FORM 10-Q
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number
September 30, 1996 0-26440
Quantum Financial Holdings, Inc.
--------------------------------
(Exact name of Registrant as Specified in its Charter)
Maryland 52-1919323
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
4023 Annapolis Road
Baltimore, Maryland 21227
- ------------------------------- ---------------------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code:(410) 789-6882
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
----- -----
Number of shares outstanding of common stock
as of: September 30, 1996
$0.01 per value common stock 106,924 shares
---------------------------- --------------
Class Outstanding
QUANTUM FINANCIAL HOLDINGS, INC.
--------------------------------
INDEX
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Part I - Financial Information
- ------------------------------
ITEM 1 - Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1996
(unaudited), and December 31, 1995.
Consolidated Statements of Operations for the nine
and three months ended September 30, 1996 and 1995
(unaudited).
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 (unaudited).
Notes to Consolidated Financial Statements
(unaudited).
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Part II - Other Information
- ---------------------------
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 Materially Important Events
ITEM 6 - Exhibits and Reports on Form 8-K
Part III - Signatures
- ---------------------
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
----------------------------------------------
(Unaudited)
September 30, December 31,
1996 1995
---------- ------------
ASSETS
------
CASH AND DUE FROM BANKS $ 1,125,788 $ 1,063,563
FEDERAL FUNDS SOLD 472,634 509,018
----------- -----------
Cash and cash equivalents 1,598,422 1,572,581
INVESTMENT SECURITIES HELD-TO-MATURITY 462,699 564,927
ACCRUED INTEREST RECEIVABLE 262,566 249,527
SECONDARY MARKET FUNDING RECEIVABLE 68,929 525,732
LOANS RECEIVABLE, net 21,433,044 22,006,556
RESIDENTIAL REAL ESTATE OWNED 1,579,681 1,524,583
COMMERCIAL REAL ESTATE OWNED 1,299,220 1,263,292
FEDERAL HOME LOAN BANK STOCK 169,100 165,000
PREMISES AND EQUIPMENT, net 408,917 381,971
OTHER ASSETS 800,089 729,557
----------- -----------
Total Assets $28,082,667 $28,983,726
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DEPOSITS $25,610,993 $24,546,708
FEDERAL HOME LOAN BANK ADVANCES 0 2,000,000
ACCRUED EXPENSES 173,439 203,431
OTHER LIABILITIES 169,993 18,500
OTHER BORROWED MONEY 18,000 27,000
----------- -----------
Total Liabilities 25,972,425 26,795,639
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $0.01 per share;
5,000,000 shares authorized, 109,624
shares issued and outstanding 1,069 1,069
Additional Paid-in Capital 700,205 700,205
Retained earnings 1,426,968 1,513,813
----------- -----------
2,128,242 2,215,087
Deferred compensation (18,000) (27,000)
----------- -----------
Total Stockholders' Equity 2,110,242 2,188,087
----------- -----------
Total Liabilities and Stockholders'
Equity $28,082,667 $28,983,726
=========== ===========
The accompanying notes are an integral part of these consolidated
balance sheets.
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
-----------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------- -------------------
1996 1995 1996 1995
------- ------- ------ -------
INTEREST INCOME:
Interest and fees on loans $1,547,192 $1,520,499 $ 510,681 $ 526,272
Interest on investment securities 84,635 80,720 21,239 24,702
Interest on federal funds sold 72,615 12,936 12,762 5,297
---------- ---------- --------- --------
1,704,442 1,614,155 544,682 556,271
---------- ---------- --------- --------
INTEREST EXPENSE:
Interest on deposits 1,056,241 802,466 339,416 288,550
Other interest expense 11,104 121,874 337 40,308
---------- ---------- --------- --------
1,067,345 924,340 339,753 328,858
---------- ---------- --------- --------
Net interest income 637,097 689,815 204,929 227,413
PROVISION FOR LOAN LOSSES (11,614) 131,372 (1,592) 118,807
---------- ---------- --------- --------
Net interest income after
provision for loan losses 648,711 558,443 203,337 108,606
---------- ---------- --------- --------
OTHER INCOME:
Fees on loans originated for others,
net of related commissions &
payroll taxes 86,766 57,898 17,134 20,726
Other operating income, including
subsidiary net income 213,676 129,721 71,319 35,330
---------- ---------- --------- --------
300,442 187,619 88,453 56,056
---------- ---------- --------- --------
OTHER EXPENSES:
Salaries, benefits and payroll
taxes 386,395 393,148 128,095 127,332
Other operating expenses 649,604 383,068 297,414 142,279
---------- ---------- --------- --------
1,035,999 776,216 425,509 269,611
---------- ---------- --------- --------
INCOME BEFORE INCOME TAX
EXPENSE (86,846) (30,154) (133,719) (104,949)
INCOME TAX (BENEFIT) EXPENSE 0 2,152 (20,042) (29,262)
---------- ---------- --------- --------
NET INCOME $ (86,846) $ (32,306) $(113,677) $(75,687)
========== ========== ========= ========
EARNINGS PER SHARE $ (0.81) $ (0.30) $ (1.06) $ (0.70)
Weighted average number of
shares outstanding 106,924 107,924 106,924 107,924
========== ========== ========= ========
The accompanying notes are an integral part of these consolidated
statements.
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
-----------------------------------------------------
1996 1995
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (86,846) $ (32,306)
Adjustments to reconcile net income to net
cash used in operating activities:
Provision for loan losses (11,614) 131,372
Loan fees deferred, net of costs 17,896 33,125
Amortization of deferred loan fees (48,368) (39,672)
Depreciation 45,048 23,980
Decrease (increase) in accrued
interest receivable (19,039) 15,735
Origination of loans sold on the
secondary market (3,569,179) (2,471,715)
Proceeds from sale of loans on the
secondary market 4,025,982 2,760,646
Decrease (increase) in deferred
income tax asset 0 0
Decrease (increase) in other assets (70,532) (54,759)
(Decrease) increase in accrued expenses
and other liabilities 121,501 (109,363)
Amortization of deferred
compensation 9,000 9,000
------------ -----------
Net cash provided by operating activities 419,351 266,043
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing investment securities $ 364,344 $ 261,227
Purchases of investment securities (262,116) (213,843)
Proceeds from sale of FHLB Stock 0 0
Purchase of FHLB Stock (4,100) (16,100)
Decrease (increase) in loans, net 616,096 (1,660,292)
Purchase of premises and equipment (71,993) (231,155)
Purchase of and investment in foreclosed
real estate, net (91,025) (409,842)
------------ -----------
Net cash (used in) provided by investing
activities 551,205 (2,270,005)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in deposits, net 1,064,285 2,127,802
Repayment of FHLB Advances (2,000,000) 0
Dividends paid 0 (14,868)
Debt repayment (9,000) (9,000)
Redemption of BASB stock 0 (54,574)
----------- -----------
Net cash used in financing activities (944,715) 2,049,360
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 25,841 45,398
CASH AND CASH EQUIVALENTS, beginning
of year 1,572,581 2,026,237
----------- -----------
CASH AND CASH EQUIVALENTS, end of 6 mos. $ 1,598,422 $ 2,071,635
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOWS INFORMATION:
Cash paid during the 6 mos. for:
Interest $ 1,067,346 $ 328,858
Income taxes, net of refund 0 52,794
In-substance foreclosure on real estate 0 0
Foreclosure on real estate 428,831 0
The accompanying notes are an integral part of these consolidated
statements.
QUANTUM FINANCIAL HOLDINGS, INC. AND SUBSIDIARY
-----------------------------------------------
Baltimore, Maryland
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with instructions to Form 10-Q
and, therefore, do not include information or footnotes necessary
for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted
accounting principles. However, all adjustments which are, in
the opinion of management, necessary for a fair presentation have
been included. The results of operations for the nine and three
month period ended September 30, 1996 are not necessarily
indicative of the results which may be expected for the entire
fiscal year. The Notes to Consolidated Financial Statements for
the year ended December 31, 1995, included in the Company's Form
10-K, should be read in conjunction with these statements.
Note 2 - Holding Company Reorganization
------------------------------
On July 12, 1995, the Company completed the acquisition of
Baltimore American Savings Bank, FSB (the "Bank") pursuant to an
Agreement and Plan of Reorganization in which the Bank became a
wholly-owned subsidiary of the Company, a newly formed holding
company incorporated by the Bank for that purpose. Under the
terms of the Agreement and Plan of Reorganization, each
outstanding share, other than shares as to which dissenters'
rights were properly exercised, of the common stock, $1.00 par
value per share, of the Bank (the "Bank's Common Stock") was
converted into one share of the common stock $.01 par value per
share, of the Company (the "Common Stock") and the former holders
of the Bank's Common Stock became the holders of all the
outstanding Common Stock. For the periods prior to July 12,
1995, the financial statements of the Company consist of the
financial statements of the Bank.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL PERSPECTIVE
- -------------------
Year-to-date earnings were $(0.81) per share, as compared
with $(0.30) per share for the same period in 1995. The
reduction in earnings per share of $(0.51) from the same period
last year was the direct result of a SAIF Special Assessment of
$0.65 per $100 of deposits, using the deposit base as of March
31, 1995.
FINANCIAL CONDITION
- -------------------
General Overview
- ----------------
Total assets decreased by $901,059 or 3.11% during the nine
months ended September 30, 1996. The decrease in total assets
was a result of the decrease in loans receivable, net; secondary
market funding receivable; investment securities held-to-maturity
and all other assets. "Table 1. Utilization of Assets" exhibits
for the periods indicated certain consolidated balance sheet
items related to the financial structure of Quantum Financial
Holdings, Inc.
_________________________________________________________________
TABLE 1
Utilization of Assets
- -----------------------------------------------------------------
September 30, December 31,
1996 1995 Difference
------- ------- -------------------
Cash and due from banks $ 1,125,788 $ 1,063,563 $ 62,225 5.85%
Federal funds sold 472,634 509,018 (36,384) (7.15)
Investment securities
held-to-maturity 462,699 564,927 (102,228) (18.10)
Loans receivable, Net 21,433,044 22,006,556 (573,512) (2.61)
Secondary market funding
receivable 68,929 525,732 (456,803) (86.89)
----------- ----------- --------- ------
Residential Real Estate Owned 1,579,681 1,524,583 55,098 3.61
Commercial Real Estate Owned 1,299,220 1,263,292 35,928 2.84
All other assets 1,640,672 1,526,055 (114,617) (7.51)
----------- ----------- --------- ------
$28,082,667 $28,983,726 $(901,059) (3.11)%
=========== =========== ========= ======
The decrease in loans receivable, net is the result of a
combination of loan payoffs and mortgage customers opting for the
superior pricing in the secondary market. The decrease in
secondary market funding receivable is the result of a faster
turn-around time by the investors in purchasing loans from
Baltimore American, and the slow-down in the production of
mortgage loans. The decrease in investment securities held-to-
maturity is a function of the low investment yield available to
Baltimore American and the achievement of the required liquidity
ratio. The decrease in other assets is the result of a decrease
in accrued interest receivable, which is a function of the
reduced portfolio loan volume and the depreciation of premises
and equipment.
Commercial real estate owned comprises commercial real
estate that was foreclosed upon by the Company. Of the
$1,299,220 in commercial real estate, $1,177,329 represents
Sheridan Station Shopping Center, which is 33,014 square feet and
is comprised of eleven (11) tenant spaces, with 127 parking
spaces available.
As of September 30, 1996, the center is seventy percent (70%)
leased and generated operating income of $162,024 and operating
expenses of $73,459 for pretax income of $88,565, which is
included as other operating income in the accompanying
consolidated statement of operations for the nine and three
months ended September 30, 1996. During the first nine months of
1996, Management has completed the renovation of the entire
shopping center. New tenants have been acquired, thus rental
income is increasing. Management has been negotiating with
several prospective buyers and will participate in an exclusive,
private auction in November if a prior sale has not been
consummated. Management continues to actively market this
property for sale and intends to sell the property as soon as a
viable buyer is identified. However, no assurance can be made
that a sale will be consummated or that losses on the sale or
from operations prior to the sale will not be realized.
Management believes that an adequate allowance for any potential
losses on the ultimate sale of the property has been provided as
of September 30, 1996.
In addition, commercial real estate owned includes a one
acre parcel of commercial property located in Anne Arundel County
on Ridge Road in the amount of $121,891. This asset is over five
years old and is now considered real estate held for investment.
As such, the balance at which the property is carried reduces the
risk-based capital of the Company by that amount. Although the
Company believes its interest in this property is currently
adequately secure, there is no assurance that the property will
be sold or that Baltimore American will recoup its investment.
Residential real estate owned comprises residential real
estate that was foreclosed upon by the Company. Of the
$1,579,681 in residential real estate, $1,497,639 represents
residential homes and $82,042 represents residential land owned
by the Company. Management is actively marketing these
properties and intends to sell these properties as soon as viable
buyers are identified. During the nine months ended September
30, 1996, the Company entered into contracts to sell six
properties. Out of those six properties, one settled in June,
one settled in July, and three more are currently expected to
settle in November. The buyer has withdrawn the other contract.
In the interim, and where possible, the Company is rehabilitating
these homes and renting them out to low- and moderate-income
families. The rental income is being applied directly to the
outstanding balance, reducing the Company's exposure and
enhancing the property's marketability. It is worth noting that
management was awarded citations by Baltimore's Mayor Schmoke and
by Mary Pat Clark, President of the Baltimore City Council, in
recognition of its commitment in building strong communities.
While management believes it will be able to find buyers in the
future, no assurance can be made that buyers will be found or
that losses on the sale will not be realized. Management
believes that an adequate allowance for any potential losses on
the ultimate sale of these properties has been provided as of
September 30, 1996.
Total liabilities decreased by $823,214 or 3.07% during the
nine months ended September 30, 1996 primarily due to the
repayment of Federal Home Loan Bank Advances and a reduction in
accrued expenses (see Table 2. Source of Funds).
The increase in deposits is the result of aggressive
marketing to established customers to increase their deposit base
within the Company. Management reduced $2 million in advances
with Federal Home Loan Bank of Atlanta. Other borrowed money,
representing the Employee Stock Ownership Plan (ESOP), was
reduced by $9,000, which is the principal amount of the loan paid
each year.
_________________________________________________________________
TABLE 2
Sources of Funds
- -----------------------------------------------------------------
September 30, December 31,
1996 1995 Difference
------- ----------- -------------------
Deposits $25,610,993 $24,546,708 $ 1,064,285 4.34%
Federal Home Loan Bank Advances 0 2,000,000 (2,000,000) (100.00)
Accrued Expenses 173,439 203,431 (29,992) (14.74)
Other Liabilities 169,993 18,500 151,493 818.88
Other Borrowed Money 18,000 27,000 (9,000) (33.33)
----------- ----------- ---------- ------
$25,972,425 $26,795,639 $ (823,214) (3.07)%
=========== =========== =========== ======
Liquidity
Adequate liquidity must be maintained to fund deposit
withdrawals, to meet customers' borrowing needs, to take
advantage of investment opportunities, and to maintain the
required levels of reserves. On the asset side, the primary
sources of liquidity are cash and due from banks, investment
securities, federal funds, and scheduled repayments on
outstanding loans. On the liability side, the primary sources of
liquidity are deposit growth.
Management evaluates the Company's liquidity position daily
to maintain a level conducive to efficient operations and to
satisfy regulatory requirements. Attention is directed primarily
to assets and liabilities that mature or can be repriced within
one year. The Company matches the maturities, to the extent
possible, of its assets and liabilities to minimize variability
in net interest income; this practice helps to minimize interest
rate risk. Prudent risks are taken, however, by leaving certain
assets and liabilities unmatched in an effort to benefit from the
interest rate sensitivity inherent in the U.S. monetary system.
The minimum regulatory required level of long-term liquidity
is currently 5% of total deposits and borrowed money; the minimum
required short-term level is 1%. The liquidity level of the
Company at September 30, 1996, as measured for regulatory
purposes, was approximately 6.12% for both long-and short-term
purposes. Management recognizes that it is excessively liquid
and will utilize the excess liquidity for either investment in
loans or the reduction of high yielding certificates of deposit
with pending maturities. Management believes the Company can
meet its obligations of outstanding loan commitments and at the
same time maintain liquidity in excess of the minimum regulatory
requirement without having to borrow funds.
Capital Resources
The Company's Stockholders' Equity was $2,110,242 or 7.60%
of total assets on June 30, 1996 compared to $2,188,087 or 7.54%
on December 31, 1995. Although Stockholders' Equity was reduced
as a result of the third quarter loss created by the SAIF Special
Assessment, the percentage of Stockholders' Equity to Total
Assets increased as a result of the decrease in total assets.
Quantum Financial Holdings, Inc. exceeds all regulatory
requirements for capital. Management continually reviews and
identifies areas of growth opportunity. Table 3. Regulatory
Capital Requirements represents the Company's position to its
various minimum regulatory capital requirements at September 30,
1996.
_________________________________________________________________
TABLE 3
Regulatory Capital Requirements
- -----------------------------------------------------------------
September 30, 1996
(unaudited)
-----------------------------
Percentage
Amount of Assets*
------ ----------
(In thousands)
Tangible Capital $2,025 7.23%
Tangible Capital Requirement 420 1.50%
------ -----
Excess $1,605 5.73%
====== =====
Core Capital $2,025 7.23%
Core Capital Requirement 840 3.00%
------ -----
Excess $1,185 4.23%
====== =====
Total Capital $1,474 11.57%
(Core and Supplementary Capital)
Risk-Based Capital Requirement 659 8.00%
------ -----
Excess $ 815 3.57%
====== =====
<FN>
__________________
*Based on adjusted total assets of $28,006,000 for purposes of
the tangible capital and core capital requirements, and risk-
weighted assets of $18,428,000 for purposes of the risk-based
capital requirements.
</FN>
RESULTS OF OPERATIONS
General Overview
For the nine months ended September 30, 1996, the Company
posted a loss of $86,846, as compared to a loss of $32,306 for
the same period in 1995. For the three months ended September
30, 1996, the Company posted a loss of $113,677, as compared to a
loss of $75,687 for the same period in 1995. The loss reflected
as of September 30, 1996 is the result of the SAIF Special
Assessment.
Earnings per share of common stock were $(0.81) per share
for the nine months ended September 30, 1996, as compared to
$(0.30) per share for the same period in 1995. For the three
months ended September 30, 1996, earnings per share of common
stock were $(1.06) per share, as compared to $(0.70) per share
for the same period in 1995. Table 4. Operations Items as of
June 30, 1996 exhibits for the periods indicated certain
consolidated statement of operations items which contributed to
earnings.
Net Interest Income
Net interest income is the foundation and core of the
Company's earnings, representing the difference between total
interest and fees earned on all loans, investments and other
interest earning assets, and the total interest paid on deposits
and borrowings. For the nine months ended September 30, 1996,
net interest income was $637,097, as compared with $689,815 for
the same period in 1995. For the three months ended September
30, 1996, net interest income was $204,929, as compared with
$227,413 for the same period in 1995.
For nine months ended September 30, 1996, interest income
increased by $90,287 or 5.59% as compared with the same period in
1995. This was the result of an increase in loan yields charged
for portfolio loans and an increase in investments and the yields
paid on investments. Interest income was $11,589 or 2.08% less
for the three months ended September 30, 1996, as compared with
the same period in 1995.
For the nine months ended September 30, 1996, interest
expense increased by $143,005 or 15.47% as compared with the same
period in 1995. This was the result of an increase in the volume
of deposits and the yield increases paid on deposits as older
deposits matured. Interest expense was $10,895 or 3.31% greater
for the three months ended September 30, 1996, as compared with
the same period in 1995.
In recognition of the nonperforming loans and the inherent
risk in lending, Management has established a provision for loan
losses. The provision for loan losses is a reserve of funds
established to absorb potential loan losses after evaluating the
asset portfolio (current economic conditions, changes in the
nature and volume of lending, and past loan loss experience, as
well as other factors). Upon evaluation of the future trends of
general economic conditions in this country and in particular the
Company's market area, Management and the Board of Directors
decided to continue to reserve additional funds in regard to the
future economic trends that might have an effect on the portfolio
of loans. As of September 30, 1996, the provision for loan loss
is adequate for the volume of loans originated for the Company's
portfolio.
For the nine months ended September 30, 1996, net interest
income after provision for loan loss was $648,711, as compared
with $558,443 for the same period in 1995. For the three months
ended September 30, 1996, net interest income after provision for
loan loss was $203,337, as compared with $108,606 for the same
period in 1995.
_________________________________________________________________
TABLE 4
Operations Items
- -----------------------------------------------------------------
Nine Months Ended
September 30,
----------------------
1996 1995 Difference
------- ------- -------------------
INTEREST INCOME:
Interest and fees on loans $1,547,192 $1,520,449 $ 26,693 1.76%
Other interest income 157,250 93,656 63,594 67.90
---------- ---------- --------- -------
$1,704,442 $1,614,155 $ 90,287 5.59%
========== ========== ========= =======
INTEREST EXPENSE:
Interest on deposits $1,056,241 $ 802,466 $ 253,755 31.62%
Other interest expense 11,104 121,874 (110,770) (90.89)
---------- ---------- -------- --------
$1,067,345 $ 924,340 $ 143,005 15.47%
========== ========== ========= ========
PROVISION FOR LOAN LOSSES $ (11,614) $ 131,372 $(142,986) (108.84)%
========== ========== ========= ========
OTHER INCOME:
Fees on loans originated for
others $ 86,766 $ 57,898 $ 28,868 49.86%
(Net of sales commissions
and related payroll taxes)
Other operating income,
including subsidiary net
income 213,676 129,721 83,955 64.72
---------- ---------- --------- --------
$ 300,442 $ 187,619 $ 112,823 60.13%
========== ========== ========= ========
OTHER EXPENSES:
Salaries, benefits and payroll
taxes $ 386,395 $ 393,148 $ (6,753) (1.72)%
Other operating expenses 649,604 383,068 266,536 69.58
---------- ---------- --------- --------
$1,035,999 $ 776,216 $ 259,783 33.47%
========== ========== ========= ========
Three Months Ended
September 30,
----------------------
1996 1995 Difference
------- ------- -------------------
INTEREST INCOME:
Interest and fees on loans $ 510,681 $ 526,272 $ (15,591) (2.96)%
Other interest income 34,001 29,999 4,002 13.34
---------- ---------- --------- -------
$ 544,682 $ 556,271 $ (11,589) (2.08)%
========== ========== ========== =======
INTEREST EXPENSE:
Interest on deposits $ 339,416 $ 288,550 $ 50,866 17.63%
Other interest expense 337 40,308 (39,971) (99.16)
---------- ---------- --------- -------
$ 339,753 $ 328,858 $ 10,895 3.31%
========== ========== ========= =======
PROVISION FOR LOAN LOSSES $ (1,592) $ 118,807 $(120,399) (101.34)%
========== ========== ======== =======
OTHER INCOME:
Fees on loans originated for
others $ 17,134 $ 20,726 $ (3,592) (17.33)%
(Net of sales commissions
and related payroll taxes)
Other operating income,
including subsidiary net
income 71,319 35,330 35,989 101.87
---------- ---------- --------- -------
$ 88,453 $ 50,056 $ 32,397 57.79%
========== ========== ========= =======
OTHER EXPENSES:
Salaries, benefits and payroll
taxes $ 128,095 $ 127,332 $ 763 0.60%
Other operating expenses 297,414 142,279 155,135 109.04
---------- ---------- --------- -------
$ 425,509 $ 269,611 $ 155,898 57.82%
========== ========== ========= =======
/TABLE
Other Income
There are two significant components of non-interest income.
(1) Fees on loans originated for others increased by $28,868 or
49.86% for the nine months ended September 30, 1996 as compared
with the same period in 1995. For the three months ended
September 30, 1996, fees on loans originated for others decreased
by $3,592 or 17.33% as compared with the same period in 1995.
This is the direct result of an increase in the volume of
residential loans originated and sold in the secondary market.
(2) Other operating income increased by $83,955 or 64.72% during
the nine months ended September 30, 1996 as compared with the
same period in 1995. Other operating income increased by $35,989
or 101.87% during the three months ended September 30, 1996 as
compared with the same period in 1995. This is the direct result
of the increase in revenues generated by Sheridan Station
Shopping Center, held by the Company's subsidiary, and the gain
on sale of real estate owned. Total other income increased by
$112,823 or 60.13% for the nine months ended September 30, 1995.
Total other income increased by $32,397 or 57.79% for the three
months ended September 30, 1995.
Other Expense
Total non-interest expense increased by $259,783 or 33.47%
during the nine months ending September 30, 1996 as compared to
the same period in 1995. Employee compensation for the first six
months decreased by $6,753 or 1.72%, as a result of re-
engineering human resources in order to obtain greater efficiency
at less cost. All other operating expenses increased by $266,536
or 69.58% as a direct result of the increase in deposit
insurance, electronic data processing expenses, professional fees
related to 1995 examination issues, reo expense and the SAIF
Special Assessment. Total non-interest expense increased by
$155,898 or 57.82% during the three months ending September 30,
1996 as compared to the same period in 1995. This was the direct
result of the SAIF Special Assessment. Employee compensation for
the three months ending September 30, 1996 increased by $763 or
0.60%. All other operating expenses increased by $155,135 or
109.04% as a direct result of the SAIF Special Assessment as well
as increases in deposit insurance, electronic data processing
expenses, professional fees and reo expense.
Provision For Taxes
The Company's effective tax rate varies with changes in the
proportion of tax exempt income, changes in corporate tax rates,
and certain local tax credits. Provision for income taxes for
the nine months ended September 30, 1996 was $0, compared to
$20,042 for the same period in 1995.
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation on the Company is reflected
primarily in the increased cost of operations. A portion of
these increased costs are generally passed on to customers in the
form of increased service fees. Because the Company's assets and
liabilities are virtually all monetary in nature, reinvestment
and prepayment rate fluctuations more significantly impact the
Company's performance than the effects of inflation. Volatile
interest rate environments require Management to maintain
acceptable levels of liquidity and to maintain proper maturity
structure of the Company's assets and liability.
In structuring fees, negotiating loan margins, and
developing customer relationships, Management concentrates its
efforts on maximizing earnings, while attempting to contain
increases in operating expenses. Management and the Board of
Directors continually review the feasibility of new and
additional fee-generating services to offset the effects of
inflation and changing prices. Management and the Board of
Directors perform this function with the objective of increased
earnings.
REGULATORY MATTERS
On June 25, 1996, the Memorandum of Understanding (MOU),
which was executed on April 3, 1991 by and between the Office of
Thrift Supervision (OTS) and Baltimore American Savings Bank,
FSB, was terminated based on the contents of a Board resolution
adopted by the full Board of Directors of Baltimore American.
PART II
ITEM 1. Legal Proceedings
-----------------
Not applicable.
ITEM 2. Changes in Securities
---------------------
Not applicable.
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
ITEM 5. Other Materially Important Events
---------------------------------
On November 7, 1996, the Registrant's independent
accountants, Arthur Andersen LLP, advised the Registrant that
they were resigning from their audit engagement.
In connection with their audits of the two most recent
fiscal years ended December 31, 1995 and 1994, and for the
interim period through the date of this report, there have been
no disagreements with Arthur Andersen LLP, on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved
to the satisfaction of Arthur Andersen LLP, would have caused
them to make reference to the subject of such disagreement in
connection with their reports. In addition, during these periods
there was no adverse opinion or disclaimer of opinion or any
opinion qualified or modified as to uncertainty, audit scope or
accounting principles.
Arthur Andersen LLP, has not advised the Registrant
concerning any of the items set forth in Item 304(a)(1)(v) A-D.
Arthur Andersen LLP has furnished the Registrant with a
letter addressed to the Securities and Exchange Commission
stating their concurrence with the above statements. A copy of
the letter from Arthur Andersen LLP is included as Exhibit 16
hereto.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are being filed with this
Quarterly Report on Form 10-Q.
Exhibit No. Description
----------- -----------
16 Letter re Change in Certifying
Accountant
27 Financial Data Schedule (EDGAR only)
(b) Reports on Form 8-K.
-------------------
During the quarter ended September 30, 1996, the
Registrant did not file any reports Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Date: November 14, 1996 By: /s/ Richard W. Kraus
---------------------------
Richard W. Kraus
President, Chief Executive
Officer & Chief Financial
Officer