U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/_X_/ Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1998
/___/ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ________________
Commission file number 0-24887
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PATAPSCO VALLEY BANCSHARES, INC.
--------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Maryland 52-1996620
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8593 Baltimore National Pike, Ellicott City, Maryland 21043
-----------------------------------------------------------
(Address of Principal Executive Offices)
410-465-0900
------------
(Issuer's Telephone Number, Including Area Code)
------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of October 1, 1998,
there were 1,356,192 shares of common stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes X No
----- -----
<PAGE>
PATAPSCO VALLEY BANCSHARES, INC. AND SUBSIDIARIES
Contents
--------
PART I - FINANCIAL INFORMATION Pages
Item 1. Financial Statements
Consolidated statements of financial condition at September 30, 1998
(unaudited) and December 31, 1997 3
Consolidated statements of operations (unaudited) for nine months
and three months ended September 30, 1998 and 1997 4
Consolidated statements of cash flows (unaudited) for nine months
ended September 30, 1998 and 1997 5-6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8-11
PART II - OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits
(a) Exhibit 27- Financial Data Schedule
Signatures 13
<PAGE>
PART I- FINANCIAL INFORMATION
PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
ELLICOTT CITY, MARYLAND
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
ASSETS 1998 1997
- ------ (Unaudited)
Cash and due from banks $4,756,508 $5,085,542
Interest bearing assets in other banks 1,277,473 40,937
Federal funds sold 5,886,000 13,140,063
Total cash and cash equivalents 11,919,981 18,266,542
Securities available for sale 14,497,004 15,160,333
Loans held for sale 19,413,050 5,540,585
Net loans, less allowance for credit losses of
$1,440,841 and $1,615,008 100,274,776 96,795,828
Premises and equipment 4,504,886 2,108,434
Foreclosed real estate 0 23,581
Deferred income taxes 292,945 284,213
Accrued interest receivable 828,050 706,904
Prepaid income taxes 266,517 496,763
Intangibles 394,979 406,392
Other assets 477,009 439,572
------- -------
$152,869,197 $140,229,147
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits
Non-interest-bearing $33,448,798 $31,006,823
Interest-bearing 97,209,574 88,488,181
---------- ----------
Total deposits 130,658,372 119,495,004
Securities sold under repurchase agreements 3,474,233 2,861,324
Dividend payable 169,093 444,287
Accrued interest payable 579,550 548,505
Other liabilities 1,340,025 986,168
--------- -------
5,562,901 4,840,284
Total liabilities 136,221,273 124,335,288
Stockholders' Equity
Common stock, par value $0.01 per share;
authorized 50,000,000 shares; issued
and outstanding 1,356,192 shares in 1998 and
667,408 shares in 1997 13,562 6,674
Surplus 11,654,551 11,307,989
Retained earnings 4,959,175 4,546,605
Accumulated other comprehensive income 20,636 32,591
------ ------
Total stockholders equity 16,647,924 15,893,859
---------- ----------
$152,869,197 $140,229,147
=========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
3
<PAGE>
PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
ELLICOTT CITY, MARYLAND
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For Nine Months Ended For Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $7,900,981 $6,510,778 $2,710,904 $2,248,638
U.S. Treasury securities 381,535 593,284 134,088 127,261
U.S Government agency securities 95,289 174,420 23,995 53,011
State and municipal securities 36,370 49,090 11,627 19,752
Federal funds sold 293,759 423,773 91,556 148,535
Other investments 46,986 37,917 16,813 13,521
------ ------ ------ ------
Total interest income 8,754,920 7,789,262 2,988,983 2,610,718
INTEREST EXPENSE
Deposits 2,494,899 2,030,127 885,409 676,535
Other short-term borrowings 227,298 105,941 61,723 33,838
------- ------- ------ ------
Total interest expense 2,722,197 2,136,068 947,132 710,373
Net interest income 6,032,723 5,653,194 2,041,851 1,900,345
Provision for credit losses 0 0 0 0
Net interest income after provision for
credit losses 6,032,723 5,653,194 2,041,851 1,900,345
NON-INTEREST INCOME
Service charges on deposit accounts 599,390 483,674 205,743 186,190
Mortgage banking fees and gains 1,260,521 0 247,655 0
Other fees and commissions 179,079 182,498 51,187 52,489
------- ------- ------ ------
Total non-interest income 2,038,990 666,172 504,585 238,679
NON-INTEREST EXPENSES
Salaries 3,031,174 1,724,247 946,407 622,719
Employee benefits 697,456 398,150 228,860 139,461
Occupancy 622,228 353,109 191,999 120,194
Furniture and equipment 620,800 386,604 248,296 159,466
Other 1,647,934 1,201,955 641,129 450,266
--------- --------- ------- -------
Total non-interest expenses 6,619,592 4,064,065 2,256,691 1,492,106
Income before taxes 1,452,121 2,255,301 289,745 646,918
Income taxes 525,612 824,445 104,918 243,812
------- ------- ------- -------
Net income 926,509 1,430,856 184,827 403,106
Change in unrealized gain (loss) on securities
available for sale (11,955) 27,907 1,066 25,185
-------- ------ ----- ------
Comprehensive income $914,554 $1,458,763 $185,893 $428,291
-------- ---------- -------- --------
Basic and diluted earnings per share $0.68 $1.09 $0.14 $0.32
==== ==== ==== ====
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
4
<PAGE>
PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
ELLICOTT CITY, MARYLAND
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Interest received $8,679,748 $7,681,860
Fees and commissions received 778,469 666,172
Proceeds from sales of loans held for sale 119,897,232 0
Originations of loans held for sale (132,509,176) 0
Interest paid (2,691,152) (2,152,415)
Cash paid to suppliers and employees (5,778,640) (3,458,479)
Income taxes paid (384,387) (953,622)
--------- ---------
(12,007,906) 1,783,516
Cash Flows From Investing Activities
- ------------------------------------
Proceeds from maturities of securities available for sale 19,592,147 25,482,650
Purchases of securities available for sale (18,949,262) (11,896,826)
Loans made, net of principal collected (3,523,955) (13,054,158)
Payments of organization costs (505) (4,173)
Proceeds from sales of other real estate 23,581 125,419
Purchases of premises, equipment, and software (2,821,255) (1,087,147)
----------- -----------
(5,679,249) (434,235)
Cash Flows From Financing Activities
- -------------------------------------
Net increase (decrease) in time deposits 8,721,393 (329,927)
Net increase (decrease) in other deposits 2,441,975 (168,987)
Net increase (decrease) in other borrowed funds 612,909 (644,140)
Dividends paid (789,133) (712,355)
Dividends reinvested 353,450 302,572
Stock options exercised 0 5,459
- -----
11,340,594 (1,547,378)
Net increase (decrease) in cash and cash equivalents (6,346,561) (198,097)
Cash and equivalents at beginning of year 18,266,542 18,571,732
---------- ----------
Cash and equivalents at end of year $11,919,981 $18,373,635
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
5
<PAGE>
PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
ELLICOTT CITY, MARYLAND
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
September 30,
1998 1997
---- ----
Reconciliation of Net Income to Net Cash Flows Provided
- -------------------------------------------------------
By Operating Activities
-----------------------
Net income $926,509 $1,430,856
Adjustments to Reconcile Net Income to Net Cash
- -----------------------------------------------
Provided by Operating Activities
--------------------------------
Depreciation, amortization and losses 437,688 413,405
Deferred taxes (1,210) 3
Increase (decrease) in;
Deferred loan fees 45,007 15,041
Accrued interest payable 31,045 (16,347)
Income taxes payable (87,811) (79,799)
Other liabilities 441,668 221,543
Loans held for sale (13,872,465) 0
Decrease (increase) in;
Accrued interest receivable (121,146) (122,281)
Prepaid taxes 230,246 (49,381)
Other assets (37,437) (29,524)
------------ ----------
$(12,007,906) $1,783,516
============ ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements
6
<PAGE>
PATAPSCO VALLEY BANCSHARES INC. AND SUBSIDIARIES
ELLICOTT CITY, MARYLAND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Principles of consolidation
---------------------------
The consolidated financial statements include the
accounts of Patapsco Valley Bancshares Inc. ( the "Company") ,
The Central Maryland Service Corporation ("CMSC"), Commercial and
Farmers Bank (the "Bank") and its subsidiaries, Founders Mortgage
Company, Inc. ("Founders"), C&F Insurance Agency, Inc. and Rogers
Avenue Realty, Inc. All inter-company accounts and transactions
have been eliminated in the accompanying consolidated financial
statements.
Note 2 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and in accordance with the instructions to form 10-QSB.
Accordingly, they do not include all of the disclosures required
by generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments necessary for a fair presentation of the results of
operations for the interim periods have been made. Such
adjustments were normal and recurring in nature. The results of
operations for the nine months ended September 30, 1998 do not
necessarily reflect the results that may be expected for the
entire fiscal year December 31, 1998 or any other interim period.
The consolidated financial statements should be read in
conjunction with the consolidated financial statements and
related notes which are incorporated in the Company's Annual
Report for the year ended December 31, 1997, and Form 10SB/A.
Note 3 - Earnings Per Share
------------------
Earnings per share is presented in accordance with
Statement of Financial Accounting Standards No. 128. This
Statement requires dual presentation of basic and diluted
earnings per share ( EPS ) with a reconciliation of the numerator
and denominator of the EPS computations. Basic per share amounts
are based on weighted average shares of common stock outstanding.
Diluted earnings per share assume the conversion, exercise or
issuance of all potential common stock instruments unless the
effect is to reduce a loss or increase earnings per share.
Average shares outstanding are adjusted giving retroactive effect
of a 100% stock dividend declared on September 15,1998, and
payable on October 1, 1998. No adjustments were made to net
income for all periods presented. The basic and diluted average
shares outstanding for the nine and three month periods are as
follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $926,509 $1,430,856 $184,827 $428,291
-------- ---------- -------- --------
Weighted average shares
Outstanding - Basic 1,352,463 1,332,700 1,354,476 1,334,797
Diluted securities:
Options 1,757 0 2,113 0
----- - ----- -
Adjusted weighted average
Shares- Diluted 1,354,220 1,332,700 1,356,589 1,334,797
Basic and diluted EPS $0.68 $1.09 $0.14 $0.32
==== ==== ==== ====
</TABLE>
Note 3 - Reclassification
----------------
Certain prior year's amounts have been reclassified to
conform to current year's presentation.
7
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In addition to the historical information contained herein, the
discussion in this Form 10-QSB contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
strategies, objectives, expectations and intentions, including, among other
statements, statements involving the Bank's projected loan and deposit growth,
loan collateral values, collectability of loans, anticipated changes in
non-interest income, payroll and branching expenses, branch and office expansion
of the Bank and its affiliates, and liquidity levels. These statements may be
identified by such forward-looking terminology as "expect", "believe",
"anticipate", or by expressions of confidence such as "continuing" or "strong"
or similar statements or variations of such terms. The Company's actual results
could differ materially from those discussed herein and involve certain risks
and uncertainties. These risks and uncertainties include, but are not limited
to, general economic conditions and competition in the geographic and business
areas in which the Company and its subsidiaries operate, inflation, fluctuations
in interest rates, legislation, and governmental regulation. The cautionary
statements made in this Form 10-QSB should be read as being applicable to all
related forward-looking statements wherever they appear in this Form 10-QSB.
FINANCIAL CONDITION
Total assets of the Company were $152,869,000 as of September 30, 1998,
compared to $140,229,000 as of December 31, 1997, an increase of $12,640,000 or
9.01 percent. The increase was primarily attributable to an increase in loans
held for sale of $13,872,000, an increase in net loans of $3,479,000 and an
increase in premises and equipment of $2,396,000. These increases were slightly
offset by a decline in federal funds sold of $7,254,000. The increase in loans
held for sale and net loans is part of management's strategy to continue with
the Founders operation and to emphasize services to small and medium size
businesses and professional practices. While retail loan demand continues to be
soft, management plans to grow this portfolio in the future in part by
additional product promotions.
Total Liabilities were $136,221,000 as of September 30, 1998 compared
to $124,335,000 as of December 31, 1997, an increase of $11,886,000 or 9.56
percent. The increase was primarily due to an increase in deposits of
$11,163,000. This increase was the result of the Bank opening a branch during
the fourth quarter of 1997 and aggressively marketing for new deposits. The
campaign continued into 1998 and the branch has exceeded all projections in
deposit growth. In September 1998, the Bank opened an additional branch and
another branch is currently under construction. With the current branch
expansion, the deposit growth is expected to continue.
Stockholders' equity was $16,648,000 as of September 30, 1998, compared
to $15,894,000 as of December 31, 1997, an increase of $754,000. The increase
was due to comprehensive income for the period of $915,000 and dividends
reinvested in the amount $353,000. These increases were partially offset by cash
dividends of $514,000.
RESULTS OF OPERATIONS
GENERAL
Net income for the nine and three months ended September 30, 1998 was
$927,000 and $185,000 respectively, as compared to $1,431,000 and $403,000 for
the same periods in 1997. The decreases in net income of $504,000 and $218,000
for the nine and three months ended September 30, 1998 respectively as compared
to the same periods in 1997 was primarily due to an increase in non-interest
expenses. These increases were slightly offset by increases in net interest
income and non-interest income.
8
<PAGE>
INTEREST INCOME
Total interest income for the nine and three months ended September 30,
1998 was $8,755,000 and $2,989,000 respectively, compared to $7,789,000 and
$2,611,000 for the same periods in 1997, an increase of $966,000 or 12.40% and
$378,000 or 14.48% respectively. The increases were primarily due to an increase
of $26,258,000 and $26,729,000 in the average dollar amount of net loans and
loans held for sale for the nine and three months ended in September 30, 1998.
The growth in loans held for sale is attributed to the Bank's new mortgage
banking subsidiary, Founders. These increases were partially offset by a decline
in the average dollar amount of investments by $6,482,000 and $7,805,000 for the
nine and three months ended September 30, 1998 as compared to the same periods
in 1997. The weighted average yield on interest earning assets was 8.49% and
8.75% for the nine and three months ended September 30, 1998 compared to 8.59%
and 8.65% for the same periods in 1997.
INTEREST EXPENSE
Total interest expense for the nine and three months ended September
30, 1998 was $2,722,000 and $947,000 respectively, compared to $2,136,000 and
$710,000 for the same periods in 1997,an increase of $586,000 or 27.43% and
$237,000 or 33.38% respectively. The increases resulted primarily from increases
in the average dollar amount of deposits of $11,388,000 and $10,380,000
respectively as the Bank conducted an aggressive marketing campaign, advertising
the Bank and its various new deposit products.
The average yields paid on Deposits were 3.69% and 3.97% for the nine
and three month periods, compared to 3.43% for both periods in 1997. The
increases were also the result of increases in the average dollar amount of
borrowings of $3,542,000 and $3,951,000 for the nine and three month periods
respectively. The increase was due to the Bank borrowing from the Federal Home
Loan Bank in order to fund new loan originations at Founders. There were no
outstanding Federal Home Loan Bank borrowings as of September 30, 1998. The
weighted average rates paid on interest-bearing liabilities were 3.74% and 3.93%
for the nine and three months ended September 30, 1998, respectively as compared
to 3.47% and 3.46% for the same periods in 1997.
PROVISION FOR LOAN LOSSES
For the nine and three months ended September 30, 1998 and 1997 no
provision for loan losses was charged to expense . The Bank recorded $174,000
and $17,000 in net charge-offs for the nine and three months ended September
30,1998 as compared to $89,000 and $28,000 in net recoveries for the same
periods in 1997.
While management believes that, based on information currently
available, the Bank's allowance for loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, no assurances can be given that the
Bank's level of allowance for loan losses will be sufficient to cover future
loan losses incurred by the Bank or that future adjustments to the allowance for
loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions at the time management
determined the current level of the allowance for loan losses.
The Bank's allowance for loan losses is established through a provision
for loan losses based on management's evaluation of the risks inherent in its
loan portfolio and the general economy. The allowance for loan losses is
maintained at the amount management considers adequate to cover estimated losses
in loans receivable that are deemed probable and estimable based on information
currently known to management. The allowance is based upon a number of factors,
including current economic conditions, actual losses experience, diversification
and size of the portfolio, adequacy of the collateral, the amount of
non-performing loans and industry trends. In addition, various regulatory
agencies, as an
9
<PAGE>
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to make additional
provision for estimated loan losses based upon judgments different from those of
management.
The Company has seen a recent decrease in principal balances of loans
past 90 days due and non-accrual. Included in these loans is one commercial and
one mortgage totaling $846,616, which management believes are subject to little
risk of loss based on collateral values. However, management cannot be certain
that collateral values will be maintained. The commercial loan is a purchased
participation from another local commercial bank where the loan is receiving
regular payments through bankruptcy proceedings. Management is waiting for the
approval from the courts for liquidation of the collateral for full payoff of
the loan. The mortgage loan had a contract of sale from a foreclosure auction
rescinded and is in the process of re-auctioning the property.
NON-INTEREST INCOME
Non-interest income for the nine and three months ended September 30,
1998 was $2,039,000 and $505,000, respectively as compared to $666,000 and
$239,000 for the same period in 1997. This increase was attributed to $1,261,000
in mortgage banking fees and gains, which was generated by the Founders
operation for the nine months ended September 30, 1998. Income from mortgage
banking fees and gains for the three months ended September 30,1998 was down as
compared to the prior quarter due to an increase in loan origination costs.
These fees are expected to increase in the last quarter of 1998. In addition,
the Bank has experienced an increase in service charges on deposit accounts.
These increases follow an increased level of fees collected for checks drawn
against insufficient funds, because of increases in deposit accounts and due to
the introduction of new checking account programs that have monthly fees. With
the continued anticipated expansion of the Bank's branch network and of
Founders, management expects to see increased levels of non-interest income.
NON-INTEREST EXPENSE
Total non-interest expense for the nine and three months ended
September 30, 1998 was $6,620,000 and $2,257,000 as compared to $4,064,000 and
$1,492,000 for the same periods in 1997.
A significant portion of the increase in non-interest expense is
related to the increases in salaries and related benefits of $1,606,000 and
$413,000 for the nine and three month periods in 1998 as compared to the same
periods in 1997. The Company has added a significant number of employees to the
payroll as a result of the expansion in the Bank, Founders and CMSC. Salaries
and benefits also include cost of living increases and benefit cost increases.
Employee expenses continue to increase as the reflection of the full year
salaries for the employees added in 1997 and as the Company continued to expand.
Occupancy and furniture and equipment expense increased by $503,000 and
$161,000 for the nine and three months ended in 1998 as compared to the same
periods in 1997. The increases are due to the Company expanding its facilities,
making improvements to existing facilities and upgrading equipment. Absent
unforeseen circumstances, these increases are expected to continue as new
branches are opened and a full year of depreciation costs and equipment service
contracts are realized. With more facilities and equipment, the Company will
also require more maintenance, and the additional investment will be depreciated
over the estimated useful life of the asset.
Other expenses increased by $446,000 and $191,000 for the nine and
three months ended September 30, 1998 as compared to the same periods in 1997.
Increases were noted in marketing and stationery and supplies. These areas of
increased expense include costs associated with the promotion and establishment
of Founders and the new branches. In addition, the Company had adopted a
full-scale marketing program to compete effectively for deposits and loans,
including direct mail, cable television
10
<PAGE>
commercials, newspaper advertising and product promotion.
INCOME TAX
The Company's income tax expense was $526,000 and $105,000 for the nine
and three months ended September 30, 1998 as compared to $824,000 and $244,000
for the same periods in 1997. The changes were primarily the result of the
variations in pre-tax income. The effective tax rate for the nine and three
months ended September 30, 1998 was 36.20% and 36.21% as compared to 36.55% and
37.68% in the same periods in 1997.
LIQUIDITY MANAGEMENT
Liquidity describes the ability of the Company to meet financial
obligations that arise out of the ordinary course of business. Liquidity is
primarily needed to meet borrower and depositor withdrawal requirements and to
fund current and planned expenditures. The Company maintains its asset liquidity
position internally through short-term investments, the maturity distribution of
the investment portfolio, loan repayments, proceeds from the sale of loans held
for sale and income from earning assets. A primary source of cash is from the
proceeds from the sale of loans held for sale. In addition, the Company relies
on the proceeds from maturity of securities available for sale and the
investment portfolio contains readily marketable securities that could be
converted to cash. On the liability side of the balance sheet, liquidity is
affected by the timing of maturing liabilities and the ability to generate new
deposits or borrowings as needed. The Company may borrow up to $33,000,000 under
secured lines of credit with the Federal Home Loan Bank of Atlanta and has
available lines of credit of $2,500,000 in overnight federal funds and
$1,000,000 in short-term credit from other correspondent banks. The increase in
loans held for sale of $13,872,000 or 250.37% from December 31, 1997 to
September 30, 1998 was primarily funded by an increase in growth in Deposits of
8.9% and a reduction in federal funds sold of 55.20 %. The Company believes that
it has adequate liquidity sources to meet all anticipated liquidity needs over
the next twelve months. While management plans to continue to rely on the
secured lines of credit from the Federal Home Loan Bank of Atlanta, management
knows of no trend or event which will have a material impact on the Company's
ability to maintain liquidity at satisfactory levels.
The Company announced on September 15, 1998, that the Board of
Directors had declared a 100% stock dividend to all shareholders of record as of
that date. The dividend was distributed on October 1, 1998.
CAPITAL RESOURCES AND ADEQUACY
One measure of capital adequacy is the leverage ratio, which is
calculated by dividing average total assets for the most recent quarter into
Tier l capital. The regulatory minimum for this ratio is 4%, with 6% being the
regulatory minimum for well-capitalized companies. The leverage capital ratio as
of September 30, 1998 was 10.43%.
Another measure of capital adequacy is the risk-based capital ratio, or
the ratio of total capital to risk adjusted assets. Total capital is composed of
both core capital (Tier l) and supplemental capital (Tier 2), including
adjustments for off balance sheet items, such as letters of credit, and the
different degrees of risk among various assets. Regulators require a minimum
risk-based capital ratio of 8 percent. As of September 30, 1998, the total
risk-based capital ratio was 15.01%. According to FDIC capital guidelines, the
Bank is considered to be "well capitalized ."
The Bank opened a new branch in September 1998 and is planing to open
another in December 1998 and Founders is planning to continue to expand. The
funding sources for these projects are primarily Cash, Federal Funds and
maturities of Investment Securities. Management knows of no other trend or
event, that will have a material impact on capital.
11
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
On September 28, 1998, Barbara M. Broczkowski, CPA, was hired as
the Vice President and Chief Financial Officer of the Company and the Bank.
Prior to her current position, she served as a Partner of Anderson Associates
LLP, since January, 1996 and as an Audit Manager for the same firm since
December, 1986.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number
------
27 Financial Data Schedule
(b) No reports have been filed on Form 8-K during the past quarter for
which this report is filed.
12
<PAGE>
SIGNATURES
Pursuant to 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 VALLEY BANCSHARES, INC.
Date: 11/12/98 By: /s/ John S. Whiteside
------------- -------------------------
John S. Whiteside
President and Chief Executive Officer
Date: 11/12/98 By:/s/ Barbara M. Broczkowski
------------- -----------------------------
Barbara M. Broczkowski
Vice President and Chief Financial Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as of and for the periods ended September 30, 1997 and
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 1069855
<NAME> Patapsco Valley Bancshares, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-1-1997 JAN-1-1998
<PERIOD-END> SEP-30-1997 SEP-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 6,233 4,757
<INT-BEARING-DEPOSITS> 43 1,277
<FED-FUNDS-SOLD> 12,098 5,886
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 15,016 11,920
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 96,880 119,688
<ALLOWANCE> 1,652 1,441
<TOTAL-ASSETS> 133,937 152,869
<DEPOSITS> 114,089 130,658
<SHORT-TERM> 2,520 3,474
<LIABILITIES-OTHER> 1,140 2,089
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 6 14
<OTHER-SE> 16,182 16,634
<TOTAL-LIABILITIES-AND-EQUITY> 133,937 152,869
<INTEREST-LOAN> 6,511 7,901
<INTEREST-INVEST> 817 513
<INTEREST-OTHER> 456 341
<INTEREST-TOTAL> 7,789 8,755
<INTEREST-DEPOSIT> 2,030 2,495
<INTEREST-EXPENSE> 2,136 2,722
<INTEREST-INCOME-NET> 2,136 6,032
<LOAN-LOSSES> 0 0
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 4,064 6,620
<INCOME-PRETAX> 2,255 1,452
<INCOME-PRE-EXTRAORDINARY> 2,255 1,452
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,431 926
<EPS-PRIMARY> 1.09 .68
<EPS-DILUTED> 1.09 .68
<YIELD-ACTUAL> 6.24 5.85
<LOANS-NON> 766 1,049
<LOANS-PAST> 525 7
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,563 1,615
<CHARGE-OFFS> 69 310
<RECOVERIES> 158 136
<ALLOWANCE-CLOSE> 1,652 1,441
<ALLOWANCE-DOMESTIC> 1,652 1,441
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,652 1,441
</TABLE>
