<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
COMMISSION FILE NUMBER: 0-11223
PROFESSIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 95-3701137
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
606 BROADWAY
SANTA MONICA, CALIFORNIA 90401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 458-1521
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 [_]
As of July 31, 1997, 1,343,048 shares of the Registrant's $0.008 par value
common stock were outstanding.
================================================================================
<PAGE>
PROFESSIONAL BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<C> <S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the three months
and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash flows for the six months
ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
<CAPTION>
PART II. OTHER INFORMATION
<C> <S> <C>
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 6 Exhibits and Reports on Form 8-K 20
</TABLE>
SIGNATURES
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PROFESSIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks
Noninterest-bearing $ 20,968,614 $ 32,322,030
Interest-bearing 505,797 617,948
Federal funds sold 15,000,000 33,400,000
------------ ------------
Cash and cash equivalents 36,474,411 66,339,978
Securities held-to-maturity (fair value of $38,587,000
and $41,478,000, respectively) 38,866,871 41,871,563
Securities available-for-sale (costs of $57,504,000 and
$55,225,000, respectively) 56,675,746 54,467,683
Loans, net of allowance for loan losses of $2,289,000
and $2,253,000, respectively) 93,883,659 90,759,161
Premises and equipment 1,547,297 1,611,482
Accrued interest receivable and other assets 6,734,586 9,237,339
------------ ------------
$234,182,570 $264,287,206
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Deposits
Demand, noninterest-bearing $ 86,149,844 $ 96,208,449
Demand, interest-bearing 11,944,541 14,886,488
Savings and money market 87,607,323 98,859,034
Time deposits 25,175,877 31,322,777
------------ ------------
Total deposits 210,877,585 241,276,748
Convertible notes 5,617,000 5,617,000
Accrued interest payable and other liabilities 3,183,919 3,351,864
------------ ------------
Total liabilities 219,678,504 250,245,612
------------ ------------
Commitments and contingent liabilities
Shareholders' equity
Common stock, $.008 par value; 12,500,000 shares
authorized; 1,412,515 and 1,410,783 issued
and 1,343,048 and 1,341,316 outstanding 11,300 11,286
Additional paid-in-capital 12,501,341 12,488,001
Retained earnings 3,015,811 2,514,501
Treasury stock, at cost (69,467 and 69,467 shares) (537,251) (537,251)
Unrealized loss on securities available-for-sale, net of taxes (487,135) (434,943)
------------ ------------
Total shareholders' equity 14,504,066 14,041,594
------------ ------------
$234,182,570 $264,287,206
============ ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
PROFESSIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 2,423,760 $ 2,234,426 $ 4,686,154 $ 4,555,243
Securities 1,509,188 2,005,287 3,000,829 4,048,197
Federal funds sold and securities purchased
under agreements to resell 201,649 229,234 462,093 638,543
Interest-bearing deposits in other banks 13,138 7,800 17,703 12,600
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 4,147,735 4,476,747 8,166,779 9,254,583
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 761,044 1,127,378 1,562,493 2,502,176
Convertible notes 119,361 119,149 238,722 238,383
Federal funds purchsed and securities
sold under agreements to repurchase 15,807 55,080 15,807 63,927
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 896,212 1,301,607 1,817,022 2,804,486
----------- ----------- ----------- -----------
NET INTEREST INCOME 3,251,523 3,175,140 6,349,757 6,450,097
Provision for loan losses 60,000 3,240,000 120,000 3,420,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,191,523 (64,860) 6,229,757 3,030,097
----------- ----------- ----------- -----------
OTHER OPERATING INCOME
Available-for-sale securities transactions, net - - - -
Merchant discount 72,253 58,512 140,206 111,920
Mortgage banking fees 38,076 37,344 71,246 61,417
Service charges on deposits 215,414 151,042 400,094 305,695
Other income 215,813 146,015 357,440 276,397
----------- ----------- ----------- -----------
TOTAL OTHER OPERATING INCOME 541,556 392,913 968,986 755,429
----------- ----------- ----------- -----------
OTHER OPERATING EXPENSES
Salaries and employee benefits 1,393,068 1,541,195 2,901,699 3,004,203
Occupancy 377,322 348,268 760,338 690,866
Furniture and equipment 226,642 217,240 437,122 428,259
Meetings and business development 62,444 53,461 95,678 68,979
Donations 27,309 29,160 42,589 85,529
Other promotion 100,191 79,750 172,444 147,304
Legal fees 142,692 1,814,330 258,861 1,999,363
Audit, accounting and examinations 30,790 63,630 58,525 112,495
Professional services 420,248 311,082 759,471 437,081
Office supplies 53,522 81,053 113,550 161,157
Telephone 70,256 59,914 146,093 118,595
Postage 42,881 40,177 77,848 74,698
Messenger service 17,115 60,343 47,280 86,807
FDIC assessment 8,289 500 14,500 1,000
Other assessments 64,377 78,640 116,734 162,370
Imprinted checks 28,118 25,899 56,773 88,656
Settlement costs - 1,006,000 - 1,006,000
Other expense 136,840 224,137 286,628 363,208
----------- ----------- ----------- -----------
TOTAL OTHER OPERATING EXPENSES 3,202,104 6,034,779 6,346,133 9,036,570
----------- ----------- ----------- -----------
Earnings (loss) before taxes 530,975 (5,706,726) 852,610 (5,251,044)
Provision (benefit) for income taxes 219,300 (1,981,000) 351,300 (1,800,700)
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ 311,675 $(3,725,726) $ 501,310 $(3,450,344)
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE
Primary $ 0.21 $ (2.73) $ 0.35 $ (2.57)
Fully diluted $ 0.21 $ (2.73) $ 0.35 $ (2.57)
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
PROFESSIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 501,310 $ (3,450,344)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 290,527 321,538
Provision for loan losses 120,000 3,420,000
Amortization of convertible note expense 52,166 52,169
Decrease (increase) in accrued interest receivable and other assets 2,468,847 (1,735,856)
Increase (decrease) in interest payable and other liabilities (167,945) 1,559,765
Net amortization (accretion) of premiums and discounts
on securities held-to-maturity 118,736 181,362
Net amortization (accretion) of premiums and discounts
on securities available-for-sale 115,587 (69,459)
------------ -------------
Net cash provided by operating activities 3,499,228 279,175
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity 5,877,906 4,091,309
Proceeds from maturities of securities available-for-sale 3,643,320 6,248,854
Purchases of securities held-to-maturity (2,991,950) (1,014,004)
Purchases of securities available-for-sale (6,037,422) (9,825,000)
Net (increase) decrease in loans (3,244,498) 2,175,420
Purchases of bank premises and equipment, net (226,342) (252,601)
------------- ------------
Net cash provided (used) by investing activities (2,978,986) 1,423,978
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits and savings accounts (24,252,263) (13,239,797)
Net decrease in time deposits (6,146,900) (53,041,759)
Net increase in securities sold under agreements to repurchase - 16,840,000
Dividend in lieu of fractional shares - (3,664)
Proceeds from exercise of stock options 13,354 181,745
------------- ------------
Net cash used in financing activities (30,385,809) (49,263,475)
------------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (29,865,567) (47,560,322)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 66,339,978 85,199,673
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,474,411 $ 37,639,351
============= ============
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest $ 1,986,400 $ 3,037,445
Income taxes $ 230,108 $ 300
Supplemental disclosure of noncash items:
Pretax change in unrealized losses on securities
available-for-sale $ (70,452) $ (836,856)
Conversion of notes $ - $ 1,700
Tax benefit on stock options exercised $ - $ 270,054
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
PROFESSIONAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION
The unaudited consolidated financial statements included herein have
been prepared by the Registrant pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Registrant, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the results of operations for the periods covered have been made.
Certain information and note disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Registrant believes that the disclosures are adequate to make the information
presented not misleading.
Management recommends that these condensed financial statements be
read in conjunction with the financial statements and notes thereto included in
the Registrant's latest annual report on Form 10-K. The results for the periods
covered hereby are not necessarily indicative of the operating results for a
full year.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"), which is effective for periods ending after December 15, 1997. The
Company excepts to adopt SFAS No. 128 in the fourth quarter of 1997. SFAS No.
128 replaces the presentation of primary earnings per share with basic earnings
per share and fully diluted earnings per share with diluted earnings per share.
Basic earnings per share excludes dilution and is calculated by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of outstanding stock options, warrants and convertible securities. The
impact on the Company upon adopting SFAS No. 128 is not expected to be material.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Professional Bancorp, Inc. (the "Bancorp"), holding company for First
Professional Bank, N.A. (the "Bank"), recorded net earnings of $312,000 or $0.21
per share for the second quarter of 1997, compared with a net loss of $3,726,000
or $2.73 per share for the second quarter of 1996. For the six months ended
June 30, 1997, the Bancorp and Bank (the "Company") had net earnings of $501,000
or $0.35 per share. This compares with a net loss of $3,450,000 or $2.57 per
share for the first six months of 1996. At June 30, 1997, the Company had
consolidated assets totaling $234,183,000, compared with $264,287,000 at
December 31, 1996.
LOANS
The following table sets forth the amount of loans outstanding by
category and the percentage of each category to the total loan portfolio.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------- ------------------
% %
(dollars in thousands) Amount of Total Amount of Total
------- -------- ------- --------
<S> <C> <C> <C> <C>
Commercial $78,289 81.2% $73,577 79.0%
Real estate secured commercial 9,045 9.4 10,079 10.8
------- ----- ------- -----
87,334 90.6 83,656 89.8
Equity lines of credit 5,993 6.2 6,202 6.7
Other lines of credit 1,795 1.9 1,832 2.0
Installment 1,218 1.3 1,375 1.5
Lease financing 42 - 68 -
------- ----- ------- -----
Gross loans 96,382 100.0% 93,133 100.0%
------- -------
Less:
Allowance for loan losses 2,289 2,253
Deferred loan fees, net 209 121
------- -------
Net loans $93,884 $90,759
======= =======
</TABLE>
In accordance with Management's credit administration and regulatory
policy, loans are placed on nonaccrual status when the collection of principal
or interest is questionable. Generally, this means that loans are placed on
nonaccrual status when interest is 90 days or more past due, unless the loan is
well secured and in the process of collection or in the process of renewal.
Nonperforming loans and nonperforming assets do not include accruing loans 90
days or more past due where loan quality is not impaired, but rather the renewal
in process is pending receipt of the borrower's updated financial information.
Credit administrative policies discourage the usage of "short-term"
extensions while awaiting receipt of updated financial packages from borrowers.
The policy is aimed at facilitating timely credit renewals. However, as a
result of this policy, aggregate "past due" volumes will not necessarily be
correlative to asset quality measurement.
7
<PAGE>
The following table sets forth information about nonperforming assets
(which include nonaccrual loans, other real estate owned and other repossessed
assets), accruing loans 90 days or more past due, and certain ratios.
<TABLE>
<CAPTION>
June 30, December 31,
(dollars in thousands) 1997 1996
-------- ------------
<S> <C> <C>
Nonperforming loans $ 1,116 $ 1,521
Other real estate owned (OREO) - -
Other repossessed assets 272 272
-------- --------
Total nonperforming assets $ 1,388 $ 1,793
======== ========
Accruing loans 90 days or more past due $ 1,058 $ 507
======== ========
Nonperforming loans to total loans 1.16% 1.63%
Nonperforming assets
to total loans 1.44% 1.93%
to total loans, OREO and repossessed
assets 1.44% 1.92%
to total assets 0.59% 0.68%
</TABLE>
The total accrued interest on loans 90 days or more past due and
still accruing was approximately $42,000 at June 30, 1997, and $19,000 at
December 31, 1996. Of the $1,058,000 in accruing loans over 90 days or more past
due and still accruing, $864,000 represents loans where the renewal was in
process, credit quality was not impaired or risk rated below pass. As a result
of the Company's practice to prohibit "short-term" extensions, these loans are
carried as "past due" to ensure proper administrative controls.
The Company maintains the allowance for loan losses at a level
considered adequate by Management to provide for potential loan losses. While
the Company's policy is to charge-off in the current period those loans for
which a loss is considered probable, there also exists the risk of future losses
which cannot be precisely quantified or attributed to particular loans.
Reasonable estimates of these future amounts are calculated in the allowance
methodology.
8
<PAGE>
The following table provides a summary of the Company's allowance for
loan losses and charge-off and recovery activity during the six months ended
June 30, 1997, and December 31, 1996:
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------------
June 30, December 31, June 30
1997 1996 1996
(dollars in thousands) ------------ ---------------- -----------
<S> <C> <C> <C>
Balance at beginning of period $ 2,253 $ 4,484 $ 1,070
Provision for loan losses 120 716 3,420
------- ------- --------
2,373 5,200 4,490
------- ------- --------
Loan charge-offs 195 3,312 41
Recoveries on loans previously charged-off (111) (365) (35)
------- ------- --------
Net charge-offs 84 2,947 6
------- ------- --------
Balance at end of period $ 2,289 $ 2,253 $ 4,484
======= ======= ========
Loans outstanding at end of period $96,382 $93,133 $ 97,905
Average loans outstanding during period 94,304 92,818 101,524
Net charge-offs to average loans outstanding 0.18% 6.30% 0.01%
Allowance for loan losses:
to total loans 2.37 2.42 4.58
to nonperforming loans(1) 205.11 148.13 68.59
to nonperforming assets(1) 164.91 125.66 67.78
</TABLE>
(1) Nonperforming loans and nonperforming assets do not include accruing loans
90 days or more past due.
Management considers a loan to be impaired when, based upon available
information and current events, it believes that it is probable the Company will
be unable to collect all amounts due on a timely basis in accordance with the
contractual terms of the loan agreement. Impairment of a loan is measured by the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. Impairment is recognized by the
establishment of a valuation allowance equal to the excess of the Company's
recorded investment in the loan over its measured value.
The Company had $1,233,000 in impaired loans as of June 30, 1997. The
carrying value of impaired loans for which there is a related allowance for loan
losses was $517,000, with the amount of specific allowance for loan losses
allocated to these loans of $304,000. There were $716,000 in impaired loans for
which there were general reserves allocated consistent with the Company's
allowance for loan loss methodology. The average recorded investment in impaired
loans during the first six months of 1997 was approximately $1,494,000 and
income recorded utilizing the cash basis and accrual basis method of accounting
was $28,000. Nonaccrual loans at June 30, 1997, included $804,000 of the
impaired loans.
The Company had $1,894,000 in impaired loans as of December 31, 1996.
The carrying value of impaired loans for which there is a related allowance for
loan losses was $700,000, with the amount of specific allowance for loan losses
allocated to these loans of $379,000. There were $1,194,000 in impaired loans
for which there were general reserves allocated consistent with the Company's
allowance for loan loss methodology. The average recorded investment in impaired
loans during 1996 was approximately $4,161,000 and income recorded utilizing the
cash basis and accrual basis method of accounting was $53,000. Nonaccrual loans
at December 31, 1996, included $1,521,000 of the impaired loans.
9
<PAGE>
At June 30, 1997, the Company had troubled debt restructurings
totaling $679,000, of which $313,000 was on nonaccrual. A troubled debt
restructuring is a restructuring in which the Company, for economic or legal
reasons related to a borrower's financial difficulties, grants a concession to
the borrower that it would not otherwise consider. The restructuring of a loan
is primarily the modification of the loan terms. The remaining $366,000 was
performing according to the renegotiated terms. The gross interest income that
would have been recorded in the first six months of 1997 on troubled debt
restructurings if the loans had been current in accordance with the original
terms totaled $35,000, which includes $19,000 on the restructured loans on
nonaccrual. The amount of interest income actually recognized in the first six
months of 1997 on those loans totaled $17,000. At June 30, 1997, there were no
additional loan commitments outstanding to borrowers of troubled debt
restructurings.
At December 31, 1996, the Company had troubled debt restructurings
totaling $778,000, of which $510,000 was on nonaccrual. The remaining $268,000
was performing according to the renegotiated terms. The gross interest income
that would have been recorded in 1996 on troubled debt restructurings if the
loans had been current in accordance with the original terms totaled $70,000,
which includes $41,000 on the restructured loans on nonaccrual. The amount of
interest income actually recognized in 1996 on those loans totaled $29,000. At
December 31, 1996, there were no additional loan commitments outstanding to
borrowers of troubled debt restructurings.
INVESTMENT SECURITIES
The following table sets forth the amortized cost and fair value of
securities available-for-sale as of June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gain (Loss) Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government securities $ 4,025 $ 8 $ - $ 4,033
U.S. Government agency
mortgage-backed scurities 33,563 28 (492) 33,099
U.S. Government agency securities 2,000 1 - 2,001
Small Business Adminstration securities 1,573 2 - 1,575
Collateralized mortgage obligations 16,343 - (375) 15,968
------- --- ----- -------
Total $57,504 $39 $(867) $56,676
======= === ===== =======
<CAPTION>
December 31, 1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(dollars in thousands) Cost Gain (Loss) Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government securities $ - $ - $ - $ -
U.S. Government agency
mortgage-backed scurities 36,230 96 (540) 35,786
Small Business Adminstration securities 1,752 - (10) 1,742
Collateralized mortgage obligations 17,243 - (303) 16,940
------- --- ----- -------
Total $55,225 $96 $(853) $54,468
======= === ===== =======
</TABLE>
10
<PAGE>
The amortized cost and fair value of securities held-to-maturity as
of June 30, 1997, and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain (Loss) Value
(dollars in thousands) ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government securities $ 3,059 $ 22 $ (36) $ 3,045
U.S. Government agency
mortgage-backed securities 32,369 106 (330) 32,145
U.S. Government agency securities 3,000 - (42) 2,958
Federal Reserve Bank stock 439 - - 439
------- ---- ----- -------
Total $38,867 $128 $(408) $38,587
======= ==== ===== =======
<CAPTION>
December 31, 1996
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain (Loss) Value
(dollars in thousands) ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government securities $ 3,064 - $ - $ 3,064
U.S. Government agency
mortgage-backed securities 35,119 50 (401) 34,768
U.S. Government agency securities 3,250 - (43) 3,207
Federal Reserve Bank stock 439 - - 439
------- ---- ----- -------
$41,872 $ 50 $(444) $41,478
======= ==== ===== =======
</TABLE>
There were no sales of securities available-for-sale during the three
and six months ended June 30, 1997 and 1996.
DEPOSITS
Total deposits at June 30, 1997, were $210,878,000, a decrease of
$30,399,000 or 12.6% from $241,277,000 at December 31, 1996. The Company
attracts deposits primarily from individuals and businesses related to the
health care services industry, as well as other professionals and professional
service firms. The Company has no brokered deposits and the Company's practice
is to not purchase brokered deposits.
11
<PAGE>
The following table sets forth the amount of deposits by category and
the percentage of each category to total deposits as of June 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
---------------------- -----------------------
(dollars in thousands) Amount % of Total Amount % of Total
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Demand, noninterest-bearing $ 86,150 40.8% $ 96,208 39.9%
Demand, interest-bearing 11,945 5.7 14,887 6.2
Savings Deposits 13,810 6.5 12,335 5.1
Money market deposits 73,797 35.0 86,524 35.8
Time deposits under $100,000 9,036 4.3 9,187 3.8
Time deposits of $100,000 and over 16,140 7.7 22,136 9.2
--------- ----- -------- ------
$ 210,878 100.0% $241,277 100.0%
========= ===== ======== ======
</TABLE>
Historically, deposit levels increase substantially at year-end as
clients increase cash reserves required for first and second quarter tax
payments and bonuses. In addition, increasing competition for operating cash
deposits comes from broker dealer products and accounts. In order to minimize
the effects of such "disintermediation" from the Company to such accounts, the
Company is currently scheduled to offer to clientele such accounts by the end of
1997.
CAPITAL
The Office of the Comptroller of the Currency (the "OCC"), the Bank's
primary regulator, has established minimum leverage ratio guidelines for
national banks. These guidelines provide for a minimum Tier 1 capital leverage
ratio (Tier 1 capital to adjusted average total assets) of 3.0% for national
banks that meet certain specified criteria, including having the highest
regulatory rating. All other national banks will generally be required to
maintain a minimum Tier 1 capital leverage ratio of 3.0% plus an additional
cushion of 100 to 200 basis points. The OCC has not advised the Bank of any
specific minimum Tier 1 capital leverage ratio applicable to it.
The Federal Reserve Bank, as Bancorp's primary regulator, has
similarly established minimum leverage ratio guidelines for bank holding
companies. These guidelines also provide for a minimum Tier 1 leverage ratio of
3.0% for bank holding companies that meet certain specified criteria, including
having the highest regulatory rating. All other bank holding companies will
generally be required to maintain a minimum Tier 1 capital leverage ratio of
3.0% plus an additional cushion of 100 to 200 basis points. The Federal Reserve
Bank has not advised the Bancorp of any specific minimum Tier 1 capital leverage
ratio applicable to it.
Risk-based capital standards were implemented on December 31, 1992.
Since December 31, 1992, banking organizations have been expected to meet a
minimum ratio for qualifying total capital to risk-weighted assets of 8.0%, 4.0%
of which must be Tier 1 capital. A banking organization's risk-based capital
ratios are obtained by dividing its qualifying capital by its total risk-
adjusted assets and risk-weighted off-balance sheet items.
The Federal Deposit Insurance Act of 1991 contains "prompt correction
action" provisions pursuant to which insured depository institutions are to be
classified into one of five categories based primarily upon capital adequacy,
ranging from "well-capitalized" to "critically undercapitalized" and which
require, subject to certain exceptions, the appropriate federal banking agency
to take prompt corrective action with respect to an institution which becomes
"undercapitalized" and to take additional actions if the institution becomes
12
<PAGE>
"significantly undercapitalized" or "critically undercapitalized." At June 30,
1997, the Company and Bank's regulatory capital exceeded the thresholds
necessary to be considered "well-capitalized."
The following table presents the capital ratios for the Company and
the Bank, compared with the standards for "well-capitalized" depository
institutions (which standards do not apply to bank holding companies) and the
minimum required capital ratios to be deemed "adequately capitalized" under
applicable federal regulations, as of June 30, 1997.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ----------------- -----------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
COMPANY
Leverage $14,991 6.31% $9,497 4.00% $11,872 5.00%
Tier 1 Risk-Based 14,991 12.03 4,985 4.00 7,478 6.00
Total Risk-Based 22,175 17.79 9,971 8.00 12,464 10.00
BANK
Leverage $16,700 8.33% $9,456 4.00% $11,820 5.00%
Tier 1 Risk-Based 16,700 15.91 4,952 4.00 7,428 6.00
Total Risk-Based 21,256 17.17 9,904 8.00 12,379 10.00
</TABLE>
(1) The minimum required by the FRB is 3%; for all but the most highly rated
bank holding companies, the FRB expects a leverage ratio of 3% plus 100 to
200 basis points.
The Company and the Bank at June 30, 1997, were considered "well-
capitalized" and exceeded all applicable minimum capital requirements. Capital
requirements of the federal banking regulators, however, could limit the
Company's future growth if the Company were to rely solely on the retention of
earnings to generate additional capital or rapid growth.
LIQUIDITY
The Bancorp's primary source of liquidity is dividends from the Bank.
Dividends from the Bank to the Bancorp are subject to certain regulatory
restrictions. Under federal banking law, dividends declared by the Bank in any
calendar year may not, without the approval of the OCC, exceed its net earnings,
as defined, for that year combined with its retained net earnings for the
proceeding two years. The Bancorp's annual operating expenses and interest
obligations with respect to its convertible notes are approximately $750,000.
On April 30, 1997, the Bank's board of directors, with the consent of the OCC,
declared a $425,000 dividend to Bancorp to cover the remaining anticipated 1997
Bancorp expenses, including remaining convertible debt payments.
The Bank's primary sources of liquidity are federal funds sold to
other banks and the investment securities portfolio. For the three and six
months ended June 30, 1997, the Bank averaged $14,907,000 and $17,530,000,
respectively, in federal funds sold. During the same periods in 1996, the Bank
averaged $17,821,000 and $24,309,000, respectively, in federal funds sold. In
addition, securities in the available-for-sale portfolio can be sold in response
to liquidity needs or used as collateral under reverse repurchase agreements.
Securities held-to-maturity are available for liquidity needs primarily as
collateral for reverse
13
<PAGE>
repurchase agreements. The fair value of securities available-for-sale and
securities held-to-maturity at June 30, 1997, were $56,676,000 and $38,587,000,
respectively.
During the three and six months ended June 30, 1997, the average
balances of securities sold under agreements to repurchase were $1,099,000 and
$552,000, respectively. During the three and six months ended June 30, 1996, the
average balances of securities sold under agreements to repurchase were
$4,062,000 and $2,361,000, respectively. As of June 30, 1997, there were no
securities sold under agreements to repurchase.
RESULTS OF OPERATIONS
The Company reported consolidated net earnings of $312,000 for the
second quarter of 1997, compared with a net loss of $3,726,000 for the second
quarter of 1996. Primary and fully diluted earnings per share for the second
quarter of 1997 were $0.21, compared with a loss per share of $2.73 for the same
period in 1996. Return on average equity for the second quarter of 1997 and
1996, were 8.74% and -86.61%, respectively. Additionally, return on average
assets for the second quarter of 1997 and 1996, were 0.53% and -5.31%,
respectively.
For the first six months of 1997, the Company reported consolidated
net earnings of $501,000, compared with a net loss of $3,450,000 for the first
six months of 1996. Primary and fully diluted earnings per share for the six
months ended June 30, 1997, were $0.35. For the first six months of 1996, the
net loss was $2.57 per share. Improved operating results for both periods
resulted largely from decreased provision for loan losses and reduced legal and
settlement costs related to the 1996 proxy contest.
NET INTEREST INCOME
The Company's earnings depend primarily on net interest income, which
is the difference between the interest and fees earned on loans and investments
less the interest paid on deposits, borrowings and convertible notes. For the
quarter ended June 30, 1997, net interest income increased $77,000 to
$3,252,000, when compared with $3,175,000 for the quarter ended June 30, 1996.
For the six months ended June 30, 1997 and 1996, net interest income was
$6,350,000 and $6,450,000, respectively. For the three and six months ended
June 30, 1997, the net interest margin was 6.26% and 6.14%, respectively, as
compared with 5.11% and 5.07%, respectively, for the same periods in 1996.
The following tables present the distribution of average assets,
liabilities and shareholders' equity as well as the total dollar amount of
interest income from average interest-earning assets and resultant yields, and
the dollar amounts of interest expense and average interest-bearing liabilities,
expressed both in dollars and rates for the three and six months ended June 30,
1997 and 1996.
14
<PAGE>
Page 15
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------------------
1997 1996
------- -------
Average Yield/ Average Yield/
Balance Rate Interest Balance Rate Interest
(dollars in thousands) --------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Securities $ 96,681 6.26% $1,509 $129,555 6.22% $2,005
Loans(1) 96,223 10.10 2,424 101,351 8.87 2,235
Federal funds sold 14,907 5.44 202 17,821 5.17 229
Interest-earning deposits - banks 498 10.47 13 1,073 3.00 8
-------- ------ -------- ------
Total interest-earning assets 208,309 7.99 4,148 249,800 7.21 4,477
-------- ------ -------- ------
Deferred loan fees (145) (73)
Allowance for loan losses (2,284) (1,386)
Nonearning assets:
Cash and due from banks 22,206 24,657
Premises and equipment 1,624 1,780
Other assets 7,724 7,209
-------- --------
Total assets $237,434 $281,987
======== ========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 13,021 0.80% $ 26 $ 13,429 0.72% $ 24
Savings and money market deposits 94,530 1.84 434 103,871 1.70 438
Time deposits 25,675 4.70 301 55,117 4.86 666
Convertible notes 5,617 8.50 119 5,617 8.50 119
Repurchase agreements 1,099 5.84 16 4,062 5.45 55
-------- ------ -------- ------
Total interest-bearing liabilities 139,942 2.57 896 182,096 2.88 1,302
-------- ------ -------- ------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 80,031 80,277
Other liabilities 3,163 2,312
Shareholders' equity 14,298 17,302
-------- --------
Total liabilities and shareholders' equity $237,434 $281,987
======== ========
Interest income as a percentage of average
earning assets 7.99% 7.21%
Interest expense as a percentage of average
interest-baring liabilities 2.57 2.88
Net interest margin and income 6.26 $3,252 5.11 $3,175
====== ======
</TABLE>
(1) Nonaccrual loans are included in average balances and rate calculations.
15
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------------------
1997 1996
---- ----
Average Yield/ Average Yield/
(dollars in thousands) Balance Rate Interest Balance Rate Interest
------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Securities $ 96,218 6.29% $ 3,001 $129,312 6.30% $ 4,048
Loans(1) 94,304 10.02 4,686 101,524 9.02 4,555
Federal funds sold 17,530 5.31 462 24,309 5.29 639
Interest-earning deposits-banks 425 8.54 18 882 2.96 13
-------- -------- -------- --------
Total interest-earning assets 208,477 7.90 8,167 256,027 7.27 9,255
-------- -------- -------- --------
Deferred loan fees (141) (74)
Allowance for loan losses (2,299) (1,267)
Nonearning assets:
Cash and due from banks 22,245 25,014
Premises and equipment 1,672 1,796
Other assets 8,086 5,784
-------- --------
Total assets $238,040 $287,280
======== ========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits $ 13,122 0.77% $ 50 $ 13,161 0.72% $ 47
Savings and money market deposits 94,505 1.84 860 105,814 1.73 912
Time deposits 27,911 4.71 652 62,739 4.95 1,544
Convertible notes 5,617 8.50 239 5,617 8.50 238
Repurchase agreements 552 5.85 16 2,361 5.45 64
-------- -------- -------- --------
Total interest-bearing liabilities 141,707 2.59 1,817 189,692 2.97 2,805
-------- -------- -------- --------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 78,835 78,355
Other liabilities 3,278 1,731
Shareholders' equity 14,220 17,502
-------- --------
Total liabilities and shareholders' equity $238,040 $287,280
======== ========
Interest income as a percentage of average
earning assets 7.90% 7.27%
Interest expense as a percentage of average
interest-bearing liabilities 2.59 2.97
Net interest margin and income 6.14 $ 6,350 5.07 $ 6,450
======== ========
</TABLE>
(1) Nonaccrual loans are included in average balances and rate calculations.
The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
"volume change." It is also affected by changes in yields earned on interest-
earning assets and interest rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The following table sets forth
changes in interest income and interest expense for each major category of
interest-earning assets and interest-bearing liabilities, and the amount of
change attributable to volume and rate changes for the three and six months
ended June 30, 1997 and 1996.
16
<PAGE>
The changes due to rate and volume have been allocated to rate and volume in
proportion to the relationship between their absolute dollar amounts.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1997 And 1996 June 30, 1997 And 1996
---------------------- ----------------------
(dollars in thousands) Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Securities $(514) $ 18 $(496) $(1,043) $ (4) $(1,047)
Loans (118) 307 189 (342) 473 131
Federal funs sold (39) 12 (27) (181) 4 (177)
Interest-bearing deposits-banks (6) 11 5 (9) 14 5
----- ---- ----- ------- ----- -------
(677) 348 (329) (1,575) 487 (1,088)
----- ---- ----- ------- ----- -------
Increase (decrease) in interest expense:
Intereset-bearing demand deposits (1) 3 2 - 3 3
Savings and money market deposits (41) 37 (4) (102) 50 (52)
Time deposits (347) (18) (365) (821) (71) (892)
Convertible notes - - - - 1 1
Repurchase agreements (43) 4 (39) (52) 4 (48)
----- ---- ----- ------- ----- -------
(432) 26 (406) (975) (13) (988)
----- ---- ----- ------- ----- -------
Increase (decrease) in net interest income $(245) $322 $ 77 $ (600) $ 500 $ (100)
===== ==== ===== ======= ===== =======
</TABLE>
Interest income represents interest earned on loans, investment
securities and federal funds sold. For the three months ended June 30, 1997,
interest income decreased $329,000 to $4,148,000 from $4,477,000 for the second
quarter of 1996. The decrease was primarily due to a $120,245,000 decrease in
average earning assets and corresponding decreases in securities portfolio
income. During the second quarter of 1997, average investment securities and
loans decreased approximately $32,874,000 and $5,128,000, respectively, from the
second quarter of 1996, with resultant income changes.
The change in the volume of earning assets decreased interest income
$677,000. This decrease was slightly offset by an increase in the yield on
earning assets to 7.99% for the second quarter of 1997, as compared with 7.21%
for the same period in 1996. The yield increase of 0.78% provided an additional
$348,000 in interest income. Of this change in interest income, loan interest
represented $307,000 as the average loan yield for the second quarter of 1997
increased to 10.10%, or 1.23% above the second quarter of 1996.
Interest expense represents interest paid on deposits, borrowings and
convertible notes. For the second quarter of 1997, interest expense decreased
to $896,000, as compared with $1,302,000 for the second quarter of 1996. Of the
$406,000 decrease in interest expense, approximately $432,000 resulted from the
decrease in average interest-bearing deposits. The decrease in deposits was
concentrated in time deposits and was mainly due to one client, who in 1996,
transferred its cash management activities to the corporate headquarters. As
time deposits are a higher cost source of funds, the decrease in deposits
reduced the overall cost of average interest-bearing liabilities to 2.57% for
the second quarter of 1997, from 2.88% for the second quarter of 1996.
Interest income for the six months ended June 30, 1997 and 1996, was
$8,167,000 and $9,255,000, respectively. The decrease in interest income of
$1,088,000 as primarily due decreases in average investment securities and loans
of $33,094,000 and $7,220,000, respectively, when compared with the first six
months of 1996. These decreases, along with a $6,779,000 reduction in average
federal funds sold, reduced interest income approximately $1,575,000.
Offsetting the impact of the decrease in average balances was an increase
17
<PAGE>
in the average loan yield to 10.02% from 9.02% for the first six months of 1996.
This increase of 1.00% represented additional loan interest income of $473,000.
For the six months ended June 30, 1997 and 1996, interest expense was
$1,817,000 and $2,805,000, respectively. The decrease in interest expense was
due to a $47,985,000 reduction in average interest-bearing liabilities, of which
$34,828,000 was in time deposits. This reduction in average balances decreased
interest expense by approximately $975,000. The decrease in time deposits also
had a corresponding decrease in the cost of interest-bearing liabilities to
2.59% for the first six months of 1997 from 2.97% for the same period of 1996.
OTHER OPERATING INCOME
Other operating income totaled $542,000 for the three months ended
June 30, 1997, compared with $393,000 for the same period of 1996. Service
charges on deposits increased $64,000 to $215,000 for the second quarter of 1997
as the Company continues to generate fees for services provided to customers.
The Company recorded increased merchant card servicing fees of $72,000 when
compared with $59,000 for the second quarter of 1996. During the second quarter
of 1997, the Company also realized $69,000 in other income of cancellation fees
for warrants extinguished in connection with a credit assumption.
For the six months ended June 30, 1997 and 1996, other operating
income totaled $969,000 and $755,000, respectively. Service charges on deposits
for the first six months of 1997 was $400,000, as compared with $306,000 for the
same period in 1996. In addition, merchant card servicing fees of $140,000 are
$28,000 above the $112,000 for the first six months of 1996.
OTHER OPERATING EXPENSE
Other operating expenses for the three months ended June 30, 1997,
decreased $2,833,000 to $3,202,000 from $6,035,000 for the second quarter of
1996. Expenses in the second quarter of 1996 included $2,579,00 in nonrecurring
expenses incurred in connection with a contested election of directors at the
1996 Annual Shareholders Meeting and related litigation. These nonrecurring
expenses included legal fees of $1,404,000, proxy solicitation costs of $58,000,
printing costs of $111,000, and severance payment expense of $1,006,000.
Salaries and other employee benefits decreased approximately $148,000
to $1,393,000 for the three months ended June 30, 1997. Salary expense was
decreased approximately $64,000 for the reversal of severance payments to a
former employee that was expensed, but had been accrued for during the prior
year. In addition, certain staffing positions remain open and the Company has
been utilizing outside professionals to provide the services required.
Legal fees decreased $1,671,000 to $143,000 for the second quarter of
1997, from $1,814,000 for the second quarter of 1996. The decrease in legal
fees was primarily due to nonrecurring 1996 expenses of $1,404,000 as outlined
above. Excluding this nonrecurring expense, legal fees decreased $267,000 from
the prior year due to lower costs associated with loan collection efforts and a
reduction in corporate legal expenses.
Audits and examinations decreased $33,000 to $31,000 for the second
quarter of 1997, as compared with $64,000 for the same period in 1996.
Stabilizations in management and staffing has allowed the Company to resume
normalized levels of audit and examinations reducing previous extraordinary
cost.
18
<PAGE>
Other professional services increased $109,000 to $420,000 for the
second quarter of 1997, compared with $311,000 for the comparable period in
1996, as the Company continues to utilize the services of outside professionals
to augment staffing and support strategic planning initiatives, investor
relations, service training and support. Professional services for the second
quarter of 1996 included proxy solicitation costs of $58,000.
Messenger service expense of $17,000 for the second quarter of 1997,
is $43,000 below the $60,000 for the second quarter of 1996. During 1996, the
Company utilized outside couriers to provide services for Bank courier pick-ups
due to internal staff shortages. Since then, certain outside couriers became
employees of the Bank in January 1997, and subsequent costs have been recorded
as salary expense.
Other operating expenses for the six months ended June 30, 1997, was
$6,346,000, or a decrease of $2,691,000 from $9,037,000 for the first six months
of 1996. Excluding the 1996 nonrecurring expenses, noninterest expense for the
first six months of 1997 decreased $112,000 from the same period of 1996,
primarily attributable to ongoing expense control processes.
Salaries and benefits of $2,902,000 for the first six months of 1997
is $102,000 below the $3,004,000 for the same period in 1996. The Company is
utilizing outside professionals to assist in supplementing current staffing,
provide strategic planning services, service training and investor relations.
Legal fees have been reduced approximately $336,000 due to the improved quality
of the loan portfolio and reduction in external loan collection requirements.
Audits and examinations have decreased $54,000 to $59,000 for the first six
months of 1997, due to the reduced costs of loan credit reviews and operation
audits given stabilized staff.
In addition, occupancy expense for 1997 has been increased
approximately $55,000 due to prior period adjustments for tenant costs and rent
lease adjustments not recorded in 1996.
The management of the Company is not aware of any trends, events,
uncertainties or recommendations by regulatory authorities that will have or
that are reasonably likely to have material effect on the liquidity, capital
resources or operations of the Company.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. The Annual Meeting of Shareholders was held May 21, 1997. The
following persons were nominated and elected to the board of
directors to serve until the 1998 Annual Meeting of Shareholders:
Richard A. Berger Ray T. Oyakawa, M.D.
Ronald L. Katz, M.D. Lynn O. Poulson, J.D.
James A. Markley, Jr. Julie P. Thompson
Walter T. Mullikin, M.D.
The tabulation with respect to each nominee for the office of
director was as follows:
<TABLE>
<CAPTION>
Name For Withheld
---- -------- ----------
<S> <C> <C>
Richard A. Berger 984,369 17,618
Ronald L. Katz, M.D. 984,369 17,618
James A. Markley, Jr. 984,131 17,856
Walter T. Mullikin, M.D. 973,074 28,913
Ray T. Oyakawa, M.D. 983,423 18,564
Lynn O. Poulson, J.D. 983,544 18,443
Julie P. Thompson 952,264 49,718
</TABLE>
2. Approved the appointment of the firm of KPMG Peat Marwick LLP as
independent public accountants for the 1997 fiscal year by the
following vote:
<TABLE>
<CAPTION>
<S> <C>
For: 986,170
Against: 15,473
Abstain: 339
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement regarding computation of per share earnings
(loss)
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months
ended June 30, 1997.
20
<PAGE>
SIGNATURES
Pursuant to requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
PROFESSIONAL BANCORP, INC.
--------------------------
(Registrant)
Date: July 31, 1997 /s/ Julie P. Thompson
--------------------------
Julie P. Thompson
Chairman of the Board
Date: July 31, 1997 /s/ Takeo K. Sasaki
--------------------------
Takeo K. Sasaki
Controller
(Chief Accounting Officer)
21
<PAGE>
EXHIBIT 11 - EARNINGS (LOSS) PER SHARE
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
PRIMARY EARNINGS (LOSS) PER SHARE 1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <S> <C>
Computation for Statement of Operations:
Net earnings (loss) per statement of
operations used in primary earnings
(loss) per share computation:
Net earnings (loss) $ 311,675 $(3,725,726) $ 501,310 $(3,450,344)
Interest on borrowings, net of tax
effect, on application of assumed
exercise of warrants and options in
excess of 20% limitation 29,654 (1) 60,621 (1)
---------- ----------- ---------- -----------
Net earnings (loss) as adjusted $ 341,329 $(3,725,726) $ 561,931 $(3,450,344)
========== =========== ========== ===========
Weighted average number of shares
outstanding, as per primary computation
above 1,343,048 1,365,577 1,342,445 1,340,597
Net shares issuable from assumed exercise
of warrants and options, as determined by
the application of the Modified Treasury
Stock Method 257,516 (1) 257,637 (1)
---------- ----------- ---------- -----------
Weighted average number of shares
outstanding 1,600,564 1,365,577 1,600,082 1,340,597
========== =========== ========== ===========
Primary earnings (loss) per share $ 0.21 $ (2.73) $ 0.35 $ (2.57)
========== =========== ========== ===========
</TABLE>
(1) Anti-dilutive
<PAGE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS) - (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- -------------------------------------
FULLY DILUTED EARNING (LOSS) PER SHARE 1997 1996 1997 1996
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Computation for Statement of Operations:
Net earnings (loss) per statement of
operations used in fully diluted
earnings (loss) per share computation:
Net earnings (loss) $ 311,675 $(3,725,726) $ 501,310 $(3,450,344)
Interest and amortized costs on
convertible notes, net of tax effect (1) (1) (1) (1)
Interest on borrowings, net of tax
effect, on application of assumed
exercise of warrants and options in
excess of 20% limitation 29,654 (1) 60,621 (1)
---------- ------------ ---------- -----------
Net earnings (loss) as adjusted $ 341,329 $(3,725,726) $ 561,931 $(3,450,344)
========== =========== ========== ===========
Weighted average number of shares
outstanding, as per fully diluted
computation above 1,343,048 1,365,577 1,342,445 1,340,597
Net shares issuable form assumed exercise
of warrants and options, as determined by
the application of the Modified Treasury
Stock Method 257,516 (1) 257,637 (1)
Weighted average shares issuable from
assumed conversion of convertible notes (1) (1) (1) (1)
---------- ----------- ---------- -----------
Weighted average number of shares
outstanding 1,600,564 1,365,577 1,600,082 1,340,597
========== =========== ========== ===========
Fully diluted earnings (loss) per share $ 0.21 $ (2.73) $ 0.35 $ (2.57)
========== =========== ========== ===========
</TABLE>
(1) Anti-dilutive
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,968,614
<INT-BEARING-DEPOSITS> 505,797
<FED-FUNDS-SOLD> 15,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,675,746
<INVESTMENTS-CARRYING> 38,866,871
<INVESTMENTS-MARKET> 38,587,000
<LOANS> 96,172,169
<ALLOWANCE> 2,288,510
<TOTAL-ASSETS> 234,182,570
<DEPOSITS> 210,877,585
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,183,919
<LONG-TERM> 5,617,000
0
0
<COMMON> 11,300
<OTHER-SE> 14,492,766
<TOTAL-LIABILITIES-AND-EQUITY> 234,182,570
<INTEREST-LOAN> 4,686,154
<INTEREST-INVEST> 3,000,829
<INTEREST-OTHER> 479,796
<INTEREST-TOTAL> 8,166,779
<INTEREST-DEPOSIT> 1,562,493
<INTEREST-EXPENSE> 1,817,022
<INTEREST-INCOME-NET> 6,349,757
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,346,133
<INCOME-PRETAX> 852,610
<INCOME-PRE-EXTRAORDINARY> 852,610
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 501,310
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 6.14
<LOANS-NON> 1,116,000
<LOANS-PAST> 1,058,000
<LOANS-TROUBLED> 366,00
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,253,031
<CHARGE-OFFS> 195,403
<RECOVERIES> 110,882
<ALLOWANCE-CLOSE> 2,288,510
<ALLOWANCE-DOMESTIC> 2,288,510
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
