<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 June 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number 0-23090
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Carrollton Bancorp
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(Exact name of small business issuer as specified in its charter)
MARYLAND 52-1660951
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(State or other jurisdiction (IRS Employer of
incorporation or organization) Identification No.)
344 NORTH CHARLES STREET, SUITE 300, BALTIMORE, MARYLAND 21201
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(Address of principal executive offices)
(410) 536-4600
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(Issuer's telephone number)
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(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:
2,725,476 common shares outstanding at July 31, 2000
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Carrollton Bancorp
and Subsidiary
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 19,246,432 $ 24,795,534
Federal funds sold 1,112,354 2,840,365
Investment securities:
Available for sale 60,293,168 75,747,478
Held to maturity 50,000 50,000
(approximate market value of $50,000;
and $50,000)
Loans held for sale 2,357,295 2,557,922
Loans, less allowance for loan losses of 274,785,860 254,611,044
$2,969,915 and 2,836,291
Bank premises and equipment 8,282,394 8,456,257
Accrued interest receivable 2,437,396 2,381,008
Deferred income taxes 1,360,604 880,010
Prepaid income taxes 339,481 525,627
Other assets 2,455,954 2,773,956
----------------- -----------------
$ 372,720,938 $ 375,619,201
================= =================
LIABILITES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest bearing $ 37,118,449 $ 41,957,674
Interest-bearing 231,645,255 220,492,191
----------------- -----------------
Total deposits 268,763,704 262,449,865
Federal funds purchased and securities
sold under agreement to repurchase 15,465,269 13,650,176
Advances from the Federal Home Loan Bank 55,000,000 66,000,000
Notes payable - U.S. Treasury 1,592,023 1,830,856
Accrued interest payable 656,938 491,728
Other liabilities 1,547,525 1,311,999
----------------- -----------------
343,025,459 345,734,624
----------------- -----------------
SHAREHOLDERS' EQUITY
Common stock, par $1.00 per share; 2,738,766 2,776,904
authorized 10,000,000 shares; issued and outstanding
2,738,766; and 2,776,904
Surplus 17,497,799 18,016,419
Accumulated other comprehensive income (891,025) (854,693)
Retained earnings 10,349,939 9,945,947
----------------- -----------------
29,695,479 29,884,577
----------------- -----------------
$ 372,720,938 $ 375,619,201
================= =================
</TABLE>
Note: Balances at December 31, 1999 are derived from audited financial
statements.
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Carrollton Bancorp
and Subsidiary
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 5,477,063 $ 4,260,270 $10,768,188 $ 8,285,182
Interest and Dividends on Securities:
Taxable interest income 697,278 620,861 1,460,615 1,068,256
Nontaxable interest income 164,357 317,943 419,650 636,219
Dividends 30,528 59,891 85,614 77,337
Interest on Federal funds sold and
other interest income 95,081 53,816 187,277 107,020
----------- ----------- ----------- -----------
Total interest income 6,464,307 5,312,781 12,921,344 10,174,014
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 2,578,444 1,890,632 5,080,315 3,720,296
Other 1,164,830 554,891 2,279,310 983,405
----------- ----------- ----------- -----------
Total interest expense 3,743,274 2,445,523 7,359,625 4,703,701
----------- ----------- ----------- -----------
Net interest income 2,721,033 2,867,258 5,561,719 5,470,313
Provision for loan losses 112,000 144,900 224,000 289,800
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 2,609,033 2,722,358 5,337,719 5,180,513
----------- ----------- ----------- -----------
OTHER OPERATING INCOME
Service charges on deposit accounts 299,607 328,106 611,608 670,799
Brokerage commissions 273,221 272,624 582,187 512,040
Other fees and commissions 1,293,769 1,767,802 2,474,400 3,242,224
Gains on security sales 70,207 35,950 124,166 77,729
Gains on loan sales 0 0 15,621 249,939
----------- ----------- ----------- -----------
Total other operating income 1,936,804 2,404,482 3,807,982 4,752,731
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries 1,323,199 1,296,737 2,814,626 2,743,793
Employee benefits 299,577 316,725 653,794 650,056
Occupancy 429,118 405,503 790,312 851,247
Furniture and equipment 432,101 369,541 841,886 719,712
Other operating expenses 1,448,068 2,059,337 2,933,253 3,657,983
----------- ----------- ----------- -----------
Total other expenses 3,932,063 4,447,843 8,033,871 8,622,791
----------- ----------- ----------- -----------
Income before taxes 613,774 678,997 1,111,830 1,310,453
Income taxes 152,924 108,107 225,416 232,146
----------- ----------- ----------- -----------
Net income $ 460,850 $ 570,890 $ 886,414 $ 1,078,307
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS PER COMMON SHARE
Net income - basic and diluted $ 0.17 $ 0.20 $ 0.32 $ 0.38
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Page 2
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Carrollton Bancorp
and Subsidiary
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Interest received $ 12,887,615 $ 9,704,242
Fees and commissions received 3,491,122 4,475,489
Interest paid (7,194,415) (4,667,328)
Origination of loans held for sale (5,612,323) (8,547,123)
Proceeds from sale of loans held for sale 5,828,571 9,111,230
Cash paid to suppliers and employees (6,654,568) (8,005,336)
Income taxes paid (39,270) (42,288)
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2,706,732 2,028,886
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Cash flows from investing activities
Proceeds from maturities of securities held to maturity 0 870,000
Proceeds from sales of securities available for sale 14,568,018 1,794,528
Proceeds from maturities of securities available for sale 600,000 10,004,025
Purchase of securites available for sale (129,127) (31,081,148)
Loans made, net of principal collected (14,383,616) (15,074,145)
Puchase of loans, net of principal collected (6,015,200) (10,932)
Purchase of premises and equipment (474,839) (1,529,794)
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(5,834,764) (35,027,466)
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Cash flows from financing activities
Net increase (decrease) in time deposits 5,740,616 5,587,546
Net increase (decrease) in other deposits 573,223 585,627
Net increase (decrease) in other borrowed funds (9,423,740) 22,219,152
Dividends paid (482,422) (408,898)
Common stock repurchase and retirement (556,758) (175,797)
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(4,149,081) 27,807,630
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Net increase (decrease) in cash and cash equivalents (7,277,113) (5,190,950)
Cash and cash equivalents at beginning of year 27,635,899 32,546,465
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Cash and cash equivalents at June 30 $ 20,358,786 $ 27,355,515
============== =============
Reconciliation of net income to net cash
provided by operating activites
Net income $ 886,414 $ 1,078,307
Adjustments to reconcile net income to
net cash provided by operating activites
Provision for loan losses 224,000 289,800
Deprecation and amortization 699,151 687,770
Amortization of premiums and discounts 22,659 27,537
Gains on disposal of securities (124,166) (77,729)
Loans held for sale made, net of principal sold 216,248 564,106
Gains on loans held for sale (15,621) (249,939)
(Increase) decrease in:
Accrued interest receivable (56,388) (497,309)
Prepaid income taxes 186,146 189,858
Other assets 267,553 (744,831)
Increase (decrease) in:
Accrued interest payable 165,210 36,373
Other liabilities 235,526 724,943
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$ 2,706,732 $ 2,028,886
============== =============
</TABLE>
Page 3
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
CARROLLTON BANCORP
Quarter ended June 30, 2000
The accompanying unaudited consolidated financial statements prepared as of and
for the quarter ended June 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 SIX MONTH PERIODS ENDED: JUNE 30, 2000 JUNE 30, 1999
-------------------------------- ------------- -------------
<S> <C> <C>
Net Income $ 886,414 $ 1,078,307
Other comprehensive income:
Unrealized gains (losses)during the period 64,974 (1,309,091)
Less: Adjustment for security gains (losses) (124,166) (77,729)
----------------- -----------------
Other comprehensive income, before taxes (59,192) (1,386,820)
Income taxes on comprehensive income (22,860) (535,590)
----------------- -----------------
Other comprehensive income, after tax (36,332) (851,230)
================= =================
Comprehensive income 850,082 227,077
================= =================
</TABLE>
Page 4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATING RESULTS AND FINANCIAL CONDITION
Earnings Summary
Carrollton Bancorp reported net income for the first half of 2000 of
$886,000, or $.32 on a per share basis. For the same period of 1999, net income
amounted to $1,078,000, or $.38 on a per share basis. Interest and fee income on
loans increased 30% as a result of loan portfolio growth, with total interest
income increasing 27%, and net interest income increasing 2%. Other operating
income, excluding gains on loan and security sales, decreased 17% compared to
first half of 1999, due to the Company's sale of its merchant services unit in
late 1999. While overall expenses decreased due to sale of the Merchant
Services, the Company did recognize severance costs of $110,000 and branch
closing costs of $72,000 in 2000.
Net Interest Income
Net interest income for the Company increased $0.1 million to $5.6
million for the first half of 2000 compared to 1999. The net yield on average
earning assets on a tax equivalent basis declined from 4.25% in the first half
of 1999 to 3.45% in 2000. The decrease in the net yield came principally from
the rising funding costs associated with the increased borrowing level and the
rising interest rate environment.
Interest income on loans increased 30% in the first half of 2000 as
compared to the first half of 1999 due to an 8% increase in the loan portfolio.
Interest income from investment securities increased 10% as the portfolio on
average increased despite significant sales of securities in 2000. The Company
emphasized loan production, which was funded by Federal Home Loan Bank
borrowings and sale of investment securities.
Interest expense increased $2.7 million over 1999 to $7.4 million in
2000. Interest expense on deposits increased primarily because of increases in
market interest rates. Deposits grew on average about 2.4% since June 30, 1999.
Just as rates on loans and securities increased, market pressure increased
deposit and borrowing rates as well. The cost of interest bearing funds
increased to 4.91% in the first half of 2000 from 3.88% in the first half of
1999.
Provision for Loan Losses
The provision for loan losses during the first half of 2000 was
$224,000 compared to $290,000 in 1999. The provision was determined based on
management's review and analysis of the allowance for loan losses. Nonaccrual,
restructured, and delinquent loans over 90 days to total loans decreased to .55%
in the first half of 2000 from .75% in the same period of 1999. Net loan losses
to average loans increased from less than .01% to .03% for the same periods, but
the loan portfolio increased 8% as previously noted.
Non-interest Income
Non-interest income, excluding securities gains and loan sales,
decreased 17% in the first half of 2000 compared to 1999. This decrease was
largely due to the sale of merchant services in late 1999 which represented
income of $914,000 in the first half of 1999. Other components of other income
saw a 9% decrease in service charges on deposits, 14% increase in brokerage
commissions, and a 2% increase in ATM fee income.
The sales of securities classified as available for sale resulted in a
gain of $124,000 in the first half of 2000. The transaction was undertaken
because there was judged to be limited further appreciation potential
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for these issues as well as a decision to reduce interest rate risk and increase
liquidity.
Gains on loan sales amounted to $16,000 in the first half of 2000
compared to $250,000 for the same period in 1999, due to lower volumes of sales
in 2000 and lower premiums realized. During the first half 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
In the first half 2000, non-interest expenses decreased 7% compared to
the same period in 1999. Included in the expenses for the first half of 2000 and
1999 were severance accruals of $110,000 and $83,000 respectively for reductions
in staff. The Company incurred $72,000 of expense associated with the closing of
a branch office. Without the expenses related to merchant services, which
totaled $464,000 for the first half of 1999, non-interest expense would have
decreased 1.5%. Most increases in expenses related to the overall growth of the
Company's assets, operations and transactional lines of business and the direct
variable cost of fee based income such as ATM fees. 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 increased to 20.3% for the first
half of 2000 compared to 17.7% for the first half of 1999.
Financial Condition
Summary
Total assets decreased $2.9 million to $372.7 million at June 30, 2000
compared to $375.6 million at the end of 1999. Loans increased by $20.1 million
or 8%, net of loan sales. Cash decreased as the ATM network reduced cash levels
after the holiday shopping period in December. Most other asset categories,
excluding investments as noted below, changed only marginally Deposits grew by
2% to $268.8 million and borrowed funds decreased to $72 million. The Company
used the proceeds of loan and investment sales to pay down FHLB borrowings and
provide additional liquidity.
Investment Securities
Investment securities decreased $15.5 million from December 31, 1999 to
June 30, 2000. The Company sold equity securities it deemed to have limited
further potential for appreciation and debt securities which carried additional
interest rate risk.
Loans
Total gross loans increased $20.1 million or 7.7% to $280.1 million at
June 30, 2000 from the end of 1999. The commercial market was very competitive
during the period, while certain payoffs 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 to the portfolio. The Company had made a decision to inactivate
the Mortgage subsidiary which resulted in lower mortgage production.
Allowance for Loan Losses
The allowance for loan losses increased 4.7% from the end of 1999. The
allowance was $2.8 million at December 31, 1999 and $3.0 million at June 30,
2000. The ratio of the allowance to total loans was 1.10% at year end 1999 and
1.06% at the end of the first half of 2000. The ratio of net loan losses to
average loans outstanding increased slightly to .03% for the first half of 2000
from .07% for the year ended December 31, 1999. The ratio of nonaccrual loans,
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restructured loans, plus loans delinquent more than 90 days to total loans
increased to .55% for June 30, 2000 compared to 0.41% at year end 1999.
Funding Sources
Total deposits at June 30, 2000 increased by $6.3 million to $268.8
million from December 31, 1999. Interest-bearing accounts increased by $11.1
million while non-interest bearing accounts decreased by $4.8 million.
Federal Home Loan Bank borrowings decreased as the proceeds of the loan
and investment sales were used to pay down debt. Total borrowings decreased to
$72.1 million at June 30, 2000 compared to $81.5 million at the end of 1999.
Capital
For the first half of 2000, shareholders' equity decreased by $189,000
compared to December 31, 1999. While earnings for the first half were in excess
of dividends, they were overshadowed by the combination of a net increase in
unrealized losses net of tax, on securities classified as available for sale and
common stock repurchases. The company paid shareholders dividends totaling
$482,000 for the first six months of 2000. Net income for the first half of 2000
was $886,000. Shareholders' equity to total assets remained strong at 8% at June
30, 2000. Tier 1 (Core) and Tier 2 (Total) capital to risk-adjusted assets
ratios increased as a result of changes in the asset mix to 11.52% and 12.82%,
respectively, at June 30, 2000. The Company's leverage ratio for the first six
months of 2000 was 7.85%. These ratios exceed regulatory minimums.
Liquidity
At June 30, 2000, outstanding loan commitments and unused lines of
credit for the Company totaled $75 million. Of this total, management places a
high probability of required funding within one year on approximately $11million
The amount remaining is unused home equity lines and other consumer lines on
which management places a low probability of funding. At June 30, 2000 the
Company's liquidity continues to improve. During 1999, with loan demand
outpacing deposit growth, the Company chose to borrow from the Federal Home Loan
Bank. During the first half 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 reduce outstandings to the Federal Home Loan Bank.
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 June 30, 2000, the Company's liability sensitive position
continues from December 31, 1999, however management has taking steps to lock in
funding with fixed rate instruments that better match repricings of assets.
Additionally, management has reduced the Company's holdings of long term fixed
rate investment securities, which presented unnecessary interest rate risk. A
liability sensitive position, theoretically, is unfavorable in a rising rate
environment since more liabilities than assets will 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 interest earning assets
fell in the first half of 2000 to 3.45% 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 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.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings
There is no information to be reported under this item for the quarter ended
June 30, 2000.
Item 2. Changes in Securities
There is no information to be reported under this item for the quarter ended
June 30, 2000.
Item 3. Defaults Upon Senior Securities
There is no information to be reported under this item for the quarter ended
June 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
June 30, 2000.
Item 5. Other Information
There is no information to be reported under this item for the quarter ended
June 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
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<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 August 10, 2000 /s/ Dallas R. Arthur
------------------- --------------------
Dallas R. Arthur
President and Chief Executive Officer
Date August 10, 2000 /s/ Randall M. Robey
------------------- -------------------------
Randall M. Robey
Treasurer and Chief Financial Officer
Page 9
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EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
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11 Statement Re: Computation of Per Share Earnings 14
27 Financial Data Schedule 15
Page 10
