<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 SEPTEMBER 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 October 29, 1997, 1,357,222 shares of the Registrant's $0.008 par value
common stock were outstanding.
================================================================================
<PAGE>
PROFESSIONAL BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statement of Financial Condition as of
September 30, 1997 and December 31, 1996 3
Consolidated Statement of Operations for the three months
and nine months ended September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows for the nine months
ended September 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
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 20
SIGNATURES
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PROFESSIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks
Noninterest-bearing $ 21,253,440 $ 32,322,030
Interest-bearing 460,887 617,948
Federal funds sold 15,200,000 33,400,000
------------ ------------
Cash and cash equivalents 36,914,327 66,339,978
Securities held-to-maturity (fair value of $36,580,000
and $41,478,000, respectively) 36,628,742 41,871,563
Securities available-for-sale (cost of $55,206,000 and
$55,225,000, respectively) 54,685,067 54,467,683
Loans (net of allowance for loan losses of $1,762,000
and $2,253,000, respectively) 98,043,541 90,759,161
Premises and equipment, net 1,660,203 1,611,482
Accrued interest receivable and other assets 6,814,723 9,237,339
------------ ------------
$234,746,603 $264,287,206
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Demand, noninterest-bearing $ 86,085,444 $ 96,208,449
Demand, interest-bearing 11,944,990 14,886,488
Savings and money market 81,962,423 98,859,034
Time deposits 31,360,354 31,322,777
------------ ------------
Total deposits 211,353,211 241,276,748
Convertible notes 5,617,000 5,617,000
Accrued interest payable and other liabilities 2,892,074 3,351,864
------------ ------------
Total liabilities 219,862,285 250,245,612
------------ ------------
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 3,215,404 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 (306,476) (434,943)
------------ ------------
Total shareholders' equity 14,884,318 14,041,594
------------ ------------
$234,746,603 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1997 1996 1997 1996
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $2,421,391 $2,205,761 $ 7,107,545 $ 6,761,004
Securities 1,447,182 1,916,574 4,448,011 5,964,771
Federal funds sold and securities purchased
under agreements to resell 293,948 79,175 756,041 717,718
Interest-bearing deposits in other banks 5,597 5,644 23,300 18,244
---------- ---------- ----------- -----------
TOTAL INTEREST INCOME 4,168,118 4,207,154 12,334,897 13,461,737
---------- ---------- ----------- -----------
INTEREST EXPENSE
Deposits 846,205 825,480 2,408,698 3,327,656
Convertible notes 119,360 119,604 358,082 357,987
Federal funds purchased and securities
sold under agreements to repurchase - 107,665 15,807 171,592
---------- ---------- ----------- -----------
TOTAL INTEREST EXPENSE 965,565 1,052,749 2,782,587 3,857,235
---------- ---------- ----------- -----------
NET INTEREST INCOME 3,202,553 3,154,405 9,552,310 9,604,502
Provision for loan losses 60,000 836,000 180,000 4,256,000
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,142,553 2,318,405 9,372,310 5,348,502
---------- ---------- ----------- -----------
OTHER OPERATING INCOME
Available-for-sale securities transactions, net - 20,921 - 20,921
Merchant discount 68,058 56,490 208,264 168,410
Mortgage banking fees 28,364 35,601 99,610 97,018
Service charges on deposits 220,192 186,514 620,286 492,209
Other income 138,828 153,285 496,268 429,682
---------- ---------- ----------- -----------
TOTAL OTHER OPERATING INCOME 455,442 452,811 1,424,428 1,208,240
---------- ---------- ----------- -----------
OTHER OPERATING EXPENSES
Salaries and employee benefits 1,495,262 1,600,954 4,396,961 4,605,157
Occupancy 370,738 345,358 1,131,076 1,036,224
Furniture and equipment 207,372 205,142 644,494 633,401
Meetings and business development 48,015 33,465 143,693 102,444
Donations 36,500 29,850 79,089 115,379
Other promotion 78,389 65,984 250,833 213,288
Legal fees 85,269 431,211 344,130 2,430,574
Audit, accounting and examinations 32,873 47,695 91,398 160,190
Professional services 357,174 267,403 1,012,129 704,484
Strategic planning and other outside consulting 173,155 - 277,671 -
Office supplies 53,662 64,680 167,212 225,837
Telephone 69,177 72,511 215,270 191,106
Postage 36,443 40,808 114,291 115,506
Messenger service 15,543 46,435 62,823 133,242
FDIC assessment 6,379 - 20,879 1,000
Other assessments 60,577 63,191 177,311 225,561
Imprinted checks 23,240 22,941 80,013 111,597
Settlement costs - - - 1,006,000
Other expense 175,634 135,072 462,262 498,280
---------- ---------- ----------- -----------
TOTAL OTHER OPERATING EXPENSES 3,325,402 3,472,700 9,671,535 12,509,270
---------- ---------- ----------- -----------
Earnings (loss) before taxes 272,593 (701,484) 1,125,203 (5,952,528)
Provision (benefit) for income taxes 73,000 (94,000) 424,300 (1,894,700)
---------- ---------- ----------- -----------
NET EARNINGS (LOSS) $ 199,593 $ (607,484) $ 700,903 $(4,057,828)
========== ========== =========== ===========
EARNINGS (LOSS) PER SHARE
Primary $ 0.14 $ (0.45) $ 0.49 $ (3.02)
Fully diluted $ 0.14 $ (0.45) $ 0.49 $ (3.02)
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
PROFESSIONAL BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 700,903 $ (4,057,828)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 429,359 466,812
Provision for loan losses 180,000 4,256,000
Amortization of convertible note expense 78,249 78,252
Decrease (increase) in accrued interest receivable and other assets 2,236,282 (1,910,354)
Increase (decrease) in accrued interest payable and other liabilities (459,790) 892,927
Net gain on sale of securities available-for-sale - (20,921)
Net amortization (accretion) of premiums and discounts
on securities held-to-maturity 198,694 346,088
Net amortization (accretion) of premiums and discounts
on securities available-for-sale 181,367 44,819
------------ ------------
Net cash provided by operating activities 3,545,064 95,795
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity 8,036,077 5,739,094
Proceeds from maturities of securities available-for-sale 5,875,223 8,974,771
Proceeds from sale of securities available-for-sale - 9,868,750
Purchases of securities held-to-maturity (2,991,950) (1,014,004)
Purchases of securities available-for-sale (6,037,422) (9,904,845)
Net (increase) decrease in loans (7,464,380) 4,674,742
Purchase of premises and equipment, net (478,080) (321,205)
------------ ------------
Net cash provided (used) by investing activities (3,060,532) 18,017,303
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits and savings accounts (29,961,114) (27,142,169)
Net increase (decrease) in time deposits 37,577 (48,149,181)
Purchase of treasury shares - (270,450)
Dividend in lieu of fractional shares - (3,664)
Proceeds from exercise of stock options 13,354 181,822
------------ ------------
Net cash used in financing activities (29,910,183) (75,383,642)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (29,425,651) (57,270,544)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 66,339,978 85,199,673
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,914,327 $ 27,929,129
============ ============
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest $ 3,068,234 $ 4,319,733
Income taxes $ 550,108 $ 300
Supplemental disclosure of noncash items:
Pretax decrease (increase) in unrealized losses on securities
available-for-sale $ 236,552 $ (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 $200,000 or $0.14
per share for the third quarter of 1997, compared with a net loss of $607,000 or
$0.45 per share for the third quarter of 1996. For the nine months ended
September 30, 1997, the Bancorp and Bank (the "Company") had net earnings of
$701,000 or $0.49 per share. This compares with a net loss of $4,058,000 or
$3.02 per share for the first nine months of 1996. At September 30, 1997, the
Company had consolidated assets totaling $234,747,000, 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>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------- -----------------------
(dollars in thousands) AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Commercial $81,045 81.0% $73,577 79.0%
Real estate secured commercial 10,084 10.1 10,079 10.8
------- ----- ------- -----
91,129 91.1 83,656 89.8
Equity lines of credit 6,156 6.3 6,202 6.7
Other lines of credit 1,540 1.5 1,832 2.0
Installment 1,134 1.1 1,375 1.5
Lease financing 38 - 68 -
------- ----- ------- -----
Gross loans 99,997 100.0% 93,133 100.0%
------- -------
Less:
Allowance for loan losses 1,762 2,253
Deferred loan fees, net 191 121
------- -------
Net loans $98,044 $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 absolute 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>
SEPTEMBER 30, DECEMBER 31,
(dollars in thousands) 1997 1996
------------- ------------
<S> <C> <C>
Nonperforming loans $1,067 $1,521
Other real estate owned (OREO) - -
Other repossessed assets 272 272
------ ------
Total nonperforming assets $1,339 $1,793
====== ======
Accruing loans 90 days or more past due $ 765 $ 507
====== ======
Nonperforming loans to total loans 1.07% 1.63%
Nonperforming assets
to total loans 1.34% 1.93%
to total loans, OREO and repossessed assets 1.34% 1.92%
to total assets 0.57% 0.68%
</TABLE>
The total accrued interest on loans 90 days or more past due and still
accruing was approximately $13,000 at September 30, 1997, and $19,000 at
December 31, 1996. Of the $765,000 in accruing loans over 90 days or more past
due and still accruing, $161,000 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 discourage "short-term" extensions, these loans are
carried as "past due" to ensure proper underwriting and 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 included in the allowance for
loan and lease loss reserve.
8
<PAGE>
The following table provides a summary of the Company's allowance for
loan losses and charge-off and recovery activity during the nine months ended
September 30, 1997, December 31, 1996, and September 30, 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
(dollars in thousands) 1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Balance at beginning of period $ 2,253 $ 1,264 $ 1,070
Provision for loan losses 180 3,956 4,256
------- ------- -------
2,433 5,220 5,326
------- ------- -------
Loan charge-offs 823 3,349 3,353
Recoveries on loans previously charged-off (152) (382) (61)
------- ------- -------
Net charge-offs 671 2,967 3,292
------- ------- -------
Balance at end of period $ 1,762 $ 2,253 $ 2,034
======= ======= =======
Loans outstanding at end of period $99,997 $93,133 $92,153
Average loans outstanding during period 95,398 95,642 99,162
Net charge-offs to average loans outstanding 0.94% 4.12% 4.44%
Allowance for loan losses:
to total loans 1.76 2.42 2.21
to nonperforming loans/(1)/ 165.14 148.13 114.08
to nonperforming assets/(1)/ 131.59 125.66 98.98
</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 $1,450,000 in impaired loans as of September 30, 1997.
The carrying value of impaired loans for which there is a related allowance for
loan losses was $228,000, with the amount of specific allowance for loan losses
allocated to these loans of $70,000. There were $1,222,000 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 nine months of 1997 was approximately $1,483,000
and income recorded utilizing the cash basis and accrual basis method of
accounting was $37,000. Nonaccrual loans at September 30, 1997, included
$1,067,000 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
9
<PAGE>
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.
At September 30, 1997, the Company had troubled debt restructurings
totaling $385,000, of which $134,000 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 $251,000 was
performing according to the renegotiated terms. The gross interest income that
would have been recorded in the first nine months of 1997 on troubled debt
restructurings if the loans had been current in accordance with the original
terms totaled $56,000, which includes $34,000 on the restructured loans on
nonaccrual. The amount of interest income actually recognized in the first nine
months of 1997 on those loans totaled $28,000. At September 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 September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(dollars in thousands) COST GAIN (LOSS) VALUE
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
U.S. Government securities $ 4,012 $ 6 $ - $ 4,018
U.S. Government agency
mortgage-backed securities 32,062 67 (306) 31,823
U.S. Government agency securities 2,000 1 - 2,001
Small Business Administration securities 1,497 8 - 1,505
Collateralized mortgage obligations 15,635 - (297) 15,338
------- --- ----- -------
Total $55,206 $82 $(603) $54,685
======= === ===== =======
</TABLE>
<TABLE>
<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 securities 36,230 96 (540) 35,786
Small Business Administration 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
September 30, 1997, and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(dollars in thousands) COST GAIN (LOSS) VALUE
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
U.S. Government securities $ 3,057 $ 31 $ (9) $ 3,079
U.S. Government agency
mortgage-backed securities 30,383 94 (147) 30,330
U.S. Government agency securities 2,750 - (18) 2,732
Federal Reserve Bank stock 439 - - 439
------- ---- ----- -------
Total $36,629 $125 $(174) $36,580
======= ==== ===== =======
</TABLE>
<TABLE>
<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 $ 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
------- ---- ----- -------
Total $41,872 $ 50 $(444) $41,478
======= ==== ===== =======
</TABLE>
There were no sales of available-for-sale securities during the three
and nine months ended September 30, 1997. During the third quarter of 1996,
securities available-for-sale were sold for proceeds of $9,869,000, which
resulted in a realized gain of $21,000.
DEPOSITS
Total deposits at September 30, 1997, were $211,353,000, a decrease of
$29,924,000 or 12.4% 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
services 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 September 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------- ------------------------
(dollars in thousands) AMOUNT % OF TOTAL AMOUNT % OF TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Demand, noninterest-bearing $ 86,085 40.7% $ 96,208 39.9%
Demand, interest-bearing 11,945 5.7 14,887 6.2
Savings deposits 13,635 6.5 12,335 5.1
Money market deposits 68,328 32.3 86,524 35.8
Time deposits under $100,000 8,746 4.1 9,187 3.8
Time deposits of $100,000 and over 22,614 10.7 22,136 9.2
-------- ----- -------- -----
$211,353 100.0% $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
12
<PAGE>
an institution which becomes "undercapitalized" and to take additional actions
if the institution becomes "significantly undercapitalized" or "critically
undercapitalized." At September 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 September 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 /1/ $15,191 6.32% $ 9,619 4.00% $12,024 5.00%
Tier 1 Risk-Based 15,191 11.82 5,141 4.00 7,712 6.00
Total Risk-Based 22,417 17.44 10,283 8.00 12,854 10.00
BANK
Leverage $20,062 8.38% $ 9,574 4.00% $11,968 5.00%
Tier 1 Risk-Based 20,062 15.71 5,109 4.00 7,663 6.00
Total Risk-Based 21,661 16.96 10,217 8.00 12,772 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 September 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.
The Bank's primary sources of liquidity are federal funds sold to
other banks and the investment securities portfolio. For the three and nine
months ended September 30, 1997, the Bank averaged $21,373,000 and $18,825,000,
respectively, in federal funds sold. During the same periods in 1996, the Bank
averaged $5,957,000 and $18,147,000, 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 repurchase agreements. The fair value of securities
available-for-sale and securities held-to-maturity at September 30, 1997, were
$54,685,000 and $36,580,000, respectively.
13
<PAGE>
There were no securities sold under agreements to repurchase during
the third quarter of 1997. During the nine months ended September 30, 1997, the
average balance of securities sold under agreements to repurchase was $366,000.
During the three and nine months ended September 30, 1996, the average balances
of securities sold under agreements to repurchase were $7,965,000 and
$4,242,000, respectively. As of September 30, 1997, there were no securities
sold under agreements to repurchase.
RESULTS OF OPERATIONS
The Company reported consolidated net earnings of $200,000 for the
third quarter of 1997, compared with a net loss of $607,000 for the third
quarter of 1996. Primary and fully diluted earnings per share for the third
quarter of 1997 were $0.14, compared with a loss per share of $0.45 for the same
period in 1996. Return on average equity for the third quarter of 1997 and
1996, were 5.42% and -17.41%, respectively. Additionally, return on average
assets for the third quarter of 1997 and 1996, were 0.33% and -0.96%,
respectively.
For the first nine months of 1997, the Company reported consolidated
net earnings of $701,000, compared with a net loss of $4,058,000 for the first
nine months of 1996. Primary and fully diluted earnings per share for the nine
months ended September 30, 1997, were $0.49. For the first nine months of 1996,
the net loss was $3.02 per share.
The improvement in earnings during the first nine months of 1997 is
largely the result of reduced provision for loan losses, lower legal fees,
management's cost reduction efforts and emphasis on generation of fee income.
Additionally, settlement costs of $1,006,000 were incurred in 1996.
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 September 30, 1997, net interest income increased $48,000 to
$3,202,000, when compared with $3,154,000 for the quarter ended September 30,
1996. For the nine months ended September 30, 1997 and 1996, net interest
income was $9,552,000 and $9,604,000, respectively. For the three and nine
months ended September 30, 1997, the net interest margin was 5.96% and 6.08%,
respectively, as compared with 5.64% and 5.24%, 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 nine months ended
September 30, 1997 and 1996.
14
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 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 $ 93,489 6.14% $1,447 $120,870 6.31% $1,916
Loans/(1)/ 97,847 9.82 2,421 94,488 9.29 2,206
Federal funds sold 21,373 5.46 294 5,957 5.28 79
Interest-earning deposits - banks 561 4.24 6 1,352 1.77 6
-------- ------ -------- ------
Total interest-earning assets 213,270 7.75 4,168 222,667 7.52 4,207
-------- ------ -------- ------
Deferred loan fees (202) (93)
Allowance for loan losses (2,252) (4,442)
Nonearning assets:
Cash and due from banks 21,053 23,890
Premises and equipment 1,662 1,728
Other assets 6,946 9,197
-------- --------
Total assets $240,477 $252,947
======== ========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits 12,119 0.92% $ 28 $ 13,052 0.73% $ 24
Savings and money market deposits 93,996 2.01 477 89,745 1.68 378
Time deposits 28,431 4.77 342 35,404 4.75 423
Convertible notes 5,617 8.50 119 5,617 8.50 120
Repurchase agreements - - - 7,965 5.39 108
-------- ------ -------- ------
Total interest-bearing liabilities 140,163 2.73 966 151,783 2.76 1,053
-------- ------ -------- ------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 82,533 84,024
Other liabilities 3,167 3,258
Shareholders' equity 14,614 13,882
-------- --------
Total liabilities and shareholders'
equity 240,477 $252,947
======== ========
Interest income as a percentage of average
earning assets 7.75% 7.52%
Interest expense as a percentage of average
interest-bearing liabilities 2.73 2.76
Net interest margin and income 5.96 $3,202 5.64 $3,154
====== ======
</TABLE>
/(1)/ Nonaccrual loans are included in average balances and rate calculations.
15
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 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 $ 95,297 6.24% $ 4,448 $126,477 6.30% $ 5,965
Loans/(1)/ 95,398 9.96 7,108 99,162 9.11 6,761
Federal funds sold 18,825 5.37 756 18,147 5.29 718
Interest-earning deposits - banks 472 6.32 23 1,040 2.31 18
-------- ------- -------- -------
Total interest-earning assets 209,992 7.85 12,335 244,826 7.34 13,462
-------- ------- -------- -------
Deferred loan fees (161) (80)
Allowance for loan losses (2,283) (2,333)
Nonearning assets:
Cash and due from banks 21,843 24,637
Premises and equipment 1,669 1,773
Other assets 7,801 6,929
-------- --------
Total assets $238,861 $275,752
======== ========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits 12,784 0.82% $ 78 $ 13,124 0.72% $ 71
Savings and money market deposits 94,334 1.89 1,337 100,419 1.72 1,290
Time deposits 28,086 4.73 994 53,561 4.91 1,967
Convertible notes 5,617 8.50 358 5,617 8.50 358
Repurchase agreements 366 5.84 16 4,242 5.42 172
-------- ------- -------- -------
Total interest-bearing liabilities 141,187 2.64 2,783 176,963 2.91 3,858
-------- ------- -------- -------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 80,081 80,922
Other liabilities 3,240 1,581
Shareholders' equity 14,353 16,286
-------- --------
Total liabilities and shareholders'
equity 238,861 $275,752
======== ========
Interest income as a percentage of average
earning assets 7.85% 7.34%
Interest expense as a percentage of average
interest-bearing liabilities 2.64 2.91
Net interest margin and income 6.08 $ 9,552 5.24 $ 9,604
======= =======
</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 nine months
ended September 30, 1997 and
16
<PAGE>
1996. The changes due to both 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 NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 SEPTEMBER 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 $(425) $(44) $(469) $(1,461) $(56) $(1,517)
Loans 80 135 215 (265) 612 347
Federal funds sold 212 3 215 26 12 38
Interest-bearing deposits - banks (5) 5 - (14) 19 5
----- ---- ----- ------- ---- -------
(138) 99 (39) (1,714) 587 (1,127)
----- ---- ----- ------- ---- -------
Increase (decrease) in interest expense:
Interest-bearing demand deposits (2) 6 4 (2) 9 7
Savings and money market deposits 19 80 99 (81) 128 47
Time deposits (84) 3 (81) (906) (67) (973)
Convertible notes - (1) (1) - - -
Repurchase agreements (108) - (108) (169) 13 (156)
----- ---- ----- ------- ---- -------
(175) 88 (87) (1,158) 83 (1,075)
----- ---- ----- ------- ---- -------
Increase (decrease) in net interest income $ 37 $ 11 $ 48 $ (556) $504 $ (52)
===== ==== ===== ======= ==== =======
</TABLE>
Interest income represents interest earned on loans, investment
securities and federal funds sold. For the three months ended September 30,
1997, interest income decreased $39,000 to $4,168,000 from $4,207,000 for the
third quarter of 1996. The decrease in interest income was primarily due to a
decrease in average investment securities resulting from lower deposit levels.
The net change in the volume of earning assets decreased interest
income $138,000. This decrease was slightly offset by an increase in the yield
on earning assets to 7.75% for the third quarter of 1997, as compared with 7.52%
for the same period in 1996. The yield increase of 0.23% provided an additional
$99,000 in interest income. Of this change in interest income, loan interest
income increased $135,000 as the average loan yield for the third quarter of
1997 increased to 9.82% from 9.29% for the third quarter of 1996. The increase
in the loan yield is due to a prime rate increase of 0.25% in March 1997 and
increased loan underwriting fees.
Interest expense represents interest paid on deposits, Company
borrowings and convertible notes. For the third quarter of 1997, interest
expense decreased to $966,000, as compared with $1,053,000 for the third quarter
of 1996. A decrease of $11,620,000 in average interest-bearing liabilities
reduced interest expense by approximately $175,000. There were no repurchase
agreements during the third quarter of 1997, while the average balance for the
same period of 1996 was $7,965,000. The decrease in deposits was centered
primarily in time deposits and was mainly due to one client who, in 1996,
transferred its cash management activities to the corporate headquarters. As
repurchase agreements and time deposits are a higher cost source of funds, the
decrease in balances reduced the overall cost of average interest-bearing
liabilities to 2.73% for the third quarter of 1997, from 2.76% for the third
quarter of 1996.
Interest income for the nine months ended September 30, 1997 and 1996,
was $12,335,000 and $13,462,000, respectively. The decrease in interest income
of $1,127,000 was primarily due to decreases in average investment securities
and loans of $31,180,000 and $3,764,000, respectively, when compared with the
first nine months of 1996. Offsetting the impact of the decrease in investment
securities and loan balances
17
<PAGE>
was an increase in the average yield on earning assets to 7.85% for the first
nine months of 1997 from 7.34% for the same period of 1996. This increased yield
on earning assets of 0.51% generated additional interest income of $587,000.
For the nine months ended September 30, 1997 and 1996, interest
expense was $2,783,000 and $3,858,000, respectively. The decrease in interest
expense was due to a $35,776,000 reduction in average interest-bearing
liabilities (deposits), of which $25,475,000 were time deposits. This reduction
in average balances decreased interest expense by approximately $1,158,000. The
decrease in time deposits also had a corresponding decrease in the cost of
interest-bearing liabilities to 2.64% for the first nine months of 1997 from
2.91% for the same period of 1996.
OTHER OPERATING INCOME
For the three months ended September 30, 1997, other operating income
totaled $455,000 compared with $453,000 for the same period of 1996. Service
charges on deposits increased $34,000 to $220,000 for the third quarter of 1997
as the Company continues to generate fees for services provided to customers.
The Company recorded increased merchant card servicing fees of $68,000 for the
third quarter of 1997 compared with $56,000 for the third quarter of 1996.
During the third quarter of 1996, the Company realized a $21,000 gain on the
sale of securities classified as available-for-sale.
For the nine months ended September 30, 1997 and 1996, other operating
income totaled $1,424,000 and $1,208,000, respectively. Service charges on
deposits for the first nine months of 1997 was $620,000, as compared with
$492,000 for the same period in 1996. In addition, merchant card servicing fees
of $208,000 are $40,000 above the $168,000 for the first nine months of 1996.
OTHER OPERATING EXPENSE
Other operating expenses for the three months ended September 30,
1997, decreased $147,000 to $3,325,000 from $3,472,000 for the third quarter of
1996. Expenses for the third quarter of 1997 included approximately $173,000
for nonrecurring strategic planning, investor relations, service training and
other consultant services.
Salaries and other employee benefits decreased approximately $106,000
to $1,495,000 for the three months ended September 30, 1997, compared with
$1,601,000 for the third quarter of 1996. This decrease was largely due to
staffing vacancies being performed through contracted professionals.
Legal fees decreased $346,000 to $85,000 for the third quarter of
1997, from $431,000 for the third quarter of 1996. The decrease in legal fees
is due primarily to nonrecurring legal expenses associated with loan collection
efforts as the quality of the loan portfolio has improved over the past year.
Other professional services increased $90,000 to $357,000 for the
third quarter of 1997, compared with $267,000 for the comparable period in 1996.
The Company continues to utilize the services of outside professionals to
augment staffing and support service training which is offset by reduced
salaries and benefits.
Other operating expenses for the nine months ended September 30, 1997,
were $9,671,000, or a decrease of $2,838,000 from $12,509,000 for the first nine
months of 1996. Expenses for 1996 included $2,579,000 incurred in connection
with the 1996 proxy contest and $245,000 to fund a salary continuation plan.
Excluding these nonrecurring expenses, noninterest expense for the first nine
months of 1997 decreased
18
<PAGE>
$14,000 from the same period of 1996. Noninterest expense for the nine months
ending September 30, 1997 includes $278,000 in nonrecurring strategic planning
and other consulting services as outlined above.
Salaries and benefits of $4,397,000 for the first nine months of 1997
is $208,000 below the $4,605,000 for the first nine months of 1996. The
reduction in personnel expense is somewhat offset by an increase in professional
services expense as the Company continues to utilize outside professionals to
assist in supplementing current staffing vacancies.
Legal fees of $344,000 for the nine months ending September 30, 1997,
are $2,087,000 below legal fees for the first nine months of 1996 due to
elimination of the $1,404,000 in legal expenses related to the 1996 proxy
contest, as well as reduction in legal expenses related to loan collections.
INCOME TAXES
For the three and nine months ended September 30, 1997, the provision
for income taxes was $73,000 and $424,000, respectively. A benefit for income
taxes of $94,000 and $1,895,000 was recorded for the three and nine months ended
September 30, 1996. The effective tax rates for the three and nine months ended
September 30, 1997 are 26.8% and 37.7%, respectively. The effective tax rates
for 1997 are lower than the statutory tax rates of 42% due to a $40,000
reduction in excess net deferred taxes in the third quarter of 1997.
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 a material effect on the liquidity, capital
resources or operations of the Company.
19
<PAGE>
PART II - OTHER INFORMATION
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 September 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: October 29, 1997 /s/ Julie P. Thompson
------------------------
Julie P. Thompson
Chairman of the Board
Date: October 29, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
PRIMARY EARNINGS (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 primary earnings
(loss) per share computation:
Net earnings (loss) $ 199,593 $ (607,484) $ 700,903 $(4,057,828)
Interest on borrowings, net of tax
effect, on application of assumed
exercise of warrants and options in
excess of 20% limitation 26,596 /(1)/ 86,042 /(1)/
---------- ---------- ---------- -----------
Net earnings (loss) as adjusted $ 226,189 $ (607,484) $ 786,945 $(4,057,828)
========== ========== ========== ===========
Weighted average number of shares
outstanding, as per primary computation
above 1,343,048 1,353,019 1,342,648 1,344,774
Net shares issuable from assumed exercise
of warrants and options, as determined by
the application of the Modified Treasury
Stock Method 257,516 /(1)/ 257,596 /(1)/
---------- ---------- ---------- -----------
Weighted average number of shares
outstanding 1,600,564 1,353,019 1,600,244 1,344,774
========== ========== ========== ===========
Primary earnings (loss) per share $ 0.14 $ (0.45) $ 0.49 $ (3.02)
========== ========== ========== ===========
</TABLE>
/(1)/ Anti-dilutive
1
<PAGE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS) - (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
FULLY DILUTED EARNINGS (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) $ 199,593 $ (607,484) $ 700,903 $(4,057,828)
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 26,596 /(1)/ 86,042 /(1)/
---------- ---------- ---------- -----------
Net earnings (loss) as adjusted $ 226,189 $ (607,484) $ 786,945 $(4,057,828)
========== ========== ========== ===========
Weighted average number of shares
outstanding, as per fully diluted
computation above 1,343,048 1,353,019 1,342,648 1,344,774
Net shares issuable from assumed exercise
of warrants and options, as determined by
the application of the Modified Treasury
Stock Method 257,516 /(1)/ 257,596 /(1)/
Weighted average shares issuable from
assumed conversion of convertible notes /(1)/ /(1)/ /(1)/ /(1)/
---------- ---------- ---------- -----------
Weighted average number of shares
outstanding 1,600,564 1,353,019 1,600,244 1,344,774
========== ========== ========== ===========
Fully diluted earnings (loss) per share $ 0.14 $ (0.45) $ 0.49 $ (3.02)
========== ========== ========== ===========
</TABLE>
/(1)/ Anti-dilutive
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 21,253,440
<INT-BEARING-DEPOSITS> 460,887
<FED-FUNDS-SOLD> 15,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 54,685,067
<INVESTMENTS-CARRYING> 36,628,742
<INVESTMENTS-MARKET> 36,579,566
<LOANS> 99,805,694
<ALLOWANCE> 1,762,153
<TOTAL-ASSETS> 234,746,603
<DEPOSITS> 211,353,211
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,892,074
<LONG-TERM> 5,617,000
0
0
<COMMON> 11,300
<OTHER-SE> 14,873,018
<TOTAL-LIABILITIES-AND-EQUITY> 234,746,603
<INTEREST-LOAN> 7,107,545
<INTEREST-INVEST> 4,448,011
<INTEREST-OTHER> 779,341
<INTEREST-TOTAL> 12,334,897
<INTEREST-DEPOSIT> 2,408,698
<INTEREST-EXPENSE> 2,782,587
<INTEREST-INCOME-NET> 9,552,310
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,671,535
<INCOME-PRETAX> 1,125,203
<INCOME-PRE-EXTRAORDINARY> 1,125,203
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700,903
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 6.08
<LOANS-NON> 1,067,000
<LOANS-PAST> 765,000
<LOANS-TROUBLED> 251,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,253,031
<CHARGE-OFFS> 822,550
<RECOVERIES> 151,672
<ALLOWANCE-CLOSE> 1,762,153
<ALLOWANCE-DOMESTIC> 1,762,153
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
