<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended Commission file number
March 31, 1994 1-9821
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
BALTIMORE BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-1351635
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
120 East Baltimore Street, Baltimore, Maryland 21202
(Address of principal executive offices)
(410) 244-3360
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 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
------- -------
The number of shares outstanding of Baltimore Bancorp common
stock, $5.00 par value, was 16,690,831 at April 29, 1994.
<PAGE>
BALTIMORE BANCORP
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1994 and December 31, 1993 3
Consolidated Statements of Income for the three month
periods ended March 31, 1994 and 1993 4
Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION 15
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
March 31, December 31,
(Thousands of dollars) 1994 1993
<S> <C> <C>
Assets
Cash and due from banks $ 43,404 $ 41,905
Federal funds sold and securities purchased under resale agreements 25,000 41,500
Other short-term investments 1,072 11,067
Loans held for sale 108,906 167,336
Available-for-sale securities 633,007 542,196
Loans:
Real estate - construction - residential 79,985 78,585
- commercial 9,049 15,672
Real estate - first mortgage - residential 61,909 52,696
- commercial 401,361 419,500
Real estate - second mortgage and home equity 290,280 301,799
Consumer installment 182,914 205,406
Credit card 134,133 144,000
Commercial 67,377 64,207
Lease financing 69,385 73,673
Total loans 1,296,393 1,355,538
Less: Allowance for possible loan losses 33,745 38,684
Unearned income 40,792 47,093
Net loans 1,221,856 1,269,761
Premises and equipment, net 30,591 31,013
Assets acquired in foreclosure 40,856 47,852
Other assets 86,020 79,561
Total assets $2,190,712 $2,232,191
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $ 155,783 $ 169,714
Interest-bearing deposits:
Checking accounts 126,272 125,461
Money market 495,169 497,665
Savings 277,558 263,914
Other time 856,992 887,983
Brokered 11,450 12,418
Jumbo certificates of deposit 4,680 4,362
Total deposits 1,927,904 1,961,517
Securities sold under agreements to repurchase
and other short-term borrowings 60,967 60,980
Long-term borrowings 18,161 18,246
Accrued taxes, interest and other liabilities 30,119 29,163
Total liabilities 2,037,151 2,069,906
Commitments and Contingencies
Stockholders' Equity
Common stock ($5.00 par value) shares authorized 50,000,000;
shares outstanding 16,683,931 at March 31, 1994, and 16,672,049
at December 31, 1993 83,420 83,360
Capital surplus 27,928 27,839
Retained earnings 52,075 50,400
Unrealized gain (loss) on available-for-sale securities (9,862) 686
Total stockholders' equity 153,561 162,285
Total liabilities and stockholders' equity $2,190,712 $2,232,191
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
Three Months
Ended March 31,
(Thousands of dollars, except per share data) 1994 1993
<S> <C> <C>
Interest Income
Interest and fees on loans $28,972 $32,959
Interest and dividends on securities:
Taxable interest 7,477 7,803
Interest exempt from federal income taxes 22
Other interest income 2,614 2,418
Total interest income 39,063 43,202
Interest Expense
Interest on deposits 15,035 19,936
Interest on securities sold under agreements to
repurchase and other short-term borrowings 114 47
Interest on long-term borrowings 398 429
Total interest expense 15,547 20,412
Net interest income 23,516 22,790
Provision for possible loan losses 2,500 6,000
Net interest income after provision for possible loan losses 21,016 16,790
Other Operating Income
Service charges on deposit accounts 1,421 1,822
Mortgage banking income 3,013 2,561
Gain on sale of available-for-sale securities 526 6,101
Gain on sale of investment securities 55
Other 1,752 1,447
Total other operating income 6,712 11,986
Other Operating Expense
Compensation and employee benefits 12,188 10,289
Net occupancy expense of premises 2,284 2,081
Equipment expense 1,739 2,271
FDIC insurance 1,285 1,811
Other real estate owned expense, net 1,442 1,249
Other 5,405 6,169
Total other operating expense 24,343 23,870
Income before income taxes 3,385 4,906
Income taxes 875 26
Net income $ 2,510 $ 4,880
Earnings per share $ .15 $ .35
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
Three Months
Ended March 31,
(Thousands of dollars) 1994 1993
<S> <C> <C>
Operating Activities
Net income $ 2,510 $ 4,880
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Provision for possible loan losses 2,500 6,000
Provision for depreciation and amortization 1,030 1,039
Amortization of purchased servicing 858 774
Amortization of excess servicing 141 213
Amortization of discount on securities 135 191
Other amortization 70 299
Realized gain on available-for-sale securities (526) (6,101)
Realized gain on investment securities (55)
Contribution of common stock under 401(k) plan 109
Decrease in other assets and liabilities 3,382 66
Other (primarily loan origination costs) (676) (111)
Net cash provided by operating activities 9,533 7,195
Investing Activities
Proceeds from sale of investment securities 154,556
Maturities of investment securities 114,731
Principal repayments of investment securities 42,325
Purchase of investment securities (473,186)
Proceeds from sales of available-for-sale securities 75,517 233,541
Principal repayments of available-for-sale securities 17,455 8,522
Purchase of available-for-sale securities (199,619) (57,668)
Sales of mortgage loans held for sale 278,239 178,044
Originations of mortgage loans held for sale (219,809) (177,443)
Purchase of servicing (4,344)
Decrease in loans 52,993 48,140
Purchase of premises and equipment (523) (805)
Other 68 42
Net cash (used for) provided by investing activities (23) 70,799
Financing Activities
Net (decrease) increase in noninterest-bearing demand deposits (13,931) 6,439
Net decrease in interest-bearing deposits (19,682) (86,458)
Net decrease in securities sold under agreements to
repurchase and other short term borrowings (13) (3,954)
Retirement of long-term borrowings (85) (77)
Cash dividends paid (835)
Proceeds from issuance of common stock 40 7,104
Net cash used for financing activities (34,506) (76,946)
(Decrease) increase in cash and cash equivalents (24,996) 1,048
Cash and cash equivalents at beginning of period 94,472 109,976
Cash and cash equivalents at end of period $ 69,476 $ 111,024
Supplemental information:
Interest paid $ 15,342 $ 19,323
Net income tax paid (refund) 259 (3,393)
Noncash transactions:
Assets acquired in foreclosure $ 7,657
Loans to facilitate sale of assets acquired in foreclosure 960
Issuance of common stock under 401(k) plan $ 109
Unrealized loss on valuation of available-for-sale securities 10,548
Reclassifications of investment securities to loans 4,974
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
BALTIMORE BANCORP AND SUBSIDIARIES
(Thousands of dollars)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 1994 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1994. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
NOTE B - AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities at March 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
Costs Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities . . . . . . . . . . . . $ 52,053 $ 173 $ 51,880
Federal agency obligations . . . . . . . . . . . 80,071 2,839 77,232
Foreign government debt. . . . . . . . . . . . . 1,000 1,000
Mortgage-backed securities . . . . . . . . . . . 496,390 $ 85 12,059 484,416
Other asset-backed securities. . . . . . . . . . 18,665 2 188 18,479
Total available-for-sale securities. . . . . . . $ 648,179 $ 87 $ 15,259 $ 633,007
</TABLE>
Available-for-sale securities at December 31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Fair
Costs Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities . . . . . . . . . . . . $ 1,994 $ 1,994
Federal agency obligations . . . . . . . . . . . 75,071 $ 53 $ 267 74,857
Foreign government debt. . . . . . . . . . . . . 1,000 1,000
Mortgage-backed securities . . . . . . . . . . . 452,564 1,593 328 453,829
Other asset-backed securities. . . . . . . . . . 10,512 5 1 10,516
Total available-for-sale securities. . . . . . . $ 541,141 $ 1,651 $ 596 $ 542,196
</TABLE>
NOTE C - EARNINGS PER SHARE
Earnings per share were determined based on the weighted average number of
common shares outstanding for the period and the assumed exercise of stock
options using the treasury stock method to the extent that the effect is
dilutive. The weighted average number of shares outstanding was 16,678,000
and 13,906,000 for the three month periods ended March 31, 1994 and 1993,
respectively. The dilutive effect of stock options was not material.
NOTE D - LITIGATION
Various claims and lawsuits are pending against the Company and its
subsidiaries. It is generally anticipated that final disposition of such
claims and lawsuits may not occur for several years. Management, after
reviewing developments with legal counsel, establishes loss contingency
reserves as considered necessary; however, no such reserves have been
established as of March 31, 1994. Although the amount of any ultimate
liability with respect to legal matters cannot be determined, management
is of the opinion that losses, if any, resulting from the settlement of
current legal actions will not have a material adverse effect on the
financial condition of the Company.
During 1993, the Company settled a lawsuit originally filed in 1990 by
a class of stockholders against the Company and certain previous executive
officers and former directors relating to the rejection of a conditional
proposal to acquire the Company made by Allied Irish Bank in 1990. The
total settlement paid by the Company amounted to $1,750 and was charged
to other expense during the quarter ended March 31, 1993.
NOTE E - REGULATORY MATTERS
In April 1994, the Company received notification that the Order to Cease
and Desist, which The Bank of Baltimore, the Company's principal subsidiary,
entered into with the Federal Deposit Insurance Corporation and the Maryland
Bank Commissioner in July 1992, had been terminated and that the Written
Agreement, which the Company entered into with the Federal Reserve Bank of
Richmond and the Maryland Bank Commissioner in July 1992, had been terminated.
NOTE F - MERGER AGREEMENT
On March 21, 1994, the Company announced the execution of a definitive
Agreement and Plan of Merger ("the Agreement and Plan of Merger") with
First Fidelity Bancorporation ("FFB") and a wholly owned subsidiary of FFB
("Merger Sub"), pursuant to which FFB will acquire all of the outstanding
shares of the Company's common stock in a merger of Merger Sub into the
Company, which will thereby become a wholly owned subsidiary of FFB. Under
the terms of the Agreement and Plan of Merger, holders of the Company's
common stock will receive $20.75 in cash for each of their shares.
In connection with the acquisition, the Company on March 22, 1994 granted
FFB an option to purchase 3,300,000 shares of the Company's common stock
(subject to adjustment in certain events), or approximately 19.9% of the
Company's outstanding common stock, at $19.31 per share (the average of the
high and low sales prices on March 22, 1994). The option is exercisable in
the event of (i) the acquisition by any person other than FFB or any of its
subsidiaries of ownership, control or the right to vote 25% or more of the
Company's outstanding common stock, or (ii) the Company or any of its
subsidiaries entering into, or the board of directors recommending for
stockholder approval, certain acquisition transactions with any person
other than FFB or any of its subsidiaries.
The acquisition of the Company by FFB is subject to various closing
conditions, including the merger of The Bank of Baltimore into a
newly-formed federal savings bank subsidiary of FFB , the receipt of all
regulatory approvals required for the transaction, and the approval of
the transaction by the Company's stockholders at a special meeting. The
acquisition is expected to close on the later of October 31, 1994 or
within ten days after the receipt of all required regulatory approvals
and expiration of applicable waiting periods, subject to satisfaction
of closing conditions.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Earnings Review
Net income of Baltimore Bancorp ("the Company") for the quarter ended
March 31, 1994 was $2.5 million, or $.15 per share, compared with net
income of $4.9 million for the first quarter of 1993, or $.35 per share.
Earnings per share reflected a 20% increase in the weighted average number
of shares outstanding in 1994 compared to 1993. For the first quarter of
1994, return on average assets was .47%, as compared with .83% for the
corresponding period in 1993.
Core operating earnings (pretax income before the provision for possible
loan losses, other real estate owned expense and nonrecurring items) were
$6.8 million for the first quarter of 1994, compared to $7.8 million for
the same period in 1993. The overall decrease in core operating earnings
compared with the prior year period is largely attributable to higher
compensation and employee benefits expense.
Net interest income. Net interest income increased 3% to $23.5 million
in the first quarter of 1994 from $22.8 million in 1993. While average
earning assets decreased by 9%, the net yield on average earning assets
has risen 13% to 4.67% for the first three months of 1994 from 4.14% for
the same period in 1993. A $136.6 million, or 66%, reduction in
nonperforming assets since March 31, 1993, combined with the repayment
at maturity of $133.2 million in high cost brokered deposits since March
31, 1993, have accounted for most of the improvement in the net yield on
average earning assets.
Provision for possible loan losses. The Company's provision for possible
loan losses was $2.5 million for the first quarter of 1994, as compared
with $6.0 million for the first quarter of 1993. Net charge-offs were
$7.4 million during the 1994 first quarter, as compared with $11.4 million
for the 1993 first quarter. The lower level of charge-offs in 1994 relates
to the significant reduction in nonperforming loans over the past twelve
months. Nonperforming loans declined from $113.8 million at March 31, 1993
to $29.8 million at March 31, 1994.
The current provision for possible loan losses is not necessarily
indicative of future provisions. Although the Company closely monitors
the quality of its loan portfolios, further weakness in the regional real
estate market or the general economy could result in the Company's
increasing the quarterly provision for possible loan losses.
Other operating income. Other operating income decreased by 44% in
the first quarter of 1994 to $6.7 million from $12.0 million for the
corresponding period in 1993. The first quarter 1993 results included $6.1
million in gains on the sale of available-for-sale securities, compared with
$0.5 million for the first quarter of 1994. The increase in mortgage banking
income in the first quarter of 1994 in comparison to the corresponding period
in 1993 reflects a $1.0 million increase in servicing fee income offset by
a $0.5 million decline in gains on the sale of residential mortgages. Service
charges on deposit accounts decreased $0.4 million in the first quarter of
1994 when compared to the first quarter of 1993 primarily due to a decline
in fee-producing deposit accounts, while increases in credit card and
investment service fees accounted for the majority of the $0.3 million
increase in other income.
Other operating expense. Other operating expense increased by 2% to
$24.3 million in the first quarter of 1994 from $23.9 million in the first
quarter of 1993. Compensation and employee benefits expense rose $1.9
million, or 18%, largely as a result of higher volume-driven commissions
in the Company's residential mortgage banking business. Mortgage loan
originations increased by 24% to $219.8 million in the first quarter of
1994, as compared with $177.4 million for the same period in 1993. The
Company also incurred higher pension and medical benefits and incentive plan
costs as well as higher temporary personnel costs. In comparison with the
first quarter of 1993, the Company experienced decreases in FDIC insurance
expense due to lower rates resulting from the Company's improved financial
condition as well as in equipment expense due to the outsourcing of the
Company's data processing operations beginning in late 1993. Outside data
processing services expense, which is included in other expense, increased
by $0.6 million during the first quarter of 1994, as compared with the
corresponding period in 1993. Additionally, other expense for the first
quarter of 1993 included a $1.8 million charge for the settlement of a
lawsuit filed in 1990 by a class of stockholders against the Company and
certain previous executive officers and former directors.
Income taxes. Income taxes increased to $0.9 million in the first
quarter of 1994 from less than $0.1 million in the corresponding period
of 1993. In 1993, the Company benefitted from the use of net operating
loss carryforwards to reduce income taxes. These loss carryforwards had
been fully utilized by the end of 1993.
Capital and Liquidity
Capital. For the first quarter of 1994, the adjusted Tier 1 leverage
capital ratio for the Company's principal subsidiary, The Bank of Baltimore
("the Bank"), reached 7.60%. This represents an improvement over the Bank's
leverage capital ratio of 6.04% for the first quarter of 1993 and compares
to a leverage capital ratio of 7.08% for the fourth quarter of 1993. At
March 31, 1994, the Bank's Tier 1 risk-based and Total risk-based capital
ratios were 10.36% and 11.62%, respectively, exceeding the regulatory
requirements for a "well-capitalized" bank of 6.00% and 10.00%, respectively.
The Bank's Tier 1 risk-based and Total risk-based ratios were 7.85% and
9.12%, respectively, at March 31, 1993 and 9.72% and 10.99%, respectively,
at December 31, 1993.
On a consolidated basis, the Company's ratio of stockholders' equity to
total assets declined to 7.01% at March 31, 1994, as compared with 7.27%
at December 31, 1993. This decrease reflects the decline in market value,
since year-end 1993, of the Company's available-for-sale securities which,
effective December 31, 1993, are being accounted for in accordance with
Statement of Financial Accounting Standards No. 115 ("FASB 115"). The
Company's ratio of stockholders' equity to total assets excluding the
effect of FASB 115 was 7.46% at March 31, 1994, as compared with 5.88%
a year earlier. Capital ratios have improved since the first quarter of
1993 as a result of profitable operations, a reduction in the Company's
assets and significant new equity capital raised in 1993 through the sale
of common stock under a discount stock purchase plan. The table below sets
forth the relevant data and capital ratios for the Company and the Bank
at March 31, 1994 and for the quarter then ended:
<TABLE>
<CAPTION>
Baltimore The Bank of
(Dollars in millions) Bancorp Baltimore
<S> <C> <C>
Total assets - quarter-end $2,190.7 $2,187.8
Total average assets - first quarter 2,157.4 2,153.0
Total risk-weighted assets 1,598.1 1,579.8
Stockholders' equity- quarter-end, excluding unrealized
loss on available-for-sale securities $ 163.4 $ 163.6
As a percent of total assets 7.46% 7.48%
Tier 1 capital $ 163.4 $ 163.6
As a percent of average assets (leverage ratio) 7.58% 7.60%
Tier 1 risk-based capital $ 163.4 $ 163.6
As a percent of risk-weighted assets 10.23% 10.36%
Required 4.00% 4.00%
Total risk-based capital $ 189.5 $ 183.5
As a percent of risk-weighted assets 11.86% 11.62%
Required 8.00% 8.00%
</TABLE>
Liquidity. The FDIC reviews the liquidity of insured financial institutions
in the course of its examinations but has no specific liquidity requirement.
Insured financial institutions are required by the FDIC to maintain adequate
liquidity as measured by the percentage of net deposits and short-term
liabilities represented by net cash, short-term and marketable assets. The
Bank's liquidity ratio under this formula was 35% at March 31, 1994, 33% at
December 31, 1993 and 34% at March 31, 1993. Management believes that the
Bank's liquidity is adequate.
Asset Quality
Nonperforming assets were $70.7 million at March 31, 1994, as compared with
$81.8 million reported at December 31, 1993 and $207.3 million at March 31,
1993. The following table summarizes the year-to-date activity for 1994:
<TABLE>
<CAPTION>
Nonperforming
(Dollars in millions) Loans OREO Total
<S> <C> <C> <C>
Balance, January 1, 1994 $ 33.9 $ 47.9 $ 81.8
Additions 2.2 2.2
Charge-offs/write-downs (5.7) (0.7) (6.4)
Resolutions/payments (0.6) (6.3) (6.9)
Balance, March 31, 1994 $ 29.8 $ 40.9 $ 70.7
</TABLE>
The ratio of nonperforming assets to total assets improved slightly in the
first quarter of 1994, decreasing to 3.23% at March 31, 1994 from 3.66% at
December 31, 1993. At March 31, 1993, the ratio of nonperforming assets
to total assets was 8.81%. Loans delinquent by more than 90 days increased
by $8.2 million to $19.6 million at March 31, 1994 from $11.4 million at
December 31, 1993. Management believes the allowance for possible loan
losses of $33.7 million, with a coverage ratio of nonperforming loans at
113%, is adequate as of March 31, 1994. In comparison, coverage ratios
were 114% at December 31, 1993 and 53% at March 31, 1993.
Over 95% of the nonperforming assets are secured by real estate, the
majority of which are income-producing properties, and approximately 83%
are located in the local marketplace. The Company continues to be aware
of the risks of an uncertain economy. Further weakness in the regional
real estate market or the general economy could result in additions to
nonperforming assets and/or increased OREO expenses and loan loss provisions.
Changes in Financial Condition
Total assets at March 31, 1994 were $2.191 billion, as compared with $2.232
billion at December 31, 1993.
Loans held for sale at March 31, 1994 were $108.9 million as compared with
$167.3 million at December 31, 1993. The $58.4 million decrease is
attributable to sales of residential mortgage loans exceeding production in
the first quarter of 1994 as the refinancing trend slowed in response to a
rise in interest rates.
Available-for-sale securities, which are reflected at fair value in
accordance with Statement of Financial Accounting Standards No. 115, were
$633.0 million at March 31, 1994, as compared with $542.2 million at December
31, 1993. The $90.8 million increase is largely due to the investment of
excess cash in U. S. Treasury and variable-rate mortgage-backed securities.
Loans, net of unearned income, decreased to $1.256 billion at March 31,
1994, as compared with $1.308 billion at December 31, 1993, principally
as a result of loan amortization and pay-offs. The reduction in consumer
loan portfolios reflects the significant refinancing of homeowners' first
mortgage loans and the concurrent consolidation of consumer debt. In
addition, the lack of significant new consumer loan demand has impacted
growth in loan originations. The commercial real estate loan portfolio
has decreased as a result of prepayments as well as scheduled loan
amortization.
Deposits and short-term borrowings decreased slightly to $1.989 billion
at March 31, 1994, as compared with $2.022 billion at December 31, 1993,
as depositors continued to seek better returns through alternative
investments. The Company has responded to this market trend by further
developing its investment services business and increasing its visibility
in bank branches.
Interest Rate Risk Management. Managing the Company's net interest income,
which is the primary source of earnings, requires information on asset and
liability repricings. The interest sensitivity position is a measure of
the relative exposure of earnings to fluctuations in interest rates. The
Company's Funds Management and Asset/Liability Management Committees monitor
the projected maturities of loans, investments, deposits and borrowings with
a computer model that simulates the dynamics of frequent changes in interest
rates and maturity patterns. Using the model as a guide, the committees
manage interest rate risk by adjusting the size and maturity characteristics
of the loan, investment, and available-for-sale portfolios, altering the
composition and maturity characteristics of deposits and borrowings, and
less frequently, by hedging through the use of interest rate swaps and caps,
options, and futures contracts.
<PAGE>
The following table summarizes the Company's interest rate sensitivity
position at March 31, 1994 for five different time periods using a static
gap analysis:
<TABLE>
<CAPTION>
Period from March 31, 1994 in which
assets/liabilities are subject to repricing
0-90 91-180 181-365 1-5 Over
Days Days Days Years 5 Years
<S> <C> <C> <C> <C> <C>
(Dollars in millions)
Assets
Short-term investments $109
Investment securities 277 $49 $ 65 $223 $ 45
Loans 586 37 74 336 223
Other assets 20 147
Total assets $992 $86 $139 559 $415
Liabilities and Equity
Noninterest-bearing deposits (1) $156
Savings and money market
accounts (1) 773
Other interest-bearing deposits 389 $193 $267 $139 $ 11
Borrowed funds 62 1 16
Other liabilities 30
Stockholders' equity 154
Total liabilities and equity $1,380 $193 $267 $140 $211
Interest Sensitivity Gap
Amount for period $(388) $(107) $(128) $419 $204
Cumulative amount (388) (495) (623) (204)
Cumulative percent of assets (17.7)% (22.6)% (28.4)% (9.3)%
<FN>
(1) Noninterest-bearing deposits and savings and money market accounts, taken together, include
$438 million in the 0-90 days category which the Company considers to be long-term core
deposits in the management of its interest rate sensitivity.
</TABLE>
A static gap repricing report provides an indication of interest rate risk
at a point in time, and is but one tool used for the management of interest
rate risk. In assigning assets and liabilities to these periods, assumptions
are made with regard to prepayments of loans and mortgage backed securities
based on historical trends. While this table shows the opportunity to
reprice assets and liabilities, it does not reflect the fact that all
interest rates do not move in equal increments. For example, consumer
deposit rates typically lag changes in market interest rates.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - See Note D to the Consolidated Financial
Statements.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement Re: Computation of Per Share Earnings.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated February 18, 1994 was filed
concerning the announcement of the date of the 1994 Annual Meeting
of Stockholders and the record date for determining stockholders
entitled to notice of and to vote at such meeting.
A Current Report on Form 8-K dated March 21, 1994 was filed
concerning the definitive merger agreement among the Registrant,
First Fidelity Bancorporation, and Annabel Lee Corporation.
<PAGE>
BALTIMORE BANCORP
Exhibit 11 - Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months
Ended March 31
(Thousands of dollars, except per share data) 1994 1993
<S> <C> <C>
PRIMARY:
Average shares outstanding 16,678 13,906
Net effect of the assumed exercise of stock options - based on
treasury stock method (1) 501 70
Total 17,179 13,976
Net income $ 2,510 $ 4,880
Earnings per share $.15 $.35
FULLY DILUTED:
Average shares outstanding 16,678 13,906
Net effect of the assumed exercise of stock option - based on
treasury stock method (2) 573 70
Assumed conversion of Debentures (3) 200 200
Total 17,451 14,176
Net income $ 2,510 $ 4,880
Interest on Debentures, net of income tax effect (3) 55 55
Net income, as adjusted $ 2,565 $ 4,935
Earnings per share $.15 $.35
<FN>
(1) Using average market price.
(2) Using the higher of the average market price or the ending price.
(3) The Company's 6.75% Convertible Subordinated Debentures are included
in the calculation of fully diluted earnings per share. The 10.875%
Subordinated Capital Notes are not common stock equivalents for
purposes of computing earnings per share.
/TABLE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BALTIMORE BANCORP
May 13, 1994 /s/ Edwin F. Hale, Sr.
--------------------------
Edwin F. Hale, Sr.
Chairman of the Board and
Chief Executive Officer
May 13, 1994 /s/ Joseph A. Cicero
---------------------------
Joseph A. Cicero
Executive Vice President and
Chief Financial Officer
