<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995
--------------------------------------------------
Commission File Number 0-16595
---------------------------------------------
SUBURBAN BANCSHARES, INC.
- --------------------------------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware 54-1319441
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(State or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
7505 Greenway Center Drive, Greenbelt, Maryland 20770
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(Address of principal executive offices) (Zip Code)
(301) 474-6694
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
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
------ ------
Common Stock $.01 Par Value Outstanding at May 8, 1995
- --------------------------- --------------------------------
(Class)
9,054,459 Shares
---------------------------
1
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SUBURBAN BANCSHARES, INC.
S.E.C. FORM 10-Q
March 31, 1995
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------- --------
<S> <C>
Item 1. Condensed Financial Statements
Consolidated Balance Sheets (unaudited)
March 31, 1995 & December 31, 1994 3
Consolidated Statements of Operations
(unaudited)
Three months ended March 31, 1995 and
March 31, 1994 4
Consolidated Statements of Cash Flows
(unaudited)
Three months ended March 31, 1995 and
March 31, 1994 5
Notes to Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
2
<PAGE> 3
SUBURBAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands March 31, December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,906 $ 7,005
Interest bearing deposits with banks 115 245
Federal funds sold 9,810 13,560
Investment securities available for sale 17,415 19,252
Investment securities held to maturity 4,834 4,821
(aggregate market value of $4,794 and $4,654
at March 31, 1995 and December 31, 1994)
Loans held for sale 3,381 2,044
Loans 65,670 64,525
Less: Allowance for loan losses (2,213) (2,750)
Loans, net 63,457 61,775
Premises and equipment, net 1,109 1,156
Other real estate owned 2,248 3,018
Accrued interest receivable 696 645
Other assets 790 708
TOTAL ASSETS $112,761 $114,229
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 21,553 $ 24,360
Interest-bearing deposits 81,012 80,042
Total Deposits 102,565 104,402
Securities sold under agreements to repurchase 622 691
Accrued expenses and other liabilities 541 549
Total liabilities $103,728 $ 105,642
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized;
no shares issued or outstanding --- ---
Common stock, $.01 par value;
20,000,000 shares authorized; 9,054,459 shares
issued and outstanding at March 31, 1995 &
December 31, 1994 91 91
Paid-in capital - stock options 186 172
Additional paid-in capital 23,380 23,380
Accumulated deficit (14,416) (14,584)
Net unrealized loss on securities
available for sale (208) (472)
Total shareholders' equity 9,033 8,587
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $112,761 $114,229
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
SUBURBAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended March 31,
In thousands, except per share data 1995 1994
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,632 $1,182
Taxable interest on securities available for sale 261 181
Taxable interest on securities held to maturity 83 --
Interest on Federal funds sold 120 140
Interest on deposits with banks 3 2
Total interest income 2,099 1,505
INTEREST EXPENSE
Interest on deposits 732 524
Interest on short-term borrowings 5 3
Total interest expense 737 527
NET INTEREST INCOME 1,362 978
Provision for loan losses 45 100
Net interest income after provision for loan losses 1,317 878
NONINTEREST INCOME
Service charges on deposit accounts 112 127
Net realized gains on sales of
available for sale securities -- 121
Other income 54 58
Total noninterest income 166 306
NONINTEREST EXPENSE
Salaries and employee benefits 597 568
Occupancy expense 164 165
Furniture and equipment expense 43 50
Other expense 511 463
Total noninterest expense 1,315 1,246
Income (loss) before income taxes 168 (62)
Income tax expense (benefit) -- --
INCOME (LOSS) $ 168 $(62)
Income (Loss) Per Common Share
Primary $0.02 $(0.01)
Fully Diluted 0.02 (0.01)
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
SUBURBAN BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months ended March 31, 1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 168 (62)
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation 54 59
Provision for credit losses 45 100
Stock option compensation expense 14 45
Originations of loans held for sale (1,337) (1,785)
Proceeds from loan sales 0 2,233
Gain on sale of loans 0 (167)
Net realized gain on available for sale securities 0 (121)
Net accretion on securities (37) (13)
(Decrease) increase in deferred loan fees (16) 31
Increase in accrued income and other assets (133) (6)
(Decrease) increase in accrued expenses and other
liabilities (8) 56
Income tax refunds received 0 12
Loss on sale of foreclosed properties 4 0
Net cash (used) provided by operating activities (1,246) 382
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in deposits with other banks 130 289
Net decrease (increase) in federal funds sold 3,750 (1,470)
Purchases of available for sale securities (1,389) (5,738)
Proceeds from sales of available for sale securities 0 5,429
Proceeds from maturities of available for sale securities 3,500 250
Proceeds from prepayments of principal on securities 14 368
Net increase in loans (1,711) (1,468)
Net purchases of premises and equipment (7) (18)
Proceeds from sale of other real estate owned 831 0
Other changes in other real estate owned, net (65) 0
Net cash provided (used) by investing activities 5,053 (2,358)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease (increase) in total deposits (1,837) 1,873
Net decrease (increase) in securities sold under
agreements to repurchase (69) 376
Net cash (used) provided by financing activities (1,906) 2,249
Net increase in cash and due from banks 1,901 273
Cash and due from banks at beginning of period 7,005 7,299
Cash and due from banks at end of period 8,906 7,572
Interest paid 737 529
Income taxes paid -- --
Loans transferred to other real estate owned 0 95
Loans transferred to loans held for sale 0 1,488
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
SUBURBAN BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying unaudited consolidated financial statements, which
include the accounts of Suburban Bancshares, Inc. (Bancshares or the Company)
and its wholly-owned subsidiaries, Suburban Bank of Virginia, N.A. (Suburban
Virginia) and Suburban Bank of Maryland (Suburban Maryland), have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
disclosures required by generally accepted accounting principles. All
adjustments which, in the opinion of management, are necessary to a fair
presentation of the results for the interim periods presented have been made;
all of these adjustments are of a normal and recurring nature. The results of
operations for the three months ended March 31, 1995 are not necessarily
indicative of results that may be expected for the entire year ending December
31, 1995.
NOTE A - ACCOUNTING POLICIES AND OTHER DATA
Reference should be made to the Notes to Consolidated Financial
Statements included in the Company's Annual Report to Shareholders for the year
ended December 31, 1994, which contain the Company's accounting policies and
other data.
NOTE B - INVESTMENT SECURITIES
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Under SFAS No. 115, the Company is required to
classify its debt and marketable equity securities in one of three categories:
trading, available for sale, or held to maturity. At the time of purchase,
management determines the appropriate designation for securities.
The following table shows the amortized cost and estimated fair
value of investment securities classified as available for sale at March 31,
1995 (in thousands):
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized Estimated Fair
Amortized Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury Notes $ 9,737 $ --- $ (101) $ 9,636
Federal Agencies 6,171 5 (66) 6,110
Mortgage-backed obligations
of federal agencies 363 2 (3) 362
Collateralized mortgage
obligations 49 --- --- 49
Other 1,304 --- (46) 1,258
Total investment securities $17,624 $ 7 $ (216) $17,415
</TABLE>
6
<PAGE> 7
The amortized cost and estimated fair value of securities in the
held to maturity classification at March 31, 1995 are shown in the schedule
which follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury Notes $ 2,888 $ --- $ (22) $ 2,866
Federal Agencies 1,946 --- (18) 1,928
Total investment securities
Held to Maturity $ 4,834 --- $ (40) $ 4,794
</TABLE>
The schedule below shows the amortized cost and estimated fair value
of investment securities classified as available for sale at December 31, 1994
(in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury Notes $12,080 --- (253) $11,827
Federal Agencies 5,913 --- (134) 5,779
Mortgage-backed obligations
of federal agencies 375 1 (10) 366
Collateralized mortgage
obligations 52 1 --- 53
Other 1,304 --- (77) 1,227
Total securities available
for sale $19,724 2 (474) $19,252
</TABLE>
The amortized cost and estimated fair value of securities in the
held to maturity classification at December 31, 1994 is shown in the schedule
which follows (in thousands):
<TABLE>
<CAPTION>
Amortized Gross Unrealized Gross Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury Notes $ 2,878 $ --- $ (96) $ 2,782
Federal Agencies 1,943 --- (71) 1,872
Total investment securities
Held to Maturity $ 4,821 --- $ (167) $ 4,654
</TABLE>
The amortized cost and estimated fair value for securities at March
31, 1995, by contractual maturity are shown in the following tables. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay certain obligations with or without call premiums
or prepayment penalties.
7
<PAGE> 8
Investment Securities Held to Maturity:
<TABLE>
<CAPTION>
Estimated
In thousands Amortized Cost Fair Value
<S> <C> <C>
Due after one year through 5 years $ 4,834 $ 4,794
Total $ 4,834 $ 4,794
</TABLE>
Investment Securities Available for Sale:
<TABLE>
<CAPTION>
Estimated Fair
In thousands Amortized Cost Value
<S> <C> <C>
Due in one year or less $ 4,539 $ 4,511
Due after one year through 5 years 12,515 12,335
Due after 5 years through 10 years -- --
Due after 10 years 49 49
Mortgage-backed securities 363 362
No set maturity 158 158
Total $17,624 $17,415
</TABLE>
Proceeds from the sale of available-for-sale securities in the three
months ended March 31, 1994, were $5,429,000 which included gross gains of
$121,000. There were no sales of securities in the first three months of 1995.
The net unrealized holding loss on available for sale securities, which is
shown as a separate component of shareholders' equity in the accompanying
Consolidated Balance Sheets, was $208,000 at March 31, 1995 and $472,000 at
December 31, 1994.
NOTE C - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995
---------------------
<S> <C>
Balance at beginning of period $ 2,750
Provision for loan losses 45
Loans charged-off (655)
Recoveries 73
---------------------
Balance at end of period $ 2,213
=====================
</TABLE>
NOTE D - NONPERFORMING ASSETS
Nonperforming assets consist of loans on which interest is no longer
accrued, real estate acquired through foreclosure or insubstance foreclosure,
and real estate on which deeds in lieu of foreclosure have been accepted.
Restructured loans are loans on which the borrower has been granted a
concession as to rate or term as a result of financial difficulty.
8
<PAGE> 9
Generally, the accrual of interest on a loan is discontinued when
the full collection of principal or interest is in doubt, or when the payment
of principal or interest has become contractually 90 days past due, unless the
obligation is both well secured and in the process of collection. Loans may be
placed on nonaccrual status when past due less than 90 days if collection
becomes uncertain based upon an evaluation of the fair value of the collateral
and the financial strength of the borrower. When a loan is placed on
nonaccrual status, interest income in the current period is reduced by the
amount of any accrued and uncollected interest. Subsequent payments are
applied as a reduction of principal when concern exists as to the ultimate
collection of principal, otherwise such payments are recognized as interest
income. Loans are removed from nonaccrual status when they have demonstrated a
period of performance and when concern no longer exists as to the
collectibility of principal or interest.
Other real estate owned has been written down to fair value less
estimated selling costs, based upon current market conditions and expected cash
flows.
The Company has no obligations to make further extensions of credit
under loans classified as troubled debt restructurings or nonaccrual at March
31, 1995 or December 31, 1994. Nonaccrual and restructured loans are
classified as loans in the accompanying Consolidated Balance Sheets.
The table below shows nonperforming assets and troubled debt
restructurings (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 2,331 $ 3,720
Other real estate owned 2,248 3,018
- --------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 4,579 $ 6,738
====================================================================================================================
Loans classified as nonaccrual but $ 708 $ 2,083
contractually current
- --------------------------------------------------------------------------------------------------------------------
Restructured loans classified as
nonaccrual 224 713
Restructured loans accruing 1,205 1,312
- --------------------------------------------------------------------------------------------------------------------
Total restructured loans $ 1,429 $ 2,025
====================================================================================================================
</TABLE>
There were no loans past due 90 days or more and still accruing at
December 31, 1994. At March 31, 1995, two loans totalling $385,000 were past
due 90 days or more, and still accruing; both of these loans are in the process
of collection.
9
<PAGE> 10
The following schedule presents a breakdown, by type of property, of
other real estate owned (in thousands):
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
------------------- -----------------------
<S> <C> <C>
Commercial land $ 671 $ 671
Residential land 1,417 1,416
Commercial property 630 1,098
Residential property,
1-4 family 213 581
------------------- -----------------------
Total 2,931 3,766
Allowance for losses (683) (748)
------------------- -----------------------
TOTAL FAIR VALUE $2,248 $3,018
=================== =======================
</TABLE>
Activity in the allowance for losses on other real estate owned for
the three months ended March 31, 1995 is as follows (in thousands):
<TABLE>
<S> <C>
Beginning balance 748
Provision for OREO losses 0
Dispositions, net (65)
Charge-offs net of recoveries 0
----
Ending balance 683
</TABLE>
NOTE E - REGULATORY MATTERS
In March, 1994, the Federal Deposit Insurance Corporation ("FDIC")
and the Bank Commissioner of the State of Maryland eliminated an Understanding
which had been in effect since 1991 with Suburban Bank of Maryland. The Bank
was subsequently reclassified as a "well capitalized" financial institution in
accordance with the provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA").
On February 6, 1991, Suburban Virginia consented to the issuance of
an order ("Order") from the Comptroller of the Currency. The Order pertains to
management and board supervision, planning measures, lending policies and
procedures, and additional systems and controls. The Order also requires
Suburban Virginia to maintain the following prescribed capital levels: total
capital at least equal to 9.25% of risk-weighted assets and Tier 1 capital at
least equal to 5% of total average assets.
Under the guidelines of FDICIA, a financial institution is
considered "well capitalized" if it has a total risk-based capital ratio of at
least 10%, a Tier 1 risk-based capital ratio of at least 6%, and a leverage
ratio of 5% or greater, and it is not subject to any written agreement, order
or directive issued by the FDIC. To be considered "adequately capitalized" an
institution must generally have a leverage
10
<PAGE> 11
ratio of at least 4%, a Tier 1 risk-based capital ratio of at least 4%, and a
total risk-based capital ratio of at least 8%.
At March 31, 1995, the Banks' capital ratios exceeded the capital
ratios prescribed by their respective regulatory agencies as shown in the chart
below. In accordance with the provisions of FDICIA, Suburban Virginia is
considered to be adequately capitalized, and Suburban Maryland is classified as
well capitalized.
<TABLE>
<CAPTION>
Suburban Suburban
Maryland Virginia
---------- ----------
<S> <C> <C>
Tier 1/Average Assets 6.53% 6.18%
Tier 1/Risk-weighted Assets 9.85% 8.75%
Total Capital/Risk-Weighted Assets 11.11% 10.07%
</TABLE>
NOTE F - SALE OF ASSETS
Suburban Bancshares, Inc. and Tysons Financial Corporation announced
on February 3, 1995 that their banking subsidiaries, Suburban Bank of Virginia,
N.A. and Tysons National Bank had entered into an agreement for Tysons to
purchase certain assets and assume the deposit liabilities of Suburban Bank of
Virginia, N.A. with Suburban Bank of Virginia, N.A. retaining certain loans
which it will continue to collect. The purchase price was established as the
book value of net assets transferred plus a $1 million premium. Under the
agreement Suburban Bank of Virginia, N.A. will transfer all deposits and its
Reston, Virginia branch to Tysons National Bank. The agreement is subject to
certain conditions including regulatory approval, which has been received, with
a closing date anticipated for mid-May 1995. Suburban Bank of Maryland is not
part of this transaction.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary provides an overview of the financial
condition, significant changes in the financial condition, and the results of
operations of Suburban Bancshares, Inc. and its subsidiaries ("Bancshares" or
the "Company") for the three months ended March 31, 1995 and 1994. Throughout
this review, the two subsidiaries of Suburban Bancshares, Inc., Suburban Bank
of Maryland ("Suburban Maryland") and Suburban Bank of Virginia, N.A.
("Suburban Virginia"), are collectively referred to as the "Banks". This
discussion should assist readers in their analysis of the consolidated
financial statements and supplemental financial information which appear
elsewhere in this report.
OVERVIEW
Suburban Bancshares, Inc. reported total assets of $112.8 million at
March 31, 1995, a $1.4 million, or 1.3%, decrease from $114.2 million at
December 31, 1994. Loans increased from $66.6 million at December 31, 1994 to
$69.1 million at March 31, 1995, a $2.5 million, or 3.7%, increase.
Average assets rose to $107.3 million for the first three months of
1995, an $8.3 million, or 8.4%, increase from average assets of $99.0 million
in the first three months of 1994. Average loans rose to $66.9 million in the
first quarter of 1995, $8.8 million or 15.1% above the $58.1 million in average
loans in the first quarter of 1994.
The Company reported a profit of $168,000 for the three months
ending March 31, 1995, a marked improvement over the $62,000 loss in the same
period of 1994. Increasing loan volume and improving loan quality resulted in
significantly higher net interest income, the primary contributor to the profit
improvement.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is defined as the difference between income on
assets and the cost of funds supporting those assets. Earning assets are
composed primarily of loans and investments while deposits and short-term
borrowings, in the form of securities sold under repurchase agreements,
represent interest-bearing liabilities. Noninterest bearing checking deposits
are another component of funding sources. Variations in the volume and mix of
these assets and liabilities, as well as changes in the yields earned and rates
paid, are determinants in changes in net interest income.
Net interest income increased $384,000 or 39.3%, to $1,362,000 in
the first three months of 1995 from $978,000 in the same period of 1994. This
increase was the result of higher volume, higher rates and changes in the
composition of earning assets and funding sources.
The net interest margin represents the Company's net yield on its
earning assets and is calculated as net interest income divided by
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<PAGE> 13
average earning assets. In the first three months of 1995, the net interest
margin was 5.61%, rising 113 basis points from 4.48% in the same period of
1994, a result of the change in the mix of earning assets and higher rates.
Changes in the volume of earning assets and interest bearing funds
impact both interest income and interest expense. In the first quarter of
1995, growth of earning assets was a primary factor in producing higher
interest income; an increase in funding sources, however, did not result in an
equivalent increase in interest expense. Average earning assets rose $9.9
million, or 11.2%, from $88.5 million in 1994 to $98.5 million in 1995; as a
percent of average total assets, earning assets increased to 91.8% in the first
quarter of 1995, from 89.4% in 1994. Average interest bearing liabilities, on
the other hand, increased only $6.1 million, or 8.6%, reaching $76.6 million in
the first three months of 1995 from $70.5 million in the same period of 1994.
Changes in the mix of earning assets were key determinants of the
change in net interest income in the first quarter of 1995 as compared to the
same period in 1994. The mix of funding sources remained fairly stable.
During 1995, average loans were 67.9% of average earning assets, rising 2.3
percentage points from 65.6% in 1994; average investment securities and Federal
funds sold fell correspondingly, to 32.1% of average earning assets in the
first quarter of 1995 from 34.4% in 1994. This increased volume of loans,
which earn higher yields than bank investments, resulted in substantially
higher interest income.
Shifts in the interest rate environment impacted the margin
significantly. In 1994, interest rates rose throughout the year and continued
into early 1995, as the Federal Reserve attempted to keep inflation under
control. Loan yields rose 165 basis points on average, from 8.25% in the first
three months of 1994 to 9.90% in 1995, as national prime rates, on which most
loans are priced, increased significantly. The yield produced by Federal funds
sold and deposits with other banks rose 263 basis points, from 3.22% in the
first quarter of 1994 to 5.85% in 1995. As the yields on earning assets rose,
the cost of funds followed, though at a slower pace, creating a wider spread
between the income earned on assets and the cost to fund those assets. The net
interest spread (the difference between the earning asset yield and the cost of
funds) rose to 5.59% in the first quarter of 1995 from 4.52% in the same period
of 1994.
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<PAGE> 14
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AVERAGE BALANCES AND NET INTEREST EARNING ANALYSIS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995 1994
ASSETS AVERAGE AVERAGE
AVERAGE YIELD AVERAGE YIELD
BALANCE INTEREST OR RATE BALANCE INTEREST OR RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
LOANS $ 66,870 $1,632 9.90% $58,112 $1,182 8.25%
INVESTMENT SECURITIES 23,084 344 6.04% 12,496 181 5.88%
FED FUNDS SOLD & OTHER DEPOSITS 8,524 123 5.85% 17,924 142 3.22%
TOTAL INTEREST EARNING ASSETS 98,478 2,099 8.64% 88,532 1,505 6.90%
NON-INTEREST EARNING ASSETS:
CASH AND DUE FROM BANKS 5,945 6,567
BANK PROPERTY AND EQUIPMENT 1,138 1,238
OTHER ASSETS 4,356 5,220
LESS: ALLOWANCE FOR LOAN LOSSES (2,619) (2,545)
TOTAL NON-INTEREST EARNING ASSETS 8,820 10,480
TOTAL ASSETS $107,298 $99,012
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
CHECKING, MONEY MARKET & SAVINGS 50,215 405 3.27% $46,528 $ 276 2.41%
TIME DEPOSITS 25,995 327 5.10% 23,526 248 4.27%
OTHER BORROWINGS 418 5 4.77% 505 3 2.48%
TOTAL INTEREST-BEARING LIABILITIES 76,628 737 3.90% 70,559 527 3.03%
NON-INTEREST BEARING LIABILITIES:
NON-INTEREST BEARING DEPOSITS 21,186 19,450
TOTAL FUNDING SOURCES 97,814 737 3.05% 90,009 527 2.38%
OTHER LIABILITIES 655 717
TOTAL LIABILITIES 98,469 90,726
SHAREHOLDERS' EQUITY 8,829 8,286
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $107,298 $99,012
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $1,362 $ 978
NET INTEREST SPREAD 5.59% 4.52%
NET INTEREST INCOME AS A % OF
AVERAGE EARNING ASSETS 5.61% 4.48%
</TABLE>
14
<PAGE> 15
PROVISION FOR LOAN LOSSES
The provision for loan losses is the annual cost of maintaining an
allowance or reserve for anticipated future losses on loans. The allowance for
loan losses reflects management's judgment as to the level considered
appropriate to absorb such losses and is based upon a review of many factors,
including historical loss experience, economic conditions and trends, loan
portfolio volume and mix, loan performance trends, the value and adequacy of
collateral, and the Company's internal credit review process. Based on this
ongoing evaluation, management determines the provision expense necessary to
maintain an appropriate allowance.
The provision for loan losses for the first three months of 1995 was
$45,000, a decrease from the provision of $100,000 set aside for the same
period of 1994. The lower provision is the result of an improved general
economy and steadily improving loan quality. Nonaccruing loans fell $1.4
million, or 37.3%, to $2.3 million from $3.7 million at March 31, 1995 and
1994, respectively. As the quality of the loan portfolio improved, the reserve
requirement abated and, therefore, the addition to the reserves through the
provision was reduced.
NONINTEREST INCOME
Noninterest income decreased $140,000, or 45.7%, in the first three
months of 1995 to $166,000 from $306,000 in the same period of 1994. In 1994,
a gain of $121,000 was realized from the sale of available for sale securities;
no sales of securities were transacted in 1995. Fee income declined $15,000 as
the earnings credit for deposit accounts increased, offsetting a larger amount
of service charges.
NONINTEREST EXPENSES
Noninterest expenses increased slightly in the first three months of
1995 as compared to the same period of 1994, from $1,246,000 to $1,315,000, an
increase of $69,000 or 5.5%. Salaries and benefits increased $29,000 or 5.1%,
the result of merit increases in 1994.
Other expenses rose $48,000, or 10.4%, when comparing the first
three months of 1995 to 1994, primarily due to higher expenses connected with
the maintenance of and the disposal of other real estate owned and the
write-off of a $21,000 check fraud.
ASSET QUALITY
NONPERFORMING ASSETS
Nonperforming assets are loans on nonaccrual status and real estate
acquired through foreclosure, deed in lieu of foreclosure or insubstance
foreclosure. Troubled debt restructurings are loans which contain concessions
as to rate or term, or both.
15
<PAGE> 16
At March 31, 1995, nonperforming assets were $4.6 million, a
substantial decrease of $2.2 million or 32.0%, from $6.7 million at December
31, 1994. Nonaccrual loans were $2.3 million and $3.7 million at March 31,
1995 and December 31, 1994, respectively. Of the amount on nonaccrual status
on those dates, approximately $708,000 and $2.1 million, respectively, were not
contractually past due as to principal or interest. Other real estate owned
decreased $770,000, or 25.5%, in the first three months of 1995 to $2,248,000
from $3,018,000 at December 31, 1994.
Troubled debt restructurings were $1.4 million at March 31, 1995,
and $2.0 million at December 31, 1994, a decrease of approximately $596,000, or
29.4%, the result of principal paydowns.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that
management believes is adequate to absorb the losses on existing loans, based
upon their evaluation of many factors, including actual credit losses during
the period, loan performance measures and trends, volume and mix of loans
within the portfolio, and other internal and external factors which may affect
the quality and loss experience within the portfolio.
The allowance at March 31, 1995 was $2,213,000, a decrease of
$537,000 from $2,750,000 at December 31, 1994. Activity in the allowance for
loan losses for the first three months of 1995 included a provision of $45,000,
charge-offs of $655,000 and recoveries of $73,000. As a percentage of total
loans, the allowance was 3.2% and 4.1% at March 31, 1995 and December 31, 1994,
respectively.
Based on current expectations relative to loan portfolio performance
and loss projections, management believes that the level of the allowance for
loan losses is adequate. Internal loan review procedures will continue to be
utilized by the Company in order to insure that potential problem loans are
identified early, thereby lessening any negative impact on the allowance and/or
earnings. In addition, the special assets group will continue to focus on
further reductions of nonperforming assets.
LIQUIDITY MANAGEMENT
Liquidity is the ability to generate and maintain sufficient cash
flows to fund operations and to meet financial obligations to depositors and
borrowers promptly and in a cost-effective manner. Asset liquidity is provided
primarily by maturing loans and investments and by cash received from
operations. Other sources of asset liquidity include readily marketable assets
that can serve as collateral for borrowings, and sales of loans and other real
estate. On the liability side of the balance sheet, liquidity is affected by
the timing of maturing liabilities and the ability to generate new deposits or
borrowings as needed.
16
<PAGE> 17
In the first quarter of 1995, the Company's liquidity position
changed somewhat as loan volume increased and marketable securities declined;
however, the impact has not been significant since over half of the growth in
loans was in loans held for sale, which are readily marketable assets. As a
percentage of total earning assets, loans, excluding loans held for sale, rose
to 64.9% at March 31, 1995 from 61.8% at December 31, 1994, while marketable
securities, overnight investments and loans held for sale fell to 35.1% from
38.2%, respectively. This shift in the mix of earning assets to a lower
percentage of readily marketable assets has reduced the Company's overall
liquidity slightly.
A typically stable source of liquidity is the core deposit base.
Core deposits are normally noninterest checking accounts, interest checking and
money market accounts, and savings accounts. The stability of these core
deposits is reflected in the ratio of these deposits to total funding sources,
which averaged 73.0% in the first quarter of 1995 and 73.3% in 1994. Time
deposits under $100,000, which are also considered to be stable funding
sources, were 23.2% of funding sources in the first three months of 1995 and
21.5% in 1994. Additional funding is generated from short-term borrowings
(securities sold under repurchase agreements) and large CDs. These funds,
which are considered to be volatile or rate sensitive, even though they are
provided by local customers, have decreased as a percentage of average total
funding sources from 5.2% in the first quarter of 1994 to 3.8% in 1995.
Other sources of liquidity and cash flow in the first three months
of 1994 were from the sales of available for sale securities which generated
proceeds of $5.4 million and the sales of SBA loans in the secondary market,
generating cash inflow of $2.2 million. The proceeds from these sales were
reinvested in similar liquid instruments. In the first quarter of 1995, no
loans or securities were sold; however, sales of properties obtained through
foreclosure generated cash of $831,000 and maturing securities provided cash
inflow of $3.5 million.
Further, $11 million of reverse repurchase lines of credit are
currently maintained by the Banks as an additional source of short-term
liquidity. All of the Banks' correspondents meet regulatory capital
requirements for adequately or well capitalized financial institutions, thereby
minimizing the risk that might be associated with this level of interbank
exposure. The Banks have not needed to utilize these backup lines as
internally generated liquidity has provided sufficient resources.
CAPITAL RESOURCES AND ADEQUACY
Shareholders' equity increased $446,000, or 5.2%, from $8,587,000 at
December 31, 1994 to $9,033,000 at March 31, 1995. The increase was a
combination of earnings of $168,000 for the quarter and improvement in the
estimated fair value of the available for sale securities of $264,000. The
unrealized loss on available for sale securities, which
17
<PAGE> 18
is recorded as a reduction of shareholders' equity, was $472,000 at December
31, 1994 and declined to $208,000 at March 31, 1995.
One measure of capital adequacy is the ratio of regulatory capital
to risk-adjusted assets. Total capital is composed of both core capital (Tier
1) and supplemental capital (Tier 2). The Banks' Tier 1 capital consists of
common equity and Tier 2, of a qualifying portion of the allowance for loan
losses. Assets, both on- and off- balance sheet items, are weighted according
to the underlying risk associated with the item and are assigned a risk
weighting ranging from 0 to 100%. Banks are expected to meet a minimum ratio
of total qualifying capital to risk-weighted assets of 8%, with at least half
of that percentage (4%) in the form of core capital. This minimum capital
requirement applies to each of the Company's bank subsidiaries and will apply
to Bancshares at such time as its total assets reach $150 million. At March
31, 1995, Suburban Maryland reported at Tier 1 risk-based capital ratio of
9.85% and a ratio of 11.11% based on total capital. Suburban Virginia's
risk-based ratios at March 31, 1995, were 8.75% for Tier 1 capital and 10.07%
for total capital. Both Banks' ratios were well above the regulatory minimums
of 4% and 8%, respectively, and above the higher regulatory minimum required of
Suburban Virginia (see Note E).
Other capital adequacy measures are the leverage capital ratio and
the tangible equity ratio. These ratios are calculated by dividing average
total assets for the most recent quarter into core capital (Tier 1) for the
leverage ratio or into tangible capital (core capital less goodwill) for the
tangible equity ratio. The Banks' core capital and tangible capital are the
same. The regulatory minimum for these ratios is 3%, with most banks required
to maintain a ratio of at least 4% to 5%, depending upon risk profiles and
other factors. At March 31, 1995, the Tier 1 and tangible capital ratios for
Suburban Maryland were 6.53% and for Suburban Virginia, 6.18%. Both Banks
exceeded the regulatory minimum and also the higher minimum ratio required by
the Suburban Virginia's regulatory agreement (see Note E to the Consolidated
Financial Statements).
A combination of the leverage ratio and the risk-based capital ratio
is used to categorize banks as well-capitalized, adequately-capitalized, or
under-capitalized financial institutions under the guidelines of FDICIA. A
financial institution is considered "well capitalized" if it has a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of
at least 6%, and a leverage ratio of 5% or greater, and it is not subject to
any written agreement, order or directive. To be considered "adequately
capitalized", an institution must generally have a leverage ratio of at least
4% and a total risk-based capital ratio of at least 8%. At March 31, 1995,
Suburban Virginia was considered to be in the "adequately capitalized" category
and, Suburban Maryland was in the "well capitalized" category.
Transferrable warrants to purchase 2,014,705 shares of common stock
at $1.00 per share were issued in conjunction with the stock offering in 1993.
These warrants were exercisable during two windows in 1994, in
18
<PAGE> 19
which 53,090 shares were issued. The remaining warrants expire on December 15,
1995 and may be exercised from April 15 to May 15 and from November 15 to
December 15 in 1995.
SALE OF ASSETS
Suburban Bancshares, Inc. and Tysons Financial Corporation announced
on February 3, 1995 that their banking subsidiaries, Suburban Bank of Virginia,
N.A. and Tysons National Bank had entered into an agreement for Tysons to
purchase certain assets and assume the deposit liabilities of Suburban Bank of
Virginia, N.A. with Suburban Bank of Virginia, N.A. retaining certain loans
which it will continue to collect. The purchase price was established as the
book value of net assets transferred plus a $1 million premium. Under the
agreement Suburban Bank of Virginia, N.A. will transfer all deposits and its
Reston, Virginia branch to Tysons National Bank. The agreement is subject to
certain conditions including regulatory approval, which has been received, with
a closing date anticipated for mid-May 1995. Suburban Bank of Maryland is not
part of this transaction.
19
<PAGE> 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this report.
<TABLE>
<CAPTION>
Exhibit # Description
--------- -----------
<S> <C>
11.0 Computation of per share earnings (loss)
27.0 Financial Data Schedule
</TABLE>
(b) One report on Form 8K was filed on February 3, 1995 relating
to the agreement for Tysons National Bank to purchase certain
assets and assume the deposit liabilities of Suburban Bank of
Virginia, N.A.
20
<PAGE> 21
PART II. OTHER INFORMATION (continued)
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUBURBAN BANCSHARES, INC.
(Registrant)
Date: 5/9/95 William R. Johnson
-----------------------------
William R. Johnson President
and Chief Operating Officer
Date: 5/9/95 Sibyl S. Malatras
-----------------------------
Sibyl S. Malatras Senior Vice
President and Treasurer
(Principal Financial Officer)
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
11.0 Computation of per share earnings (loss)
27.0 Financial Data Schedule
</TABLE>
<PAGE> 1
SUBURBAN BANCSHARES, INC.
EARNINGS PER SHARE CALCULATION EXHIBIT 11
MARCH 31, 1995 Page 1
STOCK PRICES - Closing Bid
<TABLE>
<CAPTION>
Daily End of
Average Quarter
<S> <C> <C>
First quarter 1995 1.34 1.25
For Warrants exercised: None in 1Q 1995
</TABLE>
20% TEST
<TABLE>
<CAPTION>
# of Shares (1) 20%
<S> <C> <C>
First quarter 1994 9,054,459 1,810,892
</TABLE>
EQUIVALENT SHARES - Description
(A) WARRANTS - 2,014,705 outstanding at January 1, 1994
exercisable at $1.00 per share April 15 - May 15
and November 15 - Dec 15 in 1994 and 1995
- 28,105 exercised and issued 5/20/94
- 1,400 exercised and issued 6/20/94
- 23,585 exercised and issued 12/15/94
(B) OPTIONS - 350,000 exercisable at $0.10 per share when
Company attains a net income of $500,000 (i.e.
contingent shares)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
First quarter 1994: 9,054,459 for 90 days = 9,054,459
Weighted average common shares outstanding year-to-date 9,054,459
INCREMENTAL SHARE CALCULATIONS
(A) WARRANTS
WEIGHTED AVERAGE WARRANTS OUTSTANDING
First Qtr 1994: 1,961,615 for 90 days = 1,961,615
INCREMENTAL SHARES (1)
<TABLE>
<S> <C>
Common and equivalent shares (primary) 497,723
Fully diluted 392,323
</TABLE>
-------------------------------
(1) Calculation of incremental shares: (a) average market price
primary = ((a-b)/a)*d (b) exercise price
fully diluted = ((c-b)/c)*d (c) market price at end of
period
(d) weighted average
common stock equivalent
shares
<PAGE> 2
SUBURBAN BANCSHARES, INC.
EARNINGS PER SHARE CALCULATION EXHIBIT 11
MARCH 31, 1995 Page 2
EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
1995
COMMON AND EQUIVALENT SHARES (PRIMARY) 1QTR95 YEAR-TO-DATE
<S> <C> <C>
EARNINGS 167,935 167,935
SHARES & EQUIVALENT SHARES
Common Shares 9,054,459 9,054,459
Incremental Shares
Warrants 497,723 497,723
--------- ---------
TOTAL 9,552,182 9,552,182
EPS 0.017581 0.017581
FULLY DILUTED
EARNINGS 167,935 167,935
ADD: Additional income required if
maximum contingent shares are
issued 332,065 332,065
---------- ---------
TOTAL 500,000 500,000
SHARES & EQUIVALENT SHARES
Common Shares 9,054,459 9,054,459
Contingent shares issues (Options) 350,000 350,000
Incremental Shares
Warrants 392,323 392,323
---------- ---------
TOTAL 9,796,782 9,796,782
EPS 0.051037 0.051037
</TABLE>
The above calculation assuming maximum contingent shares are
issued for full dilution is antidilutive. Therefore, the calculation
below is used for fully diluted common and common equivalent shares.
<TABLE>
<S> <C> <C>
EARNINGS 167,935 167,935
SHARES & EQUIVALENT SHARES
Common Shares 9,054,459 9,054,459
Incremental Shares
Warrants 392,323 392,323
--------- ---------
TOTAL 9,446,782 9,446,782
EPS 0.017777 0.017777
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-13-1995
<CASH> 8,906
<INT-BEARING-DEPOSITS> 115
<FED-FUNDS-SOLD> 9,810
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 4,834
<INVESTMENTS-MARKET> 17,415
<LOANS> 69,051
<ALLOWANCE> 2,213
<TOTAL-ASSETS> 112,761
<DEPOSITS> 102,565
<SHORT-TERM> 622
<LIABILITIES-OTHER> 541
<LONG-TERM> 0
<COMMON> 91
0
0
<OTHER-SE> 8,942
<TOTAL-LIABILITIES-AND-EQUITY> 112,761
<INTEREST-LOAN> 1,632
<INTEREST-INVEST> 344
<INTEREST-OTHER> 123
<INTEREST-TOTAL> 2,099
<INTEREST-DEPOSIT> 732
<INTEREST-EXPENSE> 737
<INTEREST-INCOME-NET> 1,362
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,315
<INCOME-PRETAX> 168
<INCOME-PRE-EXTRAORDINARY> 168
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
<YIELD-ACTUAL> 5.61
<LOANS-NON> 2,331
<LOANS-PAST> 385
<LOANS-TROUBLED> 1,429
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,750
<CHARGE-OFFS> 655
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 2,213
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
