<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
June 30, 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
incorporation or organization) Number)
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 16,775,790 at July 31, 1994.
<PAGE>
BALTIMORE BANCORP
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Statements of Financial Condition at
June 30, 1994 and December 31, 1993 4
Consolidated Statements of Income for the three month and six month
periods ended June 30, 1994 and 1993 5
Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7-8
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II - OTHER INFORMATION 13-14
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 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
June 30, December 31,
(Thousands of dollars) 1994 1993
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 32,393 $ 41,905
Federal funds sold and securities purchased under resale agreements 16,000 41,500
Other short-term investments 331 11,067
Loans held for sale 72,692 167,336
Available-for-sale securities 600,299 542,196
Loans:
Real estate - construction - residential 84,443 78,585
- commercial 9,254 15,672
Real estate - first mortgage - residential 76,115 52,696
- commercial 374,978 419,500
Real estate - second mortgage and home equity 281,345 301,799
Consumer installment 163,968 205,406
Credit card 156,993 144,000
Commercial 80,982 64,207
Lease financing 57,108 73,673
- - -----------------------------------------------------------------------------------------------------------------
Total loans 1,285,186 1,355,538
Less: Allowance for possible loan losses 30,723 38,684
Unearned income 35,044 47,093
- - -----------------------------------------------------------------------------------------------------------------
Net loans 1,219,419 1,269,761
Premises and equipment, net 30,667 31,013
Assets acquired in foreclosure 40,253 47,852
Other assets 99,273 79,561
- - -----------------------------------------------------------------------------------------------------------------
Total assets $ 2,111,327 $ 2,232,191
=================================================================================================================
Liabilities and Stockholders' Equity
Liabilities
Noninterest-bearing deposits $ 165,364 $ 169,714
Interest-bearing deposits:
Checking accounts 121,764 125,461
Money market 471,800 497,665
Savings 279,078 263,914
Other time 829,147 887,983
Brokered 11,450 12,418
Jumbo certificates of deposit 4,912 4,362
- - -----------------------------------------------------------------------------------------------------------------
Total deposits 1,883,515 1,961,517
Securities sold under agreements to repurchase
and other short-term borrowings 30,121 60,980
Long-term borrowings 17,075 18,246
Accrued taxes, interest and other liabilities 29,706 29,163
- - -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,960,417 2,069,906
Commitments and Contingencies
Stockholders' Equity
Common stock ($5.00 par value) shares authorized 50,000,000; shares
outstanding 16,775,790 at June 30, 1994, and 16,672,049
at December 31, 1993 83,879 83,360
Capital surplus 28,541 27,839
Retained earnings 55,615 50,400
Unrealized gain (loss) on available-for-sale securities (17,125) 686
- - -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 150,910 162,285
- - -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,111,327 $ 2,232,191
=================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- -----------------
(Thousands of dollars, except per share data) 1994 1993 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 28,484 $ 32,044 $ 57,456 $ 65,003
Interest and dividends on securities:
Taxable interest 8,493 8,544 15,970 16,347
Interest exempt from federal income taxes 5 27
Other interest income 2,127 2,709 4,741 5,127
- - -----------------------------------------------------------------------------------------------------------------------
Total interest income 39,104 43,302 78,167 86,504
Interest Expense
Interest on deposits 14,876 19,233 29,911 39,169
Interest on securities sold under agreements to
repurchase and other short-term borrowings 331 46 445 93
Interest on long-term borrowings 389 420 787 849
- - -----------------------------------------------------------------------------------------------------------------------
Total interest expense 15,596 19,699 31,143 40,111
- - -----------------------------------------------------------------------------------------------------------------------
Net interest income 23,508 23,603 47,024 46,393
Provision for possible loan losses 2,500 6,000 5,000 12,000
- - -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan 21,008 17,603 42,024 34,393
losses
Other Operating Income
Service charges on deposit accounts 1,418 1,726 2,839 3,548
Mortgage banking income 6,055 6,631 9,068 9,192
Gains on sale of available-for-sale securities 526 6,101
Gains on sale of investment securities 306 361
Other 2,139 1,984 3,891 3,431
- - -----------------------------------------------------------------------------------------------------------------------
Total other operating income 9,612 10,647 16,324 22,633
- - -----------------------------------------------------------------------------------------------------------------------
Other Operating Expense
Compensation and employee benefits 10,629 11,850 22,817 22,139
Net occupancy expense of premises 2,298 2,122 4,582 4,203
Equipment expense 1,687 2,297 3,426 4,568
FDIC insurance 1,267 1,695 2,552 3,506
Other real estate owned expense, net 939 2,224 2,381 3,473
Other 7,243 5,176 12,648 11,345
- - -----------------------------------------------------------------------------------------------------------------------
Total other operating expense 24,063 25,364 48,406 49,234
- - -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 6,557 2,886 9,942 7,792
Income taxes 2,180 238 3,055 264
- - -----------------------------------------------------------------------------------------------------------------------
Net income $ 4,377 $ 2,648 $ 6,887 $ 7,528
=======================================================================================================================
Earnings per share $ .25 $ .18 $ .40 $ .52
=======================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Baltimore Bancorp and Subsidiaries
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
(Thousands of dollars) 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 6,887 $ 7,528
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Provision for possible loan losses 5,000 12,000
Provision for depreciation and amortization 2,117 2,093
Amortization of purchased servicing 1,361 2,623
Amortization of excess servicing 286 457
Amortization of discount on securities 224 822
Other amortization 151 604
Realized gain on available-for-sale securities (526) (6,101)
Realized gain on investment securities (361)
Realized gain on sale of deposits (228)
Realized gain on sale of servicing rights (3,915) (4,251)
Contribution of common stock under 401(k) plan 109
Decrease (increase) in other assets and liabilities (208) 5,743
Other (179) (165)
- - ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,079 20,992
- - ------------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sales of available-for-sale securities 75,517 233,541
Principal repayments of available-for-sale securities 41,898 8,522
Purchase of available-for-sale securities (202,608) (57,668)
Proceeds from sales of investment securities 191,026
Maturities of investment securities 117,719
Principal repayments of investment securities 72,065
Purchase of investment securities (511,576)
Sales of mortgage loans held for sale 466,710 504,053
Originations of mortgage loans held for sale (372,066) (535,530)
Proceeds from sale of servicing rights 858 2,522
Purchase of servicing rights (8,286) (4,272)
Decrease in loans 52,995 87,403
Purchase of premises and equipment (1,648) (1,856)
Other 167 105
- - ------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 53,537 106,054
- - ------------------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from sale of deposits 18,552
Net increase (decrease) in deposits, excluding deposits sold:
Noninterest-bearing deposits (10,776) 43,790
Interest-bearing deposits (85,550) (193,725)
Net decrease in securities sold under agreements to
repurchase and other short-term borrowings (30,859) (2,519)
Retirement of long-term borrowings (1,171) (1,155)
Cash dividends paid (1,672)
Proceeds from issuance of common stock 1,112 21,659
- - ------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (110,364) (131,950)
- - ------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (45,748) (4,904)
Cash and cash equivalents at beginning of period 94,472 109,976
- - ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 48,724 $ 105,072
========================================================================================================================
Supplemental information:
Interest paid $ 30,732 $ 46,157
Net income tax paid (refunded) 2,030 (2,889)
- - ------------------------------------------------------------------------------------------------------------------------
Noncash transactions:
Assets acquired in foreclosure $ 6,468 $ 13,613
Loans to facilitate sale of assets acquired in foreclosure 1,320 5,360
Unrealized loss on valuation of available-for-sale securities 17,811
Reclassification of investment securities to loans 4,974
========================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<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 and six month periods ended
June 30, 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 June 30, 1994 are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1994
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury securities...................... $ 55,047 $ - $ 876 $ 54,171
Federal agency obligations.................... 68,641 4,262 64,379
Foreign government debt....................... 1,000 1,000
Mortgage-backed securities.................... 485,754 20,830 464,924
Other asset-backed securities................. 16,194 369 15,825
--------- ------ -------- ----------
Total available-for-sale securities........... $ 626,636 $ - $ 26,337 $ 600,299
========= ====== ======== ==========
</TABLE>
Available-for-sale securities at December 31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1993
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost 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>
<PAGE>
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 16,719,314 and
14,943,872 for the three month periods ended June 30, 1994 and 1993,
respectively, and 16,698,536 and 14,428,044 for the six month periods ended June
30, 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 June
30, 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 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 during the fourth
quarter of 1994.
<PAGE>
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 June 30,
1994 was $4.4 million, or $.25 per share, as compared with net income of $2.6
million for the second quarter of 1993, or $.18 per share. Year-to-date, net
income for the six months ended June 30, 1994 amounted to $6.9 million, or $.40
per share, as compared with net income of $7.5 million, or $.52 per share, for
the corresponding period in 1993. For both the first half of 1994 and 1993,
return on average total assets was .64%.
Net interest income. Net interest income decreased slightly to $23.5 million
in the second quarter of 1994 from $23.6 million in the same period of 1993. For
the first half of 1994, net interest income amounted to $47.0 million, as
compared with $46.4 million for the corresponding period in 1993, or a 1%
increase. While average earning assets declined 8% during both the three and six
month periods in 1994 compared with 1993, the net yield on average earning
assets has risen 9% to 4.71% for the second quarter of 1994 from 4.34% for the
same period in 1993 and has increased 11% to 4.69% for the first half of 1994
from 4.24% for the same period in 1993. A $115.9 million, or 65%, reduction in
nonperforming assets since June 30, 1993 combined with the repayment at maturity
of $95.4 million in high cost brokered deposits since June 30, 1993 have
accounted for much 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 second quarter of 1994, as compared with $6.0
million for the second quarter of 1993. Year-to-date, the provision for possible
loan losses was $5.0 million for the six months ended June 30, 1994, as compared
with $12.0 million for the same period in 1993. Net charge-offs were $5.5
million and $8.3 million for the second quarter of 1994 and 1993, respectively,
and $13.0 million and $19.6 million for the first half of 1994 and 1993,
respectively. The lower level of charge-offs in 1994 relates to the significant
reduction in nonperforming loans over the past twelve months. Nonperforming
loans dropped from $98.9 million at June 30, 1993 to $21.4 million at June 30,
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, deterioration in the regional real estate market or the general
economy could result in the Company increasing the quarterly provision for
possible loan losses.
Other operating income. Other operating income decreased by 10% in the second
quarter of 1994 to $9.6 million from $10.6 million for the corresponding period
in 1993. Most of the decline occurred in the Company's residential mortgage
banking business where an increase in service fee income was offset by lower
production and lower profits on the sale of loans in comparison to the prior
year. The decrease was also partially attributable to 1993 gains on securities
sold while no such sales occurred in the second quarter of 1994.
Year-to-date, other operating income amounted to $16.3 million for the first
half of 1994, as compared with $22.6 million for the same period in 1993, or a
28% decrease. The results for the first half of 1993 reflect $6.5 million in
gains from the Company's securities portfolios, as compared with $0.5 million
for the same period in 1994.
Other operating expense. Other operating expense decreased by 5% in the second
quarter of 1994 to $24.1 million from $25.4 million for the corresponding period
in 1993. Compensation and employee benefits expense decreased largely as a
result of reduced employee benefit expense and lower volume driven commissions
in the Company's residential mortgage banking business where production levels
in the second quarter of 1994, as compared with 1993, declined with the market
rise in mortgage interest rates. In comparison with the second quarter of 1993,
the Company in the second quarter of 1994 experienced decreases in equipment
expense due to the outsourcing of its data processing operations beginning in
late 1993 as well as in FDIC insurance expense due to lower deposits and lower
assessment rates resulting from the Company's improved financial condition.
Other real estate owned (OREO) expense also decreased as the Company's loss
exposure from its OREO holdings has stabilized. Offsetting these decreases was
an increase in other expense in the second quarter of 1994, as compared with the
same period in 1993, largely attributable to higher outside data processing
services expense and higher advertising expense associated with the Company's
retail operations. Additionally, during the second quarter of 1994, the Company
settled a dispute with certain former executives involving the cancellation of
stock options.
Year-to-date, other operating expense amounted to $48.4 million for the first
half of 1994, as compared with $49.2 million for the same period in 1993, or a
2% decrease. 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 $2.2 million in the second quarter of
1994 from $0.2 million for the corresponding period in 1993. For the six months
ended June 30, 1994, income taxes were $3.1 million, as compared with $0.3
million for the first half of the prior year. In 1993, the Company benefitted
from the use of net operating loss carryforwards to reduce federal income taxes.
These loss carryforwards are not available in 1994.
Capital and Liquidity
Capital. For the second quarter of 1994, the adjusted Tier 1 leverage capital
ratio for the Company's principal subsidiary, The Bank of Baltimore ("the
Bank"), reached 7.88%. This represents an improvement over the Bank's leverage
capital ratio of 6.77% for the second quarter of 1993 and compares to a leverage
capital ratio of 7.08% for the fourth quarter of 1993. At June 30, 1994, the
Bank's Tier 1 risk-based and Total risk-based capital ratios were 10.83% and
12.09%, 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 8.93% and 10.20%, respectively, at
June 30, 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 7.15% at June 30, 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 7.96% at June 30,
1994, as compared with 6.75% a year earlier. Capital ratios have improved since
the second 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 dividend reinvestment and stock purchase plan.
The table below sets forth the relevant data and capital ratios for the Company
and the Bank at June 30, 1994 and for the quarter then ended:
<TABLE>
<CAPTION>
Baltimore The Bank of
Bancorp Baltimore
--------- -----------
(Dollars in millions)
- - ---------------------
<S> <C> <C>
Total assets - quarter-end $ 2,111.3 $ 2,126.6
Total average assets - second quarter 2,157.2 2,154.3
Total risk-weighted assets 1,579.8 1,567.3
Stockholders' equity - quarter-end, excluding unrealized
loss on available-for-sale securities 168.0 169.7
As a percent of total assets 7.96% 7.98%
Tier 1 capital
As a percent of average assets (leverage ratio) 7.79% 7.88%
Tier 1 risk-based capital
As a percent of risk-weighted assets 10.64% 10.83%
Required 4.00% 4.00%
Total risk-based capital
As a percent of risk-weighted assets 12.27% 12.09%
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 32% at June 30, 1994, 33% at
December 31, 1993 and 32% at June 30, 1993. Management believes that the Bank's
liquidity is adequate.
Asset Quality
Nonperforming assets were $61.7 million at June 30, 1994, as compared with
$81.8 million reported at December 31, 1993 and $177.6 million at June 30, 1993.
The following table summarizes the year-to-date activity for 1994:
<PAGE>
<TABLE>
<CAPTION>
Nonperforming
(Dollars in millions) Loans OREO Total
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1994 $ 33.9 $ 47.9 $ 81.8
Additions 7.3 7.3
Charge-offs/write-downs (9.9) (1.1) (11.0)
Resolutions/payments (3.4) (13.0) (16.4)
Transfers (6.5) 6.5
-----------------------------------
Balance, June 30, 1994 $ 21.4 $ 40.3 $ 61.7
-----------------------------------
</TABLE>
The ratio of nonperforming assets to total assets improved in the first half
of 1994, decreasing to 2.92% at June 30, 1994 from 3.66% at December 31, 1993.
At June 30, 1993, the ratio of nonperforming assets to total assets was 7.70%.
Loans delinquent by more than 90 days increased by $2.0 million to $13.4 million
at June 30, 1994 from $11.4 million at December 31, 1993. Management believes
the allowance for possible loan losses of $30.7 million, with a coverage ratio
of nonperforming loans at 143%, is adequate at June 30, 1994. In comparison,
coverage ratios were 114% at December 31, 1993 and 59% at June 30, 1993.
Approximately 97% of the nonperforming assets are secured by real estate, the
majority of which are income-producing properties, and approximately 84% are
located in the local marketplace. Deterioration 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 June 30, 1994 were $2.111 billion, as compared with $2.232
billion at December 31, 1993.
Loans held for sale at June 30, 1994 were $72.7 million as compared with
$167.3 million at December 31, 1993. The $94.6 million decrease is attributable
to sales of residential mortgage loans exceeding production in the first half of
1994 as the refinancing trend slowed in response to a rise in interest rates.
Available-for-sale securities at June 30, 1994 were $600.3 million as compared
with $542.2 million at December 31, 1993. The $58.1 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 $1.250 billion at June 30, 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 to $1.914 billion at June 30,
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.
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.
The following table summarizes the Company's interest rate sensitivity
position at June 30, 1994 for five different time periods using a static gap
analysis:
<PAGE>
<TABLE>
<CAPTION>
Period from June 30, 1994
in which assets/liabilities
are subject to repricing
------------------------------------------------
0-90 91-180 181-365 1-5 Over
(Dollars in millions) Days Days Days Years 5 Years
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Short-term investments $ 16
Available-for-sale securities 266 $ 29 $ 46 $ 183 $ 77
Loans 665 28 57 295 205
Other assets 84 160
--------------------------------------------------
Total assets $1,031 $ 57 $ 103 $ 478 $ 442
==================================================
Liabilities and Equity
Noninterest-bearing deposits (1) $ 165
Savings and money market accounts (1) 873
Other interest-bearing deposits 328 $ 248 $ 99 $ 154 $ 16
Borrowed funds 30 1 16
Other liabilities 30
Stockholders' equity 151
--------------------------------------------------
Total liabilities and equity $1,396 $ 248 $ 100 $ 154 $ 213
==================================================
Interest Sensitivity Gap
Amount for period $ (365) $(191) $ 3 $ 324 $ 229
Cumulative amount (365) (556) (553) (229)
Cumulative percent of assets (17.3%) (26.3%) (26.2%) (10.8%)
</TABLE>
(1) Noninterest-bearing deposits and savings and money market accounts, taken
together, include $444 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.
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
(a) The Annual Meeting of Stockholders of Baltimore Bancorp was held
on April 27, 1994.
(b) Not applicable.
(c) Other matters voted upon:
(1) The following persons were elected as directors at the Annual
Meeting for three year terms until the 1997 Annual Meeting:
Against or
Nominee For Withheld
------------------------------------------------------------
Rose M. Cernak 14,952,364 152,824
Edwin F. Hale, Sr. 14,958,230 146,958
R. Andrew Larkin, Jr. 14,962,341 142,847
Robert A. Pascal 14,958,147 147,041
G. Gregory Russell 14,962,436 142,752
(2) An amendment to the Company's 1992 Stock Option Plan as to a
grant of an option on October 13, 1993 to each nonemployee
director of the Company to purchase 5,000 shares of common
stock was approved by the stockholders at the Annual Meeting
as follows:
For 13,694,660
Against or withheld 1,168,152
Abstain 242,376
(d) Not applicable.
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 - None.
<PAGE>
BALTIMORE BANCORP
Exhibit 11 - Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
(Thousand of dollars, except per share data) 1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 16,719 14,944 16,699 14,428
Net effect of the assumed exercise of stock options - based on treasury
stock method (1) 559 103 523 91
- - ------------------------------------------------------------------------------------------------------------------------------------
Total 17,278 15,047 17,222 14,519
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,377 $ 2,648 $ 6,887 $ 7,528
- - ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $ .25 $ .18 $ .40 $ .52
- - ------------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED:
Average shares outstanding 16,719 14,944 16,699 14,428
Net effect of the assumed exercise of stock option - based on
treasury stock method (2) 568 146 568 130
Assumed conversion of Debentures (3) 200 200 200 200
- - ------------------------------------------------------------------------------------------------------------------------------------
Total 17,487 15,290 17,467 14,758
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 4,377 $ 2,648 $ 6,887 $ 7,528
Interest on Debentures, net of income tax effect (3) 55 55 109 109
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income, as adjusted $ 4,432 $ 2,703 $ 6,996 $ 7,637
- - ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $ .25 $ .18 $ .40 $ .52
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
<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
August 10, 1994 /s/ Edwin F. Hale, Sr.
--------------------------
Edwin F. Hale, Sr.
Chairman of the Board and
Chief Executive Officer
August 10, 1994 /s/ Joseph A. Cicero
---------------------
Joseph A. Cicero
Executive Vice President and
Chief Financial Officer
