<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
--------------
Commission file number 0-23090
--------------
Carrollton Bancorp
--------------------------------------------------
(Exact name of issuer as specified in its charter)
MARYLAND 52-1660951
------------------------------ -------------------
(State or other jurisdiction (IRS Employer of
incorporation or organization) Identification No.)
344 NORTH CHARLES STREET, SUITE 300, BALTIMORE, MARYLAND 21201
--------------------------------------------------------------
(Address of principal executive offices)
(410) 536-4600
---------------------------
(Issuer's telephone number)
--------------------------------------------------------------------------------
(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/X/ No/ /
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 court. Yes/ / No/ /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
2,707,733 common shares outstanding at November 1, 2000
--------------------------------------------------
<PAGE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Carrollton Bancorp
and Subsidiary
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,631,910 $ 24,795,534
Federal funds sold 15,199,012 2,840,365
Investment securities:
Available for sale 60,191,862 75,747,478
Held to maturity 50,000 50,000
(approximate market value of $50,000
and $50,000)
Loans held for sale 2,290,554 2,557,922
Loans, less allowance for loan losses of 274,043,847 254,611,044
$2,959,862 and 2,836,291
Bank premises and equipment 8,126,031 8,456,257
Accrued interest receivable 2,602,804 2,381,008
Deferred income taxes 1,094,122 880,010
Prepaid income taxes 21,686 525,627
Other assets 2,152,541 2,773,956
------------- -------------
$ 384,404,369 $ 375,619,201
============= =============
LIABILITES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 36,131,142 $ 41,957,674
Interest-bearing 251,600,640 220,492,191
------------- -------------
Total deposits 287,731,782 262,449,865
Federal funds purchased and securities
sold under agreement to repurchase 13,846,170 13,650,176
Advances from the Federal Home Loan Bank 50,000,000 66,000,000
Notes payable - U.S. Treasury 1,107,280 1,830,856
Accrued interest payable 838,900 491,728
Other liabilities 997,325 1,311,999
------------- -------------
354,521,457 345,734,624
------------- -------------
SHAREHOLDERS' EQUITY
Common stock, par $1.00 per share; 2,707,733 2,776,904
authorized 10,000,000 shares; issued and outstanding
2,707,733 and 2,776,904
Surplus 17,089,582 18,016,419
Retained earnings 10,553,094 9,945,947
Accumulated other comprehensive income (467,497) (854,693)
------------- -------------
29,882,912 29,884,577
------------- -------------
$ 384,404,369 $ 375,619,201
============= =============
</TABLE>
Note: Balances at December 31, 1999 are derived from audited financial
statements.
Page 1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Carrollton Bancorp
and Subsidiary
<TABLE>
<CAPTION>
Quarter Ended September 30 Nine Months Ended September 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,664,551 $ 4,610,409 $16,432,739 $12,895,591
Interest and dividends on securities:
Taxable interest income 722,922 815,646 2,183,537 1,883,902
Nontaxable interest income 100,269 317,412 519,919 953,631
Dividends 29,242 39,831 114,856 99,722
Interest on federal funds sold and
other interest income 356,524 65,197 543,801 189,663
----------- ----------- ----------- -----------
Total interest income 6,873,508 5,848,495 19,794,852 16,022,509
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 3,106,565 1,992,077 8,186,880 5,712,373
Other 1,152,415 949,835 3,431,725 1,933,240
----------- ----------- ----------- -----------
Total interest expense 4,258,980 2,941,912 11,618,605 7,645,613
----------- ----------- ----------- -----------
Net interest income 2,614,528 2,906,583 8,176,247 8,376,896
Provision for loan losses 112,000 149,450 336,000 439,250
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 2,502,528 2,757,133 7,840,247 7,937,646
----------- ----------- ----------- -----------
OTHER OPERATING INCOME
Service charges on deposit accounts 293,218 334,454 904,826 1,005,253
Brokerage commissions 386,157 283,246 968,344 795,286
Other fees and commissions 1,348,729 1,708,704 3,823,129 4,950,927
Gain on sale of merchant services unit 0 1,554,526 0 1,554,526
Gains(loss) on security sales (49,730) 7,995 74,436 85,724
Gains on loan sales 0 0 15,621 249,939
----------- ----------- ----------- -----------
Total other operating income 1,978,374 3,888,925 5,786,356 8,641,655
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries 1,305,144 1,380,607 4,119,771 4,124,400
Employee benefits 293,575 332,668 947,369 982,724
Occupancy 344,397 365,576 1,134,709 1,216,823
Furniture and equipment 412,515 386,358 1,254,400 1,112,703
Other operating expenses 1,499,968 2,193,208 4,433,321 5,844,557
----------- ----------- ----------- -----------
Total other expenses 3,855,599 4,658,417 11,889,570 13,281,207
----------- ----------- ----------- -----------
Income before taxes 625,303 1,987,641 1,737,033 3,298,094
Income taxes 176,753 622,150 402,069 854,296
----------- ----------- ----------- -----------
Net income $ 448,550 $ 1,365,491 $ 1,334,964 $ 2,443,798
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE
Net income - basic and diluted $ 0.16 $ 0.48 $ 0.49 $ 0.87
=========== =========== =========== ===========
</TABLE>
Page 2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Carrollton Bancorp
and Subsidiary
<TABLE>
<CAPTION>
Nine Months Ended September 30
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Interest received $ 19,603,461 $ 15,436,411
Fees and commissions received 5,771,925 7,190,932
Interest paid (11,271,433) (7,447,371)
Origination of loans held for sale (5,545,582) (8,534,773)
Proceeds from sale of loans held for sale 5,828,571 9,111,230
Cash paid to suppliers and employees (11,198,333) (12,789,953)
Income taxes paid (52,140) (282,774)
------------ ------------
3,136,469 2,683,702
------------ ------------
Cash flows from investing activities
Proceeds from maturities of securities held to maturity 0 1,370,000
Proceeds from sales of securities available for sale 21,389,849 2,703,826
Proceeds from maturities of securities available for sale 600,000 11,124,596
Purchase of securites available for sale (6,329,127) (38,649,067)
Loans made, net of principal collected (12,405,561) (26,041,170)
Puchase of loans, net of principal collected (6,596,044) (4,719,123)
Purchase of premises and equipment (631,072) (1,788,665)
------------ ------------
(3,971,955) (55,999,603)
------------ ------------
Cash flows from financing activities
Net increase (decrease) in time deposits 27,301,183 6,879,003
Net increase (decrease) in other deposits (2,019,266) 2,602,730
Net increase (decrease) in other borrowed funds (16,527,582) 37,569,794
Dividends paid (727,817) (634,357)
Common stock repurchase and retirement (996,009) (337,628)
------------ ------------
7,030,509 46,079,542
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,195,023 (7,236,359)
Cash and cash equivalents at beginning of year 27,635,899 32,546,465
------------ ------------
Cash and cash equivalents at September 30 $ 33,830,922 $ 25,310,106
============ ============
Reconciliation of net income to net cash
provided by operating activites
Net income $ 1,334,964 $ 2,433,798
Adjustments to reconcile net income to
net cash provided by operating activites
Provision for loan losses 336,000 439,250
Deprecation and amortization 1,041,341 1,032,507
Amortization of premiums and discounts 30,404 40,410
Gains on disposal of securities (74,436) (85,724)
Loans held for sale made, net of principal sold 282,989 576,456
Gains on sale of merchant services unit 0 (1,554,526)
Gains on loans held for sale (15,621) (249,939)
(Increase) decrease in:
Accrued interest receivable (221,796) (626,508)
Prepaid income taxes 503,941 571,522
Other assets (743,163) 78,757
Increase (decrease) in:
Accrued interest payable 347,172 198,242
Other liabilities 314,674 (170,543)
------------ ------------
$ 3,136,469 $ 2,683,702
============ ============
</TABLE>
Page 3
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CARROLLTON BANCORP
Quarter ended September 30, 2000
The accompanying unaudited consolidated financial statements prepared as of and
for the quarter ended September 30, 2000 reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal recurring nature,
but are necessary for a fair presentation. The results reflected by these
statements may not be indicative, however, of the results for the year ending
December 31, 2000.
Note A -- Comprehensive Income
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE
INCOME ("SFAS No. 130"). SFAS No. 130 establishes requirements for the
disclosure of comprehensive income in interim financial statements.
Comprehensive income is defined as net income plus transactions and other
occurrences which are the result of nonowner changes in equity. For the Company,
nonowner equity changes are comprised of unrealized gains or losses on available
for sale securities that will be accumulated with net income in determining
comprehensive income. Presented below is a reconcilement of net income to
comprehensive income indicating the components of other comprehensive income.
<TABLE>
<CAPTION>
For the Nine Month Periods Ended: September 30, 2000 September 30, 1999
--------------------------------- ------------------ ------------------
<S> <C> <C>
Net Income $ 886,414 $ 2,443,798
----------- -----------
Other comprehensive income:
Unrealized gains (losses)during the period 705,252 (1,747,407)
Less: Adjustment for security gains (losses) (74,436) (85,724)
----------- -----------
Other comprehensive income, before taxes 630,816 (1,833,131)
Income taxes on comprehensive income 243,620 (707,955)
----------- -----------
Other comprehensive income, after tax 387,196 (1,125,176)
----------- -----------
Comprehensive income 1,273,610 1,318,622
=========== ===========
</TABLE>
Page 4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATING RESULTS AND FINANCIAL CONDITION
Earnings Summary
Carrollton Bancorp reported net income for the third quarter of 2000 of
$449,000 or $.16 on a per share basis, and $1,335,000 for the first nine months
or $.49 on a per share basis. For the same periods of 1999, net income amounted
to $1,365,000, or $.48 per share for the quarter, and $2,444,000, or $.87 per
share for the nine months ended September 30, 1999.
During the third quarter of 1999, the Company recognized a pre-tax gain on
the sale of its merchant services unit of $1,555,000, which presented a
significant fluctuation in the Company's earnings, both for the quarter and nine
month periods.
Adjusted earnings for the net impact of $954,000 based on an effective tax
rate of 38.62%, earnings for the periods would be $411,000, or $.15 per share
for the quarter and $1,490,000, or $.53 on a per share basis, respectively, for
the nine months ended September 30, 1999.
Interest and fee income on loans increased 23% and 27%, respectively, for
the quarter and nine month periods as a result of loan portfolio growth. Total
interest income increased 18% and 24%, respectively, for the quarter and nine
month periods, reflecting the reduction in the investment portfolio.
Other operating income, excluding gains on the sale of the merchant
services unit, as well as on loan and security sales, decreased 13% and 16% for
the quarter and nine month periods, respectively, due to the Company's sale of
its merchant services unit in late 1999.
While overall expenses decreased due to the sale of the merchant services
unit, the Company did recognize severance costs of $110,000 and branch closing
costs of $72,000 in 2000. In 1999 there were severance costs of $83,000 in other
operating expenses for the comparable nine month period.
Net Interest Income
Net interest income for the Company decreased $0.3 million for the quarter
to $2.6 million and $0.2 million for the nine months to $8.2 million. The net
yield on average earning assets declined from 4.31% in the first nine months of
1999 to 3.16% in 2000. The decrease in the net yield came principally from the
rising funding costs associated with the increased borrowing levels initiated in
late 1999, and the rising interest rate environment. Additionally, due to the
Company's efforts to restrucure its investment and loan portfolio so as to
address interest rate sensitivity, net interest margin has been further
compressed. We believe we are taking the right actions to deal with our
liability sensitive interest rate position, thus working to stem the current
trend of margin compression, and weakness in revenue and earnings growth.
Interest income on loans increased 23% and 27%, respectively, for the three
and nine month periods, respectively, due to a 15% increase in the portfolio.
Interest income from investment securities decreased 27% and 4%, respectively,
due to the reduction in the investment portfolio in 2000. The Company has
emphasized commercial loan production in 2000, which was supported by the sale
of investment securities and growth in certificate of deposit accounts. Loan
growth in 1999 was largely funded by Federal Home Loan Bank borrowings in 1999,
which have been reduced $16,000,000 since December 31, 1999.
Interest expense increased $1.3 million and $4.0 million, respectively, to
$4.3 million and $11.6 million, respectively, for the three and nine month
periods primarily because of increases in market interest rates, the increase in
borrowing levels, and growth in higher yielding deposits. Average deposits for
the quarter ended September 30, 2000 increased 16% over 1999. The cost of
interest bearing funds increased to 5.06% for the nine month period from 4.50%
for the comparable period in 1999.
Provision for Loan Losses
The provision for loan losses during the quarter and nine month periods of
2000 were $112,000 and $336,000 compared to $149,000 and $439,000 for the
respective periods of 1999. The provision was based on management's review and
analysis of the allowance for loan losses. Nonaccrual, restructured, and
delinquent loans over 90 days to total loans increased to 0.63% at September 30,
2000 from 0.44% at September 30, 1999. Net loan losses to average loans
increased from 0.0% to 0.08% for the comparable nine month period.
Non-interest Income
Page 5
<PAGE>
Non-interest income, excluding gains on the sale of the Company's merchant
services unit, security gains and loan sales, decreased 13% and 16%,
respectively, due to the Company's sale of its merchant services unit in late
1999. This unit produced gross income of $429,000 and $1,343,000 for the
respective periods of 1999. Other components of other income saw an increase of
36% and 21%, respectively, for brokerage commissions, and a decrease of 12% and
10%, respectively, for service charge income on deposit accounts.
Security sales for the periods resulted in a loss of $49,000 for the third
quarter of 2000 compared to an $8,000 gain in 1999; and net gains of $74,000
compared to $86,000 for the nine month periods of 2000 and 1999 respectively.
The transactions were undertaken because there was judged to be limited further
apprecation potential for these issues as well as a decision to reduce interest
rate risk and to increase liquidity.
Gains on loan sales amounted to $16,000 for the first three quarters of
2000 compared to $250,000 for the same period of 1999, due to a lower volume of
sales in 2000 and lower premiums realized. During the first nine months of 2000
the Company inactivated the mortgage subsidiary of Carrollton Bank, which was
the principal originator of residential mortgages for the Company. The
subsidiary continues to service the loans in its portfolio.
Non-Interest Expenses
Non-interest expense decreased 17.2% and 10.5% for the three and nine month
periods, respectively, compared to 1999. Expenses associated with the merchant
services unit were $319,000 and $1,042,000 for the comparable periods of 1999.
Excluding the expenses associated with the merchant services unit the reduction
of non-interest expenses would be 11.1% and 2.8%, respectively, for the three
and nine month periods compared to 1999. Included in the expenses for the first
nine months of 2000 and 1999 were severence accruals of $110,000 and $83,000,
respectively, for reductions in staff. The Company incurred $72,000 in expenses
associated with the closing of a branch office in 2000. The Company has been
able to reduce the overall variable cost component of its offsite ATM network.
Income Tax Provision
The effective tax rate for the Company decreased to 23.1% for the first
nine months of 2000 compared to 25.9% for 1999.
Financial Condition
Summary
Total assets increased $8.8 million to $384.4 at September 30, 2000
compared to $375.6 million at the end of 1999. Loans increased by $19.3 million
or 7%, net of loan sales. Cash decreased as the ATM network reduced cash levels
after the holiday shopping period in December. Most other assets, excluding
investments as noted below, changed only marginally with the exception of
federal funds sold, which reflects the bank's efforts to reduce its investment
portfolio and to improve liquidity. Deposits grew $25.3 or 9.6%, with the growth
being primarily in certificates of deposit. Borrowed funds decreased $16.5
million, as the Company continued to paydown the Federal Home Loan Bank
borrowings, funded by security sales and deposit growth.
Investment Securities
Investment securities decreased $15.6 million from December 31, 1999 to
$60.2 million at September 30, 2000. The Company sold equity securities it
deemed to have limited further potential for apprecation, and debt securities
which carried additional interest rate risk.
Loans
Total gross loans increased $19.3 million or 7.4% from December 31, 1999 to
$279.3 million at September 30, 2000. The commercial market was very competitive
during the period. While there were certain payoffs, which were the result of
customers refinancing at a lower rate, the Company experienced strong loan
demand. Additionally, draws on existing equity lines and equity line purchases
resulted in an increase in the portfolio. The Company made a decision to
inactivate the mortgage subsidiary of the bank in the first quarter of 2000
which resulted in lower mortgage production.
Allowance for Loan Losses
Page 6
<PAGE>
The allowance for loan losses increased 4.4% from the end of 1999 to $3.0
million at September 30, 2000. The ratio of the allowance to total loans was
1.09% at December 31, 1999 and 1.06% at September 30, 2000. The ratio of net
loan losses to average loans outstanding increased slightly to .08% from the
.07% for the year ended December 31, 1999. The ratio of nonaccrual loans,
restructured loans, plus loans delinquent more than 90 days to total loans
increased to 0.6% as of September 30, 2000 compared to 0.41% at December 31,
1999.
Funding Sources
Total deposits at September 30, 2000 increased by $25.3 million, or 9.6% to
$287.7 from December 31, 1999. Interest-bearing accounts increased by $31.1
million or 14.1% while non-interest bearing accounts decreased by $5.8 million
or 13.9%.
Federal Home Loan Bank borrowings decreased as the proceeds of the loan and
investment sales and deposit growth were applied to pay down debt. Total
borrowings decreased $16.5 million to $65.0 million at September 30, 2000
compared to $81.5 million at December 31, 1999.
Capital
For the first three quarters of 2000, shareholders' equity decreased by
$2,000 compared to December 31, 1999. While earnings for the first nine months
were in excess of dividends, they were overshadowed by common stock repurchases
of $996,000. The Company paid shareholders dividends totaling $728,000 for the
first three quarters of 2000. Net income for the first three quarters was
$1,335,000. Shareholders' equity to total assets remained strong at 7.8% at
September 30, 2000. Tier 1 (Core) and Tier 2 (Total) capital to risk-adjusted
asset ratios were at 10.79% and 11.89%, respectively, at September 30, 2000. The
Company's leverage ratio for the first nine months of 2000 was 7.56%. These
capital ratios exceed regulatory minimums.
Liquidity
As of September 30, 2000, outstanding loan commitments and unused lines of
credit for the Company totalled $106.0 million. Management places a high
probability for required funding within 1 year on approximately $11 million of
this total. The remaining amount is mainly unused home equity lines and credit
lines on which management places low probability for required funding. At
September 30, 2000 the Company's liquidity position continues to be adequate.
During 1999, with loan demand outpacing deposit growth, the Company chose to
borrow from the Federal Home Loan Bank. During the first nine months of 2000,
the Company has begun to selectively sell securities and lower yielding loans
from its portfolio to fund growth of variable rate loans and to reduce
outstandings to the Federal Home Loan Bank. The Company continues to have
additional borrowing capacity sufficient to meet funding needs.
Interest Rate Risk
Due to changes in interest rates, the level of income for a financial
institution can be affected by the repricing characteristics of its assets and
liabilities. At September 30, 2000, the Company's liability sensitive position
continues from December 31, 1999. Management has taken steps to lock in funding
with fixed rate instruments that better match the repricing of assets.
Additionally, management has reduced the Company's holding of long term fixed
rate investment securities, which presented unnecessary interest rate risk. A
liability sensitive position, theoretically, is unfavorable in a rising interest
rate environment since more liabilities reprice in a given time frame as
interest rates rise. Management works to maintain a consistent spread between
yields on assets and costs of deposits and borrowings, regardless of the
direction of interest rates. However, the net yield on earning assets fell in
the first nine months of 2000 to 3.33% from 4.25% in the fourth quarter of 1999.
Due to the Company's liability sensitive position and the rising interest
rate environment, the Company decided to inactivate the bank's mortgage
subsidiary. The mortgage subsidiary's primary loan products were fixed rate long
term instruments, that were neither readily salable nor profitable in a rising
interest rate environment.
Page 7
<PAGE>
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
There is no information to be reported under this item for the quarter ended
September 30, 2000.
Item 2. Changes in Securities
There is no information to be reported under this item for the quarter ended
September 30, 2000.
Item 3. Defaults Upon Senior Securities
There is no information to be reported under this item for the quarter ended
September 30, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
There is no information to be reported under this item for the quarter ended
September 30, 2000.
Item 5. Other Information
There is no information to be reported under this item for the quarter ended
September 30, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Statement re: Computation of per share earnings
(b) There have been no Reports on Form 8-K filed by the Company during the
quarter for which this report is filed
Page 8
<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.
Carrollton Bancorp
------------------------
(Registrant)
Date November 10, 2000 /s/ Dallas R. Arthur
----------------- ------------------------
Dallas R. Arthur
President and Chief Executive
Officer
Date November 10, 2000 /s/ Randall M. Robey
------------------- -------------------------
Randall M. Robey
Treasurer and Chief Financial Officer
Page 9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ------------------------------------------------- ------------
<S> <C> <C>
11 Statement Re: Computation of Per Share Earnings 14
27 Financial Data Schedule 15
</TABLE>
Page 10
