on interest-earning assets 4.48% 4.04%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 114.68% 112.31%
======== ========
</TABLE>
- ----------------------------------------------------
(1) Yields and rates are annualized.
(2) Includes nonaccrual loans.
(3) Includes interest-bearing escrow accounts.
13
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997
------------------------------------------- --------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans receivable (2) $ 78,266 $ 3,314 8.47% $ 70,641 $ 2,972 8.41%
Investment securities 4,753 159 6.69% 6,789 241 7.10%
Mortgage-backed securities -- -- -- 3,717 104 5.60%
Federal funds sold and other
interest-earning assets 4,659 127 5.45% 4,911 144 5.86%
--------- -------- -------- --------- -------- --------
Total interest earning assets 87,678 3,600 8.21% 86,058 3,461 8.04%
-------- -------- --------
Noninterest-earning assets 2,091 2,147
--------- ---------
Total assets $ 89,769 $ 88,205
========= =========
Interest-bearing liabilities:
Deposits (3) $ 66,479 $ 1,385 4.17% $ 66,709 $ 1,425 4.27%
Borrowings 9,785 299 6.11% 9,574 293 6.12%
--------- -------- -------- --------- -------- --------
Total interest-bearing
liabilities 76,264 1,684 4.42% 76,283 1,718 4.50%
-------- -------- -------- --------
Noninterest-bearing liabilities 4,264 3,412
--------- ---------
Total liabilities 80,528 79,695
Stockholders' equity 9,241 8,510
--------- ---------
Total liabilities and
stockholders' equity $ 89,769 $ 88,205
========= =========
Net interest income $ 1,916 $ 1,743
======= =======
Interest rate spread 3.80% 3.54%
======== ========
Net yield on interest-earning assets 4.37% 4.05%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 114.97% 112.81%
======== ========
</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 $50,000 and $60,000 for loan losses during each
of the quarters ended December 31, 1998 and December 31, 1997, respectively. The
Company provided $110,000 and $120,000 for loan losses during each of the six
month periods ended December 31, 1998 and December 31, 1997. 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 0.78% at December 31, 1998 from 0.67% at December 31, 1997.
The Company's ratio of net charge-offs to average loans outstanding was 0.08%
for the quarter ended December 31, 1998 on an annualized basis.
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 decreased by $30,000 or 34.4% to $56,000 for the quarter
ended December 31, 1998 from $86,000 for the quarter ended December 31, 1997.
Total interest income decreased by $27,000 or 19.0% to $115,000 during the six
months ended December 31, 1998 from $142,000 during the six months ended
December 31, 1997. The decrease in noninterest income during the comparable
quarters and six month periods was primarily attributable to a $14,000 and
$5,000 in gains from the sales of mortgage-backed securities during the quarter
and six months ended December 31, 1997, respectively and the absence of fees
generated from one former commercial deposit customer.
Noninterest Expenses
- --------------------
Total noninterest expenses increased by $51,000 or 8.2% to $672,000 for
the quarter ended December 31, 1998 from $621,000 for the quarter ended December
31, 1997. Total noninterest expense increased by $102,000 to $1.4 million during
the six months ended December 31, 1998 from $1.3 million during the six months
ended December 31, 1997. Compensation and employee benefits expense increased by
$56,000 or 15.3% and $102,000 or 13.1% to $422,000 and $861,000 for the quarter
and six month periods ended December 31, 1998 from $366,000 and $776,000 for the
quarter and six months ended December 31, 1997, 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 December 31, 1998 as compared to
the quarter ended December 31, 1997. The Company's other expense increased by
$17,000 or 3.5% during the six months ended December 31, 1998 as compared to the
six months ended December 31, 1997.
15
<PAGE>
Liquidity and Capital Resources
- -------------------------------
An important component of the Company's asset/liability structure is the
level of liquidity available to meet the needs of customers and creditors. The
Company's Asset/Liability Management Committee has established general
guidelines for the maintenance of prudent levels of liquidity. The Committee
continually monitors the amount and source of available liquidity, the time to
acquire it and its cost. Management of the Company seeks to maintain a
relatively high level of liquidity in order to retain flexibility in terms of
investment opportunities and deposit pricing. Because liquid assets generally
provide lower rates of return, the Company's relatively high liquidity will, to
a certain extent, result in lower rates of return on assets.
The Company's most liquid assets are cash on hand, interest-bearing
deposits and Federal funds sold, which are short-term, highly liquid investments
with original maturities of less than three months that are readily convertible
to known amounts of cash. The levels of these assets are dependent on the
Company's operating, financing and investing activities during any given period.
At December 31, 1998, the Company's cash on hand, interest-bearing deposits and
Federal funds sold totaled $5.5 million. In addition, the Company has
approximately $2.9 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 December 31, 1998 totaled
$27.1 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
six months ended December 31, 1998 were loan principal disbursements and
purchases, net of repayments, of $3.0 million. The Company's primary sources of
cash provided from investing activities during the six months ended December 31,
1998 was the repayment of $2.3 million of an investment security.
The Company's primary use of cash in financing activities during the six
months ended December 31, 1998 consisted of a $1.2 million decrease in deposits,
$300,000 decrease in borrowings and the repurchase of stock and payment of cash
dividends of $313,000.
As discussed in Note 5 - Regulatory Capital Requirements, the Company
and the Bank exceeded all regulatory minimum capital requirements.
16
<PAGE>
Impact of New Accounting Standards
- ----------------------------------
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.
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
The following table sets forth matters which were voted upon at
the Company's Annual meeting of Stockholders held on October 22,
1998:
Votes Votes Votes
For Against Withheld
------- ------- --------
Elections of Directors:
S. Robert Kinghorn 282,745 0 1,215
Thomas P. O'Neill 283,345 0 615
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 December 2, 1998 the Registrant filed a Form 8-K
reporting a 5% stock repurchase program.
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: February 10, 1999 /s/ Joseph J. Bouffard
--------------------------------------
Joseph J. Bouffard
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 10, 1999 /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> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> JUL-01-1998 OCT-01-1998
<PERIOD-END> DEC-31-1998 DEC-31-1998
<CASH> 1,108,956 1,108,956
<INT-BEARING-DEPOSITS> 264,914 264,914
<FED-FUNDS-SOLD> 4,146,260 4,146,260
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 2,857,365 2,857,365
<INVESTMENTS-CARRYING> 2,857,365 2,857,365
<INVESTMENTS-MARKET> 2,857,365 2,857,365
<LOANS> 78,697,742 78,697,742
<ALLOWANCE> 618,164 618,164
<TOTAL-ASSETS> 89,926,729 89,926,729
<DEPOSITS> 69,098,156 69,098,156
<SHORT-TERM> 1,000,000 1,000,000
<LIABILITIES-OTHER> 1,712,522 1,712,522
<LONG-TERM> 8,900,000 8,900,000
0 0
0 0
<COMMON> 3,542 3,542
<OTHER-SE> 9,212,509 9,212,509
<TOTAL-LIABILITIES-AND-EQUITY> 89,926,729 89,926,729
<INTEREST-LOAN> 3,313,543 1,695,256
<INTEREST-INVEST> 158,758 71,937
<INTEREST-OTHER> 126,639 42,337
<INTEREST-TOTAL> 3,598,940 1,809,530
<INTEREST-DEPOSIT> 1,384,550 684,496
<INTEREST-EXPENSE> 1,683,726 835,545
<INTEREST-INCOME-NET> 1,915,214 973,985
<LOAN-LOSSES> 110,000 50,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,360,981 672,115
<INCOME-PRETAX> 558,894 308,272
<INCOME-PRE-EXTRAORDINARY> 558,894 308,272
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 350,724 192,861
<EPS-PRIMARY> 1.06 0.58
<EPS-DILUTED> 1.04 0.94
<YIELD-ACTUAL> 8.21 8.04
<LOANS-NON> 688,000 688,000
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 553,513 583,124
<CHARGE-OFFS> 47,383 15,882
<RECOVERIES> 2,034 922
<ALLOWANCE-CLOSE> 618,164 618,164
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
